Dutch VVD, Labor Reach Cabinet Deal, $20 Billion in Cuts

The Dutch Liberal and Labor parties reached an agreement to form a government, pledging to revamp the housing and labor markets and cut the budget by about 16 billion euros ($20.6 billion) in the next four years.

“This package will affect everyone,” caretaker Prime Minister Mark Rutte told journalists in The Hague yesterday as he announced the deal with Labor. “Economic growth is on a structurally lower level in the Netherlands and we can’t pass on the bill to future generations.”

Rutte and Labor leader Diederik Samsom agreed to cut tax rebates on mortgages by 0.5 percentage point annually until 2040 and allow rent for people who have an income of more than 43,000 euros to go up. Development aid will be cut by 1 billion euros and health-care premiums will become dependent on income.

The Liberals, known as the VVD, and Labor, the two largest parties in Parliament after the Sept. 12 elections, started negotiations on the formation of a new government nine days after the vote. It will be the first time in Dutch political history the two parties have formed an administration on their own.

“We felt the same urgency as the crisis is still raging, it’s not over yet,” Samsom said. “We were both willing to do something about it and we succeeded.” The Labor Party will vote on the agreement at a Nov. 3 party convention while Liberal lawmakers already approved it. Rutte will seek ministers to complete his Cabinet and the swearing in of his government could take place next week.

Strict Budget

Rutte and Samsom pledged to continue a strict budget policy. Under the government plan, the deficit is seen at 2.6 percent in 2013, revised from an earlier forecast of 2.7 percent, the Central Planning Agency said. For 2017, the deficit will be reduced to 1.5 percent, according to the CPB. The Dutch economy, the fifth-largest in the euro area, will grow annually 1.25 percent for the period 2013-2017, down from a previous forecast of 1.5 percent, the CPB said.

The government will take office as Europe faces crucial negotiations on Greece and the European Union’s budget. European officials are waiting for Spain to decide whether trigger a bailout plan unveiled by European Central Bank President Mario Draghi in September and designed to draw a line under the region’s debt crisis.

Rutte said he’s awaiting a report on Greece’s progress in meeting internationally agreed targets compiled by the troika of the European Commission, the International Monetary Fund and the ECB.

Samsom said more aid for Greece will depend on whether “Greece will take its responsibility in the right manner.” Both Rutte and Samsom want the troika report before commenting further. Rutte’s Liberal party and Labor mostly agreed during the first Rutte government on its approach toward Greece and solutions for Europe’s debt crisis.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE