Netherlands Will Not Achieve EU Budget Deficit Goal in 2014

The Netherlands will not reach its EU-deficit target in 2014 despite 6 billion euros ($8 billion) of additional austerity measures.

The budget deficit will hit 3.3 percent of gross domestic product in 2014, The Hague-based government’s planning agency CPB said today. This deficit takes into account an additional austerity package of 6 billion euros in 2014 to be announced on Sept. 17, when Finance Minister Jeroen Dijsselbloem presents his 2014-budget plans. CPB sees a deficit of 3.2 percent in 2013. The Netherlands has been in breach of the EU limit of 3 percent of GDP since the beginning of the crisis in 2008.

The fifth-largest economy in the euro area will contract 1.25 percent this year and grow 0.5 percent in 2014, the bureau said. In August, CPB forecast a growth of 0.75 for 2014.

“Economic growth is mainly pressured by internal spending,” CPB said. Private consumption, investments and government spending had a negative impact on GDP growth in 2013. Only export contributed positively. While private consumption will remain negative in 2014, investments and government spending will have a positive impact.

Prime Minister Mark Rutte’s plan for additional cost cuts and tax increases comes on top of a four-year, 16 billion-euro package the coalition of the Liberal and Labor party approved in November last year when it took office. Of this amount, 3.5 billion euro was already penciled in for 2014.

“In 2014 private consumption will continue to shrink, but less than in the recent years,” CPB said. The negative impact of the 6 billion-package on economic growth in 2014 will remain limited to 0.25 percent, it said. Unemployment is expected to rise to 7 percent in 2013 and 7.5 percent next year, based on international calculation standards.

Part of Package

Part of the package the Cabinet agreed to in 2012, is a pension reform plan. By making a smaller amount of pension premiums tax deductible, the cabinet aims to save up to 2.9 billion euro in 2017 according to the coalition agreement dated Oct. 29. The pension reform plan still has to be approved by the Senate where the coalition lacks majority.

The coalition remained united in the austerity message to the public while its popularity has dropped to an all-time low. Labor and the Liberal party would only retain 30 seats if elections were held now, a drop of 49 seats, according to a poll by Peil.nl, published Sept. 8. The Labor Party would have 11 seats while Rutte’s Liberal Party would get 19 seats, according to the poll, based on at least 2,500 interviews.

To contact the reporters on this story: Corina Ruhe in Amsterdam at cruhe@bloomberg.net; Fred Pals in Vilnius at fpals@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.