COUNCIL OPINION of 1 December 1998 on the stability programme of the Netherlands 1999-2002
Date: 1998-12-01
Institutions: Council of the European Union
Subjects: Netherlands, budget policy, coordination of EMU policies, economic convergence, economic reform, government programme

C  3/2

EN

Official  Journal  of  the  European  Communities

6.1.1999

Council  welcomes  the  envisaged  further  reduction  of  the
gross  debt  ratio  to  below  40(cid:216)%  of  GDP  by  2005.  The
Council  notes  with  satisfaction  that  the  reduction  in  the
gross  debt  ratio  will  be  brought  about  by  significant
surpluses  in  the  primary  balance.

The  Council  notes  with  satisfaction  that  the  current
underlying  budgetary  position  of  Denmark  is  already
consistent  with  the  requirements  of  the  Stability  and
further
programme 
Growth  Pact.  The 
improvements 
thereby
the  government 
widening  the  safety  margin,  thus  allowing  room  for  the
operation  of  the  fairly  large  Danish  automatic  stabilizers.

foresees 
surplus, 

in 

Denmark’s  non(cid:220)participation 
might  indeed  call  for  such  a  wider  safety  margin.

the 

single  currency

in 

The  Council  welcomes  the  structural  reforms  included  in
the  programme.  The  tax  reform,  which  will  be  imple(cid:220)
mented  in  the  1999(cid:220)2002  period,  should  increase  private
savings  and  diminish  distortions 
in  the  present  tax
system.  Labour  market  reform,  already  proposed  by  the
government,  will  be  essential  for  further  improving  the
labour  market.  The  Council
functioning  of 
encourages 
further
to 
measures  if  the  proposed  reforms  should  turn  out  to  be
insufficient.

the  Danish  government 

take 

the 

COUNCIL  OPINION

of  1  December  1998

on  the  stability  programme  of  the  Netherlands  1999(cid:220)2002

(1999/C  3/02)

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  coordi(cid:220)
nation  of  economic  policies(cid:216)(˛),  and  in  particular  Article
5(1)  and  (2)  thereof,

Having 
Commission,

regard 

to 

the 

recommendation  of 

the

After  consulting  the  Monetary  Committee,

HAS  DELIVERED  THIS  OPINION:

On  1  December  1998,  the  Council  examined  the  stability
programme  of  the  Netherlands,  which  covers  the  period
1999(cid:220)2002.  The  Council  notes  that  the  programme  builds
on  the  significant  progress  towards  fiscal  consolidation

(˛)(cid:217)OJ  L  209,  2.8.1997,  p.  1.

in  the  four  preceding  years  and  aims  at
achieved 
reducing  further  the  general  government  deficit  and  the
debt  GDP  ratio.

scenario 

The  stability  programme  presents  three  macroeconomic
scenarios  for  the  period  1999(cid:220)2002.  For  reasons  of
prudence  the  programme  takes  as  a  basis  for  the
projections  of  the  general  government  aggregates  a
cautious  macroeconomic 
forecasting  GDP
growth  rates  of  2,25(cid:216)%  per  year.  Such  a  scenario
assumes  a  significant  slowdown 
in  economic  activity
from  its  current  levels  due,  mainly,  to  a  fall  in  external
demand.  It  is  under  this  scenario  that  the  government
deficit  is  projected  to  decline  to  around  1(cid:216)%  of  GDP  in
2002.  This  will  be  the  result  of  an  extension  of  the
double(cid:220)handed  approach,  consisting  of  reducing 
the
government  deficit  and  the  tax  burden  followed  during
the  period  1994(cid:220)1998,  covered  by  the  second  Dutch
the  Council
programme.  Moreover, 
convergence 
considers  that  the  stability  programme  is  consistent  with
the  Broad  Economic  Policy  Guidelines.

The  Council  acknowledges  that  the  Dutch  authorities
adopted  a  cautious  scenario  for  their  budget  policy  and
therefore  for  the  stability  programme  in  order  to  be  on  a
sound  position.  The  middle  scenario  of  the  stability
programme  which  is  based  on  an  annual  GDP  growth
rate  of  2,75(cid:216)%,  and  which  reflects  past  trends,  brings  the
projected  government  deficit  close  to  balance.  Finally  the
stability  programme  presents  a  more  favourable  scenario

6.1.1999

EN

Official  Journal  of  the  European  Communities

C  3/3

based  on  a  3,25(cid:216)%  annual  growth  rate  under  which  the
government  financial  balance  turns  slightly  positive.

to  achieve  better  budgetary  results  since  this  would
further  reinforce  the  safety  margin.

The  Council  commends  the  presentation  of  alternative
projections  for  government  financial  balances  based  on
different  assumptions  of  economic  growth  and 
the
prudence  shown  by  the  Dutch  authorities  in  opting  for  a
cautious  scenario.  It  considers,  however,  that  the  fiscal
consolidation  effort  in  the  programme  appears  to  be  less
ambitious  when  compared  with  the  progress  made  in  this
area  until  1997  and  regrets  that  in  1998  the  government
deficit  widened  despite  high  economic  growth.

The  Council  notes  that  the  projected  pattern  of  fiscal
adjustment  is  related  to  the  option  of  a  reduction  of  the
tax  burden  as  well  as  the  increased  expenditure  aimed  at
the  structural  improvement  of  the  economy.  Although
this  option  is  understandable  it  leads,  under  the  cautious
scenario,  to  a  modest  annual  reduction  of  the  deficit
amounting  to  0,1(cid:216)%  of  GDP  which,  however,  represents
a  more  pronounced  reduction  of  the  structural  deficit.
Even  though  the  underlying  budgetary  position  implicit
in  the  projected  deficit  of  1(cid:216)%  of  GDP  in  2002,  under
the  cautious  scenario,  provides  some  safety  margin  to
prevent  the  deficit  from  breaching  the  3(cid:216)%  of  GDP
threshold,  the  Council  encourages  the  Dutch  authorities

if  necessary,  namely 

The  Council  is  confident  that  the  Dutch  authorities  will
closely  monitor  developments  in  the  fiscal  situation  and
will  take  corrective  measures 
if
growth  will  be  lower  than  2,25(cid:216)%  per  year.  The  Council
warmly  welcomes 
the
the  norm 
programme  to  limit  growth  of  government  expenditure.
It  takes  note  of  the  intention  of  the  Dutch  authorities  to
allocate  the  benefits  of  growth  higher  than  the  cautious
assumption  between  further  reduction  of  the  deficit  and
tax  cuts;  the  Council  invites  the  Dutch  authorities  to  do
it  in  a  way  that  contributes  to  strengthen  the  budgetary
position  of  the  Netherlands.

established 

in 

The  Council  notes  that  the  positive  results  of  the
previous  programme  had  much  to  do  with  the  imple(cid:220)
mented  structural  reforms  in  particular  those  geared  to
improving  the  functioning  of  the  labour  markets.  In  this
respect,  the  Council  welcomes  the  continued  attention
for  economic  reform  in  the  programme,  such  as  the
plans  for  tax  reform  and  the  increased  emphasis  on
education  and 
the  ceilings  for
infrastructure  within 
government  expenditure.