COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in the Netherlands following the adoption of the COUNCIL RECOMMENDATION to the Netherlands of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit Accompanying the document Recommendation for a COUNCIL RECOMMENDATION with a view to bringing an end to the situation of an excessive government deficit in the Netherlands
Date: 2013-05-29
Institutions: European Commission
Subjects: Netherlands, budget deficit, budgetary equilibrium, labour market, property market, research and development, stability pact, tax reform

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 392 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in the Netherlands  
following the adoption of the COUNCIL RECOMMENDATION to the Netherlands of 2 
December 2009 with a view to bringing an end to the situation of an excessive 
government deficit 

Accompanying the document 

Recommendation for a 

COUNCIL RECOMMENDATION 

with a view to bringing an end to the situation of an excessive government deficit in the 
Netherlands 

{COM(2013) 392 final} 

EN 

   EN 

 
 
 
 
  
 
 
1. 

INTRODUCTION  

On 2 December 2009, the Council decided, in accordance with Article 126(6) TFEU, that an 
excessive  deficit  existed  in  the  Netherlands  and  issued  a  recommendation  to  correct  the 
excessive deficit by 2013 at the latest, in accordance with Article 126(7) TFEU and Article 3 
of  Council  Regulation  (EC)  No  1467/97  of  7  July  1997  on  speeding  up  and  clarifying  the 
implementation of the excessive deficit procedure.  

In order to bring the general government deficit below the 3% of GDP reference value in a 
credible and sustainable manner, the Dutch authorities were recommended to implement the 
fiscal measures in 2010 as envisaged and, thereafter, to: '(a) ensure an average annual fiscal 
effort of ¾% of GDP over the period 2011-2013, which should also contribute to halting the 
rapid rise of the government gross debt ratio, which is forecast to breach the reference value; 
(b) specify the measures that are necessary to achieve the correction of the excessive deficit 
by 2013, cyclical conditions permitting, and accelerate the reduction of the deficit if economic 
or  budgetary  conditions  turn  out  better  than  currently  expected.'  The  Council  established  a 
deadline of 2 June 2010 for effective action to be taken. 

On 15 June 2010, the Commission concluded that, based on the Commission services' 2010 
Spring  Forecast,  the  Netherlands  had  taken  effective  action  in  compliance  with  the  Council 
recommendation  of  2  December  2009  aimed  at  correcting  the  excessive  deficit  by  the 
established deadline and considered that no additional step in the excessive deficit procedure 
was therefore necessary at that point in time. In particular, the Netherlands was found to have 
implemented the fiscal measures in 2010 as envisaged in the 2010 budget. 

Since  the  deadline  established  by  the  Council  for  correcting  the  excessive  deficit  is 
approaching,  this  document  provides  an  assessment  of  whether  the  Netherlands  has 
undertaken effective action towards the correction of its excessive general government deficit, 
and suggests a new adjustment path that would durably bring the general government deficit 
below  the  3%  of  GDP  threshold.  In  particular,  the  document  examines  the  policy  and 
budgetary  developments  since  the  Commission  communication  to  the  Council  of  15  June 
2010. 

2. 

RECENT  MACRO-ECONOMIC  AND  BUDGETARY  DEVELOPMENTS  AND  OUTLOOK  FOR 
2014 

The Netherlands is experiencing a protracted economic downturn which worsened since 2011 
(Table  1).  Real  GDP  growth  turned  out  to  be  much  lower  than  foreseen  in  the  scenario 
underpinning  the  2009  EDP  Council  recommendation.  Negative  wealth  and  confidence 
effects account for a significant part of the underperformance. These relate to balance sheet 
adjustments,  which  to  a  considerable  extent  reflect  adjustments  in  the  housing  market. 
Following  a  contraction  of  real  GDP  by  3.7%  in  2009,  economic  growth  rebounded 
moderately into positive territory in 2010 and 2011, with real GDP growth of 1.6% and 1% 
respectively,  and  was  mainly  driven  by  the  improvement  in  global  demand,  resulting  in  a 
positive contribution to growth of net exports. 

Since the second quarter of 2011, quarter-on-quarter economic growth in the Netherlands has 
been negative, apart from the first half of 2012, when it was marginally above zero. Real GDP 
decreased by 1% in the third quarter of 2012, its strongest decline since 2009. In the fourth 
quarter output declined even further by 0.4%, with private consumption decreasing by 1.1%, 

 
 
to a level last reached in 2001. Despite a small rebound in the first quarter of 2013  largely on 
the  back  of  higher  energy  consumption,    quarterly  private  consumption  growth    had  been 
negative  since  the  first  quarter  of  2011.  This  mainly  reflects  weak  household  disposable 
income,  the  impact  of  consolidation  measures,  as  well  as  negative  wealth  effects  from 
declining  house  prices  and  cuts  in  pension  allowances  from  second  pillar  pension  funds. 
Moreover, sustained uncertainty and subdued expectations, resulting in consumer confidence 
hovering around historical lows, continue to weigh on household consumption in particular.  
In  2012,  real  GDP  contracted  by  1%,  with  the  only  positive  contribution  coming  from  the 
external side, largely on the back of a strong trade surplus in goods. 

