Council opinion of 10 February 2004 on the updated stability programme of the Netherlands, 2001-2007
Date: 2004-02-10
Institutions: Council of the European Union
Subjects: Netherlands, stability programme

C 43/2

EN

Official Journal of the European Union

19.2.2004

is projected to decline over

The debt ratio, which in 2003 fell more than assumed in the
programme,
the programme
period,
from 106 % of GDP in 2003 to 98,6 % in 2007.
This evolution is less ambitious than was foreseen in the
previous update. The evolution of the debt ratio may be less
to the deficit
favourable than projected, given the risks
outcomes mentioned above,
expected
and the
proceeds
from the privatisation programme. Concern is
expressed about the pace of debt reduction, so every oppor-
tunity should be taken by the Italian authorities to accelerate its
pace.

level of

On the basis of current policies, risks of budgetary imbalances
emerging in the future due to an ageing population cannot be
ruled out. Securing an adequate primary surplus is essential if
the debt
to make a noticeable contribution
towards meeting the costs of ageing. This should be comple-
mented by measures to raise employment rates, especially
among older workers and women, and control the evolution
of age-related spending. The plans to reform the pension

reduction is

system unveiled in late 2003, if implemented, would make a
substantial contribution to achieve these objectives. A further
postponement in the implementation of the draft legislation on
pension reform is not consistent with the pursuit of a sustain-
ability-oriented fiscal strategy.

The economic policies as reflected in the updated programme
are partly consistent with the recommendations of the Broad
Economic Policy Guidelines, specifically those with budgetary
implications, including the request to improve the cyclically-
adjusted budget position by at least 0,5 % of GDP each year as
calculated according to the commonly agreed methodology.
Risks persist on the planned
replacement of one-off
measures, the implementation of structural expenditure cuts
and the pace of reduction in the debt ratio. Finally,
the
timely implementation of the government draft legislation on
pension reform is essential in order to dampen the projected
increase in the ratio of pension expenditure to GDP over the
next twenty years.

COUNCIL OPINION

of 10 February 2004

on the updated stability programme of the Netherlands, 2001-2007

(2004/C 43/02)

THE COUNCIL OF THE EUROPEAN UNION,

the
content
programmes.

and format of

stability

and convergence

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 co-ordination 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 10 February 2004 the Council examined the 2003 update
of the stability programme of the Netherlands, which covers
the period 2001 to 2007. The updated programme complies
with the data requirements of the revised ‘code of conduct’ on

(1) OJ L 209, 2.8.1997.

The budgetary strategy underlying the update is based on
keeping real expenditure below predetermined ceilings over
the period 2004-2007, while at
the same time pursuing
significant
savings measures. Measures are frontloaded in
2004 and 2005 and for a large part consist of expenditure
cuts. In the strategy, expenditure windfalls can no longer be
used for automatic expenditure increases. Automatic stabilisers
on the revenue side of the budget should be allowed to work
freely as much as possible, except that an increase of the deficit
that would imply a violation of the Stability and Growth Pact
has to be countered by additional savings measures.

The update projects real GDP growth at 0 % in 2003, from
0,2 % in 2002. In 2004 growth is estimated to pick up to 1 %,
whereas it would average 2,5 % in 2005-2007. Employment
growth is expected to be – 0,5 % in 2004 and to increase to
slightly above 1 % on average in 2005-2007. HICP inflation is
forecast to remain stable at 1,5 % in 2004-2007. Currently
available information indicates that the macroeconomic devel-
opments in 2003 are less favourable than expected at the time
of the submission of the programme, and much in line with
the Commission Autumn 2003 forecast. Some downside risks
were noted to the Dutch projections for 2004.

19.2.2004

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Official Journal of the European Union

C 43/3

The programme encompasses a substantial package of net
savings, covering the period 2004-2007. However, in view of
the sharp deceleration in economic activity the actual deficit is
expected to rise in spite of the size of the measures taken. The
programme targets a general government deficit of 2,3 % of
GDP in 2004, the same as the expected deficit in 2003 despite
substantial measures aimed at limiting the deficit increase, in
line with the Council
recommendations on the previous
stability programme update. Total consolidation measures in
the period 2003-2007 add up to around 3 % of GDP by
2007. Owing to this substantial package the nominal deficit
is expected to fall to 1,6, 0,9 and 0,6 % of GDP in 2005, 2006
and 2007 respectively. In cyclically-adjusted terms, based on
Commission calculations according to the commonly agreed
the update incorporates an improvement of
methodology,
around 0,8 percentage points
in 2003 and targets an
improvement of 0,6 percentage points in 2004 resulting in a
deficit of 0,7 % of GDP in 2004. The cyclically adjusted deficit
is expected to fall further to 0,5 % of GDP or slightly below in
each of the years 2005 to 2007.

The update expects the debt ratio to rise slightly to 54,5 % of
GDP in 2004, before falling to around 52 % by 2007.

However, on the basis of currently available information, the
projections on the actual budget balance appear less favourable
than when the programme was submitted judging from the
Commission Autumn forecast. For 2003, this is confirmed by
the release of a preliminary estimate of the deficit for 2003 of
2,7 % of GDP by the Ministry of Finance on 14 January 2004.
Because of the worse starting point, a higher nominal deficit
than forecast in the programme also seems likely in 2004 and
possibly in subsequent years. Moreover, under more adverse
economic circumstances, the 3 % of GDP threshold may be
it is noted, however, that budget
breached.

In this respect,

that

suggests

rules as laid down in the Coalition Agreement are such that
measures will be taken should the actual deficit come close to
3 % of GDP. Notwithstanding the downside risks to the
the Commission Autumn
nominal budgetary projections,
in the
forecast
cyclically adjusted deficit, reaching a position close to balance
from 2005 onwards, may still be achieved. Thus, the eventual
achievement of medium-term position close to balance should
be sufficiently established by the programme. Finally,
is
noted that the Dutch programme maintains a high level of
public investment of about 3,3 % of GDP throughout
the
programme period.

the planned improvement

it

For the period up to 2005, the update expects a somewhat
ratio than the Commission Autumn forecast.
lower debt
Reaching a position of close to balance also reflects the
Dutch government's firm commitment to achieve long term
sustainability of public finances through reducing the debt
ratio. According to the calculations of the Commission some
risks of budgetary imbalances emerging in the future cannot be
ruled out once the full
impact of ageing takes place. The
commitment of the Dutch government to secure an adequate
improvement in the primary surplus before ageing reaches its
to stem the
peak,
long-term increase in expenditure,
is essential to ensure that
the public finances are kept on a sustainable footing.

together with the necessary measures

The economic policies as reflected in the updated programme
are broadly consistent with the recommendations in the Broad
Economic Policy Guidelines, specifically those with budgetary
implications. This regards in particular the implementation of
budgetary consolidation aimed at achieving and maintaining a
budgetary position close to balance in the medium term. To
this end the setting of expenditure ceilings in real terms has
been crucial.