Council opinion

of 27 November 2000

on the updated stability programme of the Netherlands for the period 1999-2004

(2000/C 376/01)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 27 November 2000, the Council examined the Netherlands' updated stability programme, which covers the period 1999-2004. The Council welcomes the presentation of the update of the stability programme shortly after the presentation of the budget, as was recommended in the Council Opinion of 31 January 2000 on the updated stability programme of the Netherlands, 1999 to 2002(2), so that it reflects the most recent economic data and forecasts.

Macroeconomic developments proved significantly better in the Netherlands than was expected in the 1999 updated stability programme. As a result, the general government balance in both 1999 and 2000 improved significantly to a surplus of 1 % of GDP in both years as against a deficit of 0,6 % of GDP projected in the 1999 update. The general government debt ratio to GDP is expected to fall to 56,6 % in 2000, below the 60 % reference value. Real GDP growth will continue to be dynamic in 2001, but, as a result of the fiscal reform to be implemented in that year, the government surplus is estimated to be reduced to 0,7 % of GDP; however, the government debt ratio should be further reduced to 52,3 % of GDP. The Council notes that the period 2002 to 2004 incorporates two years, 2003 and 2004, which are beyond the term of the present government and that the estimates for the period 2002 to 2004 are technical projections, within two macroeconomic scenarios, under the assumption of unchanged policies from 2002 onwards.

The Council considers that, taking into account current strong economic prospects for the Dutch economy in the next two years, the favourable scenario provides an appropriate basis for the assessment of the budgetary position in the medium term. The Council considers that the programme fulfils the requirements of the Stability and Growth Pact.

The Council welcomes the fiscal reform which will be implemented in 2001 and which aims at reducing the tax burden and at fostering labour supply by reducing the replacement rate. However, the structural deficit deteriorates in 2001. The Council notes that inflationary pressures are emerging in the present phase of strong economic growth; it considers that such pressures might strengthen next year and in 2002, under the impact of reductions in personal income taxes and of possible further tax alleviation in 2002. In view of these risks, the Council encourages the Dutch Government to ensure that the stance of fiscal policy will be firmly oriented to limiting inflationary pressures; to this end, it urges the government to allocate budgetary margins taking due consideration of cyclical conditions, in particular in 2002, and to maintain strict control of government expenditure. The Council recommends that these considerations should also prevail, taking account of macroeconomic developments, when the Dutch Government shapes the budgetary policies in 2003 and 2004. Given the buoyant increase in disposable income in 2001, the Council considers that a moderate outcome of the current wage negotiations will be crucial in this respect.

The Council commends the emphasis given in the updated stability programme to structural improvement in the economy by the reorientation of government spending towards longer term objectives in priority areas, such as education, healthcare and investments in infrastructures; it notes with satisfaction that such a shift in spending is implemented without prejudice to the respect of the ceilings in real terms imposed on expenditure. The Council welcomes the consideration given in the updated stability programme to long-term sustainability of public finances in view of the impact of the ageing population. It considers that this analysis would justify using much of the margin likely to become available from 2002 for accelerated debt reduction. The Council considers that the 2000 update of the stability programme is consistent with the broad economic policy guidelines.

(1) OJ L 209, 2.8.1997, p. 1.

(2) OJ C 60, 2.3.2000, p. 1.