According to the Commission services' 2013 Spring Forecast real GDP growth is forecast to 
remain  negative  in  2013  at  -0.8%,  although  it  is  expected  to  return  gradually  to  positive 
territory  from  the  second  quarter  of  the  year  onwards.  Trade  developments  are  expected  to 
contribute to the recovery, whereas domestic demand is forecast to remain depressed well into 
2013.  Uncertainty  regarding  the  general  economic  outlook,  implementation  of  reform 
proposals and possible additional consolidation measures put an additional drag on domestic 
demand.  In  2014,  domestic  demand  should  begin  to  pick  up  gradually,  supporting  a  fragile 
recovery, with real GDP increasing by 0.9%. 

Table 1: Comparison of macroeconomic developments and forecasts 

2009

2010

2011

2012

2013

2014

COM AF 09
-4.5

outturn
-3.7

COM AF 09
0.3

outturn
1.6

COM AF 09
1.6

outturn
1.0

Real GDP (% change)
Contribution to growth:
-2.1
  Domestic demand
-0.4
  Change in inventories
-1.1
  Net exports
-1.1
Employment (% change)
0.1
GDP deflator (% change)
-2.7
Output gap (% of potential GDP)
1.0
Potential output growth
Source: Commission services' 2009 Autumn Forecast (COM AF 09),Stability Programme 2013 (SP 13), AMECO

0.6
-0.1
0.5
0.5
1.2
-1.4
0.7

0.4
0.0
1.1
-1.4
1.4
-2.4
0.9

-1.0
1.2
1.4
-0.6
1.1
-1.7
0.6

-1.2
0.4
1.0
-2.5
1.0
-3.1
0.7

-3.0
-0.5
-1.0
-0.5
1.0
-2.7
1.1

COM AF 09
NA

outturn
-1.0

COM AF 09
NA

SP 13
-0.4

COM AF 09
NA

SP 13
1.1

NA
NA
NA
NA
NA
NA
NA

-1.5
0.1
0.4
-0.9
0.7
-2.5
0.2

NA
NA
NA
NA
NA
NA
NA

-1.1
-0.2
0.9
-0.4
1.6
-3.5
0.3

NA
NA
NA
NA
NA
NA
NA

0.6
0.0
0.4
0.1
1.6
-3.0
0.6

The  Netherlands  had  chosen  to  delay  fiscal  adjustment  until  2011.  This  approach  was 
endorsed  in  the  2009  Council  recommendation,  which  specifically  recommended  that  the 
2010 budget be implemented while consolidation should start only in 2011. In response, the 
Netherlands initially designed a multi-annual package of mainly expenditure-based measures 
over the period 2011-2015, aimed at achieving an earlier-than-recommended correction of the 
excessive deficit. 

After  some  over-performance  of  real  GDP  in  2009  and  2010  compared  to  the  Commission 
services' 2009 Autumn forecast underlying the EDP recommendation, economic performance 
in the Netherlands deteriorated significantly from 2011 onwards. This translated into a similar 
development in public finances, with some initial over-performance to the budgetary targets 
until and including 2011. In 2011, the general government balance reached -4.5% of GDP.  

Subsequently,  the  headline  deficit  improved  to  4.1%  of  GDP  in  2012  and  is  expected  to 
decrease further to 3.6% in 20131. Without additional policy measures, the deficit is forecast 
at 3.6% of GDP in 2014, reflecting the adverse impact of economic headwinds on the budget 
deficit  as  the  authorities  set  out  to  continue  a  restrictive  fiscal  course  according  to  the 
measures  embedded  in  the  multi-annual  fiscal  adjustment  path  as  confirmed  in  the  2013 
stability programme. The unadjusted structural balance is expected to improve by around 0.7 

1 

The SF2013 includes the measures foreseen for 2014 on the basis of the Coalition Agreement, but not 
the additional consolidation package totalling €4.3 bln. presented on 1 March 2013, as it  has been put 
on  hold  until  August  following  the  agreement  with  social  partners  ("Sociaal  Akkoord")  on  11  April 
2013. 

 
 
 
                                                 
%  of  GDP  per  year  on  average  over  the  adjustment  period  2010-2013  but  to  deteriorate  in 
2014 by around 0.3 pp. On the basis of the Commission services' 2013 Spring Forecast 2013, 
the average fiscal effort over the period 2011-2013 would thus be close to the required ¾% of 
GDP  without  further  adjustments  for  shortfalls  in  projected  growth  or  composition  effects. 
The  adverse  fiscal  developments  reflect  nominal  and  real  GDP  growth  as  well  as  potential 
growth  falling  short  of  what  had  been  expected  at  the  time  the  2009  EDP  recommendation 
was formulated (Table 1). 

Debt dynamics in the Netherlands have been unfavourable. In 2008, significant government 
operations to support Dutch banks had been a major factor pushing up the government debt 
ratio. On the basis of the Commission services 2013 Spring Forecast the debt ratio is expected 
to steadily increase to 71.2% of GDP in 2012, 74.6% of GDP in 2013 and 75.8% of GDP in 
2014.  This  is  predominantly  the  result  of  persistent  headline  deficits  in  combination  with 
anaemic nominal GDP growth, whilst EFSF and ESM operations attributed to the government 
debt only have a relatively small upward effect. The uptick in the expected gross debt ratio for 
2013  includes  debt-increasing  operations  equivalent  to  some  1%  of  GDP  related  to  the 
nationalisation  of  SNS  Reaal  in  early  2013  (on  top  of  the  deficit-enhancing  measures 
amounting to around 0.6% of GDP). 

Turning to the driving forces of the deficit, swings in economic growth have mainly affected 
government  revenues.  The  initial  recovery  from  the  financial  crisis,  with  stronger-than-
expected  economic  activity  in  2010  and  the  first  part  of  2011,  at  first  led  to  a  fairly  strong 
revenue  performance  (Table  2  in  section  3.1).  However,  subsequently  revenue  fell  short 
compared  to  plans,  particularly  in  the  second  half  of  2011  and  in  2012,  in  the  wake  of 
faltering growth. This adverse pattern is expected to continue, largely driving the weak deficit 
outlook.  Overall  trends  mirror  the  cyclical  sensitivity  of  revenue  which  the  Netherlands 
in  2010,  a  year  of  fiscal  policy 
typically  exhibits.  The 
accommodation,  occurred  in  line  with  a  better-than-expected  economic  performance,  with  a 
moderate  development  in  subsequent  years  as  savings  measures  started  weighing  in.  In 
accordance with the Dutch fiscal framework (implying a strict division between revenues and 
expenditures, i.e. automatic stabilisation on the revenue side), which has been deemed good 
EU practice, expenditure overruns have to be compensated within the ceilings. 

in  expenditure 

increase 

At  the  current  juncture,  bringing  the  headline  deficit  below  3%  of  GDP  in  2013  is  out  of 
reach. This is also acknowledged in the 2013 stability programme, which instead commits to 
correcting the excessive deficit in 2014. The expected general government balance for 2013 
as embedded in the stability programme is broadly in line with the Commission services' 2013 
Spring Forecast 2013and risks to this projection appear by and large balanced. The headline 
deficit projection for 2014 reflects a no policy change scenario in the Commission services' 
2013 Spring Forecast 2013 baseline (which does not include the savings package of EUR 4.3 
bn or around 0.6% of GDP originally presented on 1 March 2013 but thereafter withdrawn by 
the  government  in  April  2013  until  further  notice  in  the  wake  of  the  agreement  with  social 
partners).  

In  the  2013  stability  programme  the  Dutch  authorities  commit  themselves  to  additional 
savings  measures,  should  these  be  needed  to  bring  the  headline  general  government  deficit 
below the 3% of GDP threshold in 2014. However, non-negligible implementation risks are 
attached  to  the  fiscal  outlook  for  2014  and  beyond.  As  regards  measures  embedded  in  the 
coalition agreement, these risks originate mainly from the foreseen efficiency gains planned to 
be achieved by decentralising tasks to municipalities. The 2013 stability programme mentions 
that  an  additional  savings  package  of  EUR  4.3  bn  for  2014,  withdrawn  by  the  government 
following  the  agreement  with  social  partners,  may  have  to  be  revived  and  included  in  the 

 
 
2014  budget  (due  to  be  presented  to  Parliament  in  September),  should  further  savings  be 
necessary to correct the excessive deficit in 2014. Following the  stakeholders  agreement  on 
health care of end-April 2013, the voluntary wage freeze in health care (0.1 to 0.2 % of GDP) 
is of the table and thus can no longer be part of the package, so other measures will have to be 
included.  Moreover,  the  Commission  services'  2013  Spring  Forecast  2013  suggests  that 
additional  measures  exceeding  the  amount  of  €  4.3  bn  provisioned  for  in  the  stability 
programme will be called for in order to bring the headline deficit below 3% of GDP in 2014. 

3. 

EFFECTIVE ACTION 

3.1. 

