A report in today’s edition of free newspaper De Pers argues that the budget cuts announced by Dutch Prime Minister Mark Rutte are in practice much less draconian than they appear to be at first glance.

Based on data provided by the Bureau for Economic Policy Analysis, Economics and Public Finance Professor Bas Jacobs of the Erasmus University Rotterdam has calculated that the 18 billion euros' worth of budget cuts agreed in the coalition agreement in practice amount to no more than 14.75 billion, three billion of which come from austerity measures already taken by the previous cabinet.

Spending power
This means that Mr Rutte has in fact introduced no more than 11 billion euros worth of cuts. And the cabinet has agreed to partly compensate minimum wage earners for their loss of spending power as a result of the cuts. The measure is to be paid for by a tax increase for top earners, according to De Pers, "a plan that could have been dreamed up by the Socialist Party".

No additional cuts
In addition, Finance Minister Jan Kees de Jager last week ruled out additional budget cuts to compensate for the faltering economic recovery, suggesting that a slightly higher budget deficit would be acceptable. History appears to prove him right. A recent study by the US-based Roosevelt Institute into 107 cases in which nations introduced drastic budget cuts in response to a recession shows that this approach almost without exception leads to higher interest rates, additional budget cuts and a deeper, protracted recession.

Safe haven
De Pers argues that the cabinet’s budget policies have been a success so far. Tough talk on reducing the budget deficit has given a boost to the Netherlands’ image as a financial safe haven. As a result, interest on Dutch government debt has dropped to a historic low, a minor windfall for Finance Minister Jan Kees de Jager. At the same time, the cabinet appears to have decided against introducing the type of radical budget cuts which would only have frustrated attempts to revive the economy.

The prime minister’s strategy has reportedly also been successful from a political perspective; De Pers writes that the opposition can no longer argue that the cabinet is doing nothing for society’s disadvantaged, though they could argue that its measures do not go far enough.

(gsh/tf)

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