Background information 

The  current  assessment  of  the  effective  action  is  based  on  the  Commission  services  2013 
Spring Forecast. It takes into account the economic and budgetary developments since the last 
Council  recommendation  under  Article  126(7)  of  the  TFEU  was  issued  in  December  2009. 
The  assessment  starts  by  comparing  the  recommended  fiscal  effort  in  the  Council 
recommendation,  the  apparent  fiscal  effort,  measured  by  the  average  annual  change  in 
structural budget balance, and the adjusted structural effort. The adjustment of the change in 
the structural balance takes into account (i) the impact of revisions in potential output growth 
compared to that underlying the growth scenario in the Council recommendation, and (ii) the 
impact  on  revenue  of  revisions  of  the  tax  content  of  economic  activity  (composition  of 
economic growth or of other windfalls/shortfalls) relative to what is implied by the standard 
long-term  elasticities.  This  top-down  approach  in  the  assessment  is  complemented  by  a 
careful analysis, including a bottom-up assessment of consolidation measures undertaken by 
the Dutch government.  

Table 2: Total government expenditure and revenue developments  

2009

COM AF 
2009

2010
COM SF 
2013

COM AF 
2009

2011
COM SF 
2013

COM AF 
2009

2012
COM SF 
2013

COM AF 
2009

2013
COM SF 
2013

outturn
outturn
% of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP % of GDP

outturn

outturn

outturn

outturn

COM SF 
2009

2014
COM SF 
2013

Revenue
of which:
-Taxes on production and imports
-Current taxes on income, wealth, etc.
-Social contributions
-Other (residual)
Expenditure
of which:
-Primary expenditure

of which:
-Compensation of employees
-Intermediate consumption
-Social payments
-Subsidies
-Gross fixed capital formation
-Other (residual)
-Interest expenditure

46.0

44.8

46.2

45.1

11.9
11.8
14.6
7.7
51.4

12.0
11.2
15.4
6.2
51.0

49.2

48.4

10.0
8.3
22.6
1.5
3.9
2.9
2.2

10.1
8.2
23.6
1.4
4.0
1.1
2.6

12.1
11.9
14.8
7.4
51.2

49.3

10.0
8.1
23.1
1.5
3.6
2.9
1.9

11.5
11.1
15.0
7.4
50.7

9.7
7.8
22.8
1.4
3.9

2.5

-5.4
-3.2
0
-4.1

General government balance (GGB)
Primary balance
One-off and other temporary measures
Structural balance
change in structural balance
Real GDP growth
GDP deflator
Nominal GDP
Source: Commission services' 2009 Autumn Forecast (COM AF 09),Stability Programme 2013 (SP 13), AMECO

-6.1
-3.7
0
-4.3
-0.2
0.3
1.0
564.4

-5.1
-3.1
-0.2
-4.0
0.1
1.7
1.3
588.4

1.6
1.4
599.2

-3.9
-0.2
572.0

-5.6
-3.1
0

45.4

11.5
11.4
15.4
7.1
49.8

47.8

9.8
7.6
23.2
1.4
3.4
2.5
2.0

-4.5
-2.4
-0.1
-3.7
0.4
1.0
1.2
602.0

46.4

11.3
10.8
16.4
7.9
50.4

48.5

9.6
7.6
23.7
1.3
3.3
3.0
1.8

-4.1
-2.2
0.0
-2.6
1.0
-1.0
0.7
606.6

47.3

12.0
10.9
16.9
7.5
50.8

49.0

9.8
7.5
24.6
1.2
3.4
2.5
1.8

-3.6
-1.7
0.0
-2.0
0.7
-0.8
1.4
604.5

47.2

12.1
10.7
17.1
7.3
50.7

48.9

9.7
7.5
24.8
1.1
3.3
2.4
1.8

-3.6
-1.7
0.0
-2.3
-0.3
0.9
1.7
620.0

Table  2  shows  the  development  of  nominal  government  expenditure  and  revenue  over  the 
different forecast vintages since the Commission services' 2009 Autumn Forecast, including 
the  forecast  period  up  to  and  including  2014.  Government  expenditure  for  2009  and  2010 
turned out to be higher than initially forecast, but in 2011 was lower than in the EDP baseline 
scenario underlying the 2009 recommendation. Revenues on the other hand turned out to be 
much  lower  than  expected  in  2009,  but  higher  than  expected  in  2010  and  2011.  The  table 

 
 
 
shows that that the widening of the deficit in 2009 was mainly on account of revenue falling 
well  short  of  what  was  expected.  In  the  outer  years,  the  increase  in  nominal  expenditure 
growth  is  expected  to  be  lower  than  the  increase  in  revenues  (despite  substantial  revenue-
increasing measures), illustrating the extent of restraint on the expenditure side committed to. 

3.2. 

Assessment  of  effective  action  and  budgetary  implementation  2011-2013  and 
beyond - overview 

The structural balance amounted to -4.0%, -3.7% and -2.6% of GDP in 2010, 2011 and 2012, 
respectively. The Commission services' 2013 Spring Forecast projects a further improvement 
in the structural balance to -2.0% of GDP in 2013 yet some subsequent detioration to -2.3% in 
2014 on unchanged policies. The average annual apparent fiscal effort over the period 2011-
2013  is  estimated  at  0.7%  of  GDP.  When  adjusted  for  the  downward  revision  in  potential 
output growth since the time when the 2009 EDP recommendation was issued and the impact 
of  the  composition  of  economic  growth  on  revenue,  the  average  annual  adjusted  structural 
effort  (1.1%  of  GDP)  exceeds  the  recommended  average  annual  fiscal  effort  (¾%  of  GDP) 
over 2011-2013 required in the 2009 Council EDP recommendation by a substantial margin 
(Table 3).  

Table 3 - Change in the structural balance corrected for revisions in potential 

Un-corrected average 

Average effort corrected 

Required fiscal effort in 

initial deadline 

effort up until 
2012
0.7

2013
0.7

2011
0.4

2011

for α and β until
2012
0.8

2013
1.1

the 2009 recommendation
2011-2013
3/4

for correction

2013

Source: Commission services’ 2013 Spring Forecast and Commission services’ calculations

A bottom-up approach from listing discretionary savings measures implemented and decided 
on  from  2011  onwards  confirms  a  very  sizeable  multi-annual  consolidation  effort.  Table  4 
reports the overall size of discretionary measures. The second-round impact of these measures 
on  the  macroeconomic  developments  has  been  fully  taken  into  account  in  the  Commission 
services' forecast2. For the period 2011-2013 the overall fiscal effort according to the bottom-
up  approach  amounts  to  4%  of  GDP,  or  around  1.3  %  of  GDP  annually,  broadly  equally 
divided between revenue and expenditure measures.  

Table 4 - Composition of the budgetary adjustment 

Bottom-up approach to fiscal effort 
2011
Measures (in % of GDP)
-0.4
Expenditure
0.1
Revenues
0.5
Sum

2012
-0.7
0.1
0.8

2013
-1.0
1.7
2.7

2014
-0.9
0.0
0.9

2015
-1.3
-0.2
1.1

2016
-0.5
0.3
0.7

2017
-0.5
0.0
0.5  

Source: Commission services calculations  

Identified discretionary measures span a number of consecutive packages adopted over recent 
years. They include the phasing-out of the fiscal stimulus of 2010, including some additional 
measures  taken  (EUR  5  bn);  an  initial  round  of  budgetary  savings  from  September  2010 

2 

The impact of the measures is broadly in line with the independent assessment carried out by the CPB 
(Tekortreducerende  maatregelen  2011-2017,  W.  Suyker,    http://cpb.nl/publicatie/tekortreducerende-
maatregelen-2011-2017).  

 
 
 
                                                 
implemented by the first Rutte government (EUR 19 bn); measures embedded in the 'Kunduz' 
agreement of April 2012 (EUR 9 bn); and, finally, the coalition agreement of the second Rutte 
government outlined in September 2012 (EUR  15 bn). Table 4 shows that the brunt of the 
consolidation effort is centred on the year 2013, with a strong emphasis on net tax increases.  

Table 5 reports the main budgetary measures over the period 2011-2013. In 2013, significant 
one-off operations will impact on the deficit. The  sale of  4G mobile telephony licenses and 
the  nationalisation  of  SNS  Reaal  (both  impacting  on  2013)  broadly  cancel  out.  On  balance, 
however,  one-offs  have  a  decreasing  impact  on  the  deficit  of  around  0.2%  of  GDP,  in 
particular related to dividend payments from the De Nederlandsche Bank and the restitution 
by Havenbedrijf Rotterdam of state contributions to port enlargement. Implementation of the 
measures in 2011 and 2012 proceeded as planned. The implementation of the budgets for both 
years was carried out without major slippages, which also confirms the robustness of the the 
fiscal framework in the Netherlands3. Also the implementation of the consolidation measures 
planned by previous governments for 2013 and beyond is on track. 

Table 5: Main budgetary measures over 2011-2013 

Revenue 

2011 

Expenditure 

• 

Increase in the insurance tax (0.05 % of GDP) 

•  Wage moderation in the central government (-0.2 % 

of GDP) 

• 

International cooperation (-0.1 % of GDP) 

2012 

• 

• 

Limit on tax credit for single parents (0.1 % of GDP) 

Reversal of health care own contribution increase (0.1 % of 
GDP) 

2013 

• 

• 

• 

• 

Adjustment  treatment  of  pension  deductability.  (From  2013 
onwards, fewer pension entitlements qualifying for tax relief 
can be accrued.) (0.1 % of GDP) 

VAT increase by 2 percentage points as of October 2012 (0.7 
%  of GDP) 

Environmental  friendly  taxation  and  increase  in  excise  duty 
on alcohol, tobacco and soft drinks (0.25 % of GDP) 

Limiting  mortgage  interest  deductibility  for  new  mortgage 
loans  (0  %  of  GDP;  structural  gains  far  beyond  the 
programme horizon) 

• 

Non-implementation of the vitality package (0.1 % of GDP) 

• 

• 

• 

• 

• 

• 

Health care benefits (-0.1 % of GDP) 

Child care benefits (-0.1 % of GDP) 

Health care benefits (-0.1 % of GDP) 

Primary education (-0.1 % of GDP) 

Increase  of  own  contribution  for  specialised  health 
care in combination with other measures (-0.3 % of 
GDP) 

Increase  retirement  age  (0  %  of  GDP,  but  sizeable 
structural gains beyond the programme horizon) 

•  Wage  freeze  (for  civil  servants  and  non-indexation 

of income tax brackets) (-0.5 % of GDP) 

Note: A positive sign implies that revenue / expenditure increases as a consequence of this measure.  

The  measure-by-measure  estimate  of  fiscal  consolidation  shows  a  broad  congruity  over  the 
2011-2013 assesment period over which effective action is assessed in response to the 2009 

3 

In  the  fiscal  framework  of  the  Netherlands,  every  shortfall  has  to  be  compensated  within  the  same 
expenditure  ceiling  or,  if  not  possible,  within  another  expenditure  ceiling.  Revenues  are  used  as 
automatic stabilisers and are allowed to move freely unless the overall budgetary position is no longer  
in line with the SGP.  

 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
EDP  recommendations.  For  2011-2013,  the  two  approaches  yield  a  broadly  comparable 
number for the average fiscal effort, in the range of 1.1. to 1.3% of GDP. This confirms the 
finding  that  the  fiscal  effort  over  the  2011-2013  assessment  period  is  projected  to 
substantially exceed the one recommended by the Council.  

3.3. 

Budgetary outlook for 2014 and beyond 

Whereas the budgetary implementation in 2011-2013 by and large proceeded as planned and 
led  to  a  significant  improvement  in  the  structural  balance,  achieving  a  correction  of  the 
excessive deficit by  2013 is clearly out of reach, even given the sizeable fiscal effort in the 
face of recession. The Commission services’ 2013 Spring Forecast for 2014 only incorporates 
measures included in the Coalition Agreement and embedded in the budget laws as passed by 
Parliament and on this basis expects the headline general government balance to reach 3.6% 
of GDP in 2014. 

The  specified  and  agreed  measures  that  are  embedded  in  the  multi-annual  fiscal  projections 
imply  an  ongoing  consolidation  in  2014.  In  addition,  one-offs  emanating  from  dividend 
streams from the De Nederlandsche Bank and a crisis levy on banks will have a downward 
effect  on  the  headline  deficit.  Nonetheless,  since  revenue  is  expected  to  remain  subdued  in 
view of the sluggish recovery, the general government deficit is projected to stabilise at 3.6% 
of  GDP  in  2014.  Discretionary  measures  of  around  0.9%  of  GDP  are  planned  to  be 
implemented in 2014, fully on the expenditure side. The calculated change in the underlying 
balance  from  the  macro  (output-gap  based)  approach  based  on  unchanged  policies  shows  a 
slight worsening of the underlying fiscal position in 2014, by some 0.3% of GDP. 

The Dutch authorities are strongly committed to correct the excessive deficit and, to this end, 
bring the headline deficit below 3% of GDP in 2014. However, the measures reported in the 
2013  stability  programme,  though  fully  specified  and  quantified,  fall  short  of  reaching  this 
goal4. Moreover, for the period beyond 2014 a sustainable adjustment as required by the EU 
fiscal surveillance framework does not appear to be assured on the basis of current policies. 
This implies that progress towards reaching the MTO would not be assured.  

There  are  implementation  risks  attached  to  the  measures  incorporated  in  the  Commission 
services' 2013 Spring Forecast 2013 and embedded in the medium-term budgetary plans. In 
the  Netherlands,  coalition  agreements  traditionally  were  implemented  largely  unchanged. 
Recently,  there  have  been  several  examples  of  substantive  changes,  responding  e.g.  to  the 
reappraisal  of  original  plans  by  the  coalition  partners  and  the  agreement  between  social 
partners.  A  different  type  of  budgetary  risk  relates  to  the  sizeable  planned  decentralisation 
measures. For example, parts of the budgets and responsabilities concerning youth and long-
term  care  will  be  transferred  to  municipalities.  This  decentralisation  process  will  include 
cutbacks  on  the  respective  budgets,  on  top  of  generic  cuts  on  funds  transferred  to 
municipalities.  It  remains  to  be  seen  wether  the  implictely  planned  efficiency  gains  can  be 
realised  and  to  what  extent  decentralisation  may  lead  to  increased  deficits  of  subnational 
governments5. As long as any slippages remain limited, they can be compensated within the 
expenditure ceilings set. Nevertheless, more persistent deviations would have to be countered 
by fresh measures. 

4 

5 

The SP mentions a set of possible further  measures, initially announced by the government in March 
2013, but these have been recently withdrawn by the government in reaction to the agreement among 
soicial partners – possibly to be considered again only in the summer if circumstance so require. These 
measures have not been taken into account in this assessment. 
The Netherlands is about to transpose the rules of the Fiscal Compact  in its national legislation. This 
will make it easier for the central government to control deficits of subnational levels of government.  

 
 
                                                 
4. 

PROPOSED NEW ADJUSTMENT PATH 

According to the baseline macroeconomic scenario, which is the Commission services’ 2013 
Spring  Forecast,  on  current  policies  the  Netherlands  is  not  forecast  to  correct  its  excessive 
deficit  by  the  deadline  established  in  the  Council  Recommendation  of  2  December  2009 
(Table 6). This is the case although the average annual adjusted structural effort for the period 
2011-2013,  taking  account  of  the  impact  of  revisions  in  potential  output  growth  and  of 
revisions  of  the  revenue  content  of  economic  activity  relative  to  the  standard  elasticities,  is 
above the structural fiscal effort recommended by the Council. Moreover, over the adjustment 
period real and potential GDP will likely turn out to have been well below what was expected 
at the time that the 2009 EDP recommendation was issued. The unexpected adverse economic 
developments  have  entailed  major  unfavourable  consequences  for  government  finances. 
Considering  all  these  factors  and  in  particular  the  substantial  deterioration  in  the  budgetary 
position  resulting  from  the  weaker  overall  position  of  the  economy  relative  to  the  one 
underlying the original Council recommendation under Article 126(7) TFEU suggests that a 
new  deadline  for  the  correction  of  the  excessive  deficit  in  the  Netherlands  by  2014  is 
appropriate.  

Table  6  -  Forecast  of  key  macroeconomic  and  budgetary  variables  under  the  baseline 
scenario 

% of GDP
Revenues
Current revenues

Discretionary measures with impact on current revenue

Expenditure

Real GDP growth (%)
Nominal GDP growth (%)
Potential GDP growth (%)
Structural balance 
General government balance (%)
p.m CAB methodology revenue elasticity
p.m Apparent revenue elasticity
p.m Output gap (% of potential output)
p.m nominal GDP

2012
46.4
46.1

0.1
50.4

-1.0
-0.2
0.2
-2.6
-4.1
0.88
-7.7
-2.5
600.6

2013
47.3
47.0

1.7
50.8

-0.8
0.6
0.0
-2.0
-3.6
0.88
-1.6
-3.3
604.5

2014
47.2
46.9

0.2
50.7

0.9
2.6
0.3
-2.3
-3.6
0.88
0.8
-2.7
620.0  

Source: Commission services' 2013 Spring Forecast 2013 

Granting an additional year for the correction of the excessive deficit would be commensurate 
with  intermediate  headline  deficit  targets  of  3.6%  of  GDP  for  2013  and  2.8%  of  GDP  for 
2014  (Table  7).  The  underlying  improvement  in  the  structural  budget  balance  implied  by 
these targets is 0.6% of GDP in 2013, and 0.7% of GDP in 2014. In total, to reach the above-
mentioned  structural  targets,  the  Dutch  authorities  would  need  to  implement  additional 
consolidation measures of 0% of GDP in 2013 and at least 1% of GDP in 2014 on top of the 
measures already included in the baseline scenario. These targets take into account the need to 
compensate for the negative second-round effects of fiscal consolidation on public finances, 
through its impact on GDP growth. 

Table  7  -  Forecast  of  key  macroeconomic  and  budgetary  variables  under  the  EDP 
scenario 

 
 
% of GDP
Real GDP growth (%)
Potential GDP growth (%)
Structural balance 
General government balance (%)
p.m Output gap (% of potential output)
p.m nominal GDP

Source: Commission services 

2012
-1.0
0.3
-2.6
-4.1
-2.6
600.6

2013
-0.8
0.0
-2.0
-3.6
-3.4
604.5

2014
0.3
0.2
-1.3
-2.8
-3.3
620.0  

The  economic  crisis  of  the  recent  years  has  exposed  weaknesses  in  the  fiscal  framework. 
Successive  governments  amended  their  medium-term  budgetary  plans  with  sizeable 
consolidation  measures,  also  because  initial  expenditure  ceilings  had  been  based  on  growth 
paths which turned out to overly optimistic. According to the coalition agreement, automatic 
stabilisers are free to operate within each of the separate expenditure ceilings as long as the 
country's  overall  fiscal  position  remains  in  accordance  with  European  fiscal  rules.  Interest 
payments are kept outside the overall expenditure ceiling, whereas other expenditure that is 
sensitive  to  cyclical  trends  (notably  unemployment  and  social  assistance  benefits)  is  kept 
within the expenditure ceiling framework. This impedes the working of automatic stabilisers 
in an economic downturn. In addition, possible actions to operationalize the commitment to 
abide by European provisions are not specified in detail. The consolidation of public finances 
could be underpinned by making the medium-term orientation and institutional framework of 
public finances more binding and transparent, including through legislation that will transpose 
the  EU  fiscal  rules  into  national  legislation  and  by  enshrining  the  medium-term  budgetary 
framework in a legal basis.  

 
 
5. 

CONCLUSIONS 

On  current  information,  the  average  annual  fiscal  effort  after  correction  for  the  effects  of 
revised potential output growth and revenue developments is estimated to amount to around 
1.1% of GDP. The calculated adjusted structural effort is thus well above the required average 
annual  fiscal  effort  of  ¾%  of  GDP  over  2010-2013  by  the  Council  recommendation.  A 
bottom-up  approach  confirms  an  average  size  of  consolidation  measures  at  some  1.3%  of 
GDP over 2011-2013.  

For  2013,  the  Dutch  authorities  have  adopted  a  budget  which  contains  significant  measures 
which, however, do not suffice to achieve for the correction of the excessive deficit already in 
2013, as recommended by the Council in 2009. This reflects the severe economic headwinds 
the Netherlands has been facing, translating into real and potential GDP growth falling well 
short  of  the  path  envisaged  in  the  macro-economic  scenario  underlying  the  2009  Council 
recommendation  and  implying  severe  adverse  consequences  for  public  finances.  In  light  of 
this, a new deadline for the correction of the excessive deficit in the Netherlands by 2014 is 
appropriate, in line with the commitment by the authorities in the 2013 stability programme. 
To ensure this, a strict implementation of the 2013 budget target and additional measures in 
2014 will be required. 

Granting  an  additional  year  in  the  correction  of  the  excessive  deficit  requires  intermediate 
headline  deficit  targets  of  3.6%  of  GDP  for  2013  (3.8%  of  GDP  without  one-off  measures) 
and  2.8%  of  GDP  for  2014  (close  to  3%  without  one-off  measures).  The  underlying 
improvements in the structural budget balance implied by these targets are 0.6% in 2013 and 
0.7% of GDP in 2014, in order to bring the headline general government deficit below the 3% 
of GDP reference value by 2014.  

 
 
 
Table 8: Comparison of key macroeconomic and budgetary projections 

Real GDP  (% change)

Outpug Gap¹ (% of 
potential GDP)

Potential growth

General government 
balance (% of GDP)

Primary balance (% of 
GDP)

Cyclically-adjusted 
balance¹ (% of GDP)

Structural balance² (% of 
GDP)

Government gross debt 
(% of GDP)

COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13
COM SF 13
COM AF 09
SP 13

2009
-3.7
-4.5
-3.7
-2.7
-2.7
-2.7
1.0
1.1
1.0
-5.6
-4.7
-5.6
-3.4
-2.3
-3.4
-4.1
-3.2
-4.1
-4.1
-3.6
-4.1
60.8
59.8
60.8

2010
1.6
0.3
1.6
-1.7
-3.1
-1.7
0.6
0.7
0.6
-5.1
-6.1
-5.1
-3.1
-3.7
-3.1
-4.2
-4.4
-4.2
-4.0
-4.4
-4.0
63.1
65.6
63.1

2011
1.0
1.6
1.0
-1.4
-2.4
-1.6
0.7
0.9
0.9
-4.5
-5.6
-4.5
-2.4
-3.1
-2.0
-3.7
-4.3
-3.6
-3.7
-4.3
-3.6
65.5
69.7
65.5

2012
-1.0
NA
-0.9
-2.5
NA
-2.8
0.2
NA
0.3
-4.1
NA
-4.1
-2.2
NA
-0.9
-2.6
NA
-2.4
-2.6
NA
-2.4
71.2
NA
71.2

2013
-0.8
NA
-0.4
-3.3
NA
-3.5
0.0
NA
0.3
-3.6
NA
-3.4
-1.7
NA
0.2
-1.8
NA
-1.4
-2.0
NA
-1.5
74.6
NA
74.0

2014
0.9
NA
1.1
-2.7
NA
-3.0
0.3
NA
0.6
-3.6
NA
-3.0
-1.7
NA
0.3
-2.0
NA
-1.2
-2.3
NA
-1.4
75.8
NA
75.0

Note:
¹ Output gaps and cyclically-adjusted balances according to the 
 the information provided in the programmes.
² Cyclically-adjusted balance excluding one-off and other temporary measures.
Source:  Commission services' 2013 Spring Forecast (COM SF 13), Commission services' 2009 Autum 
Forecast (COM AF 09), and April 2010 update of the stability programme (SP 10)