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Factsheet
May 2010
National Financial Annual Report 2009
Summary
Table of contents
1
The Dutch economy and public
finance
2
The Dutch economy in 2009
3
Government intervention
4
Public finance in 2009
Minister of Finance De Jager presents, on behalf of the Dutch cabinet,
the Central Government Annual Report for 2009 to the Lower House on
19 May 2010. The report looks back on the economic and financial
develoments in 2009 and shows the results of the past budgetary year.
It discusses realised income and expenditure and compares them to
expected income and planned expediture as presented a year and a half
ago in the National Budget memorandum for 2009. To supplement this
financial explanation, the results of policy are stated in the
Accountability Report which is also presented to the Lower House on
Accountability Day.
1. The Dutch economy and public finance
The 2009 Budget Memorandum, the point of departure for this
report, was written in the summer of 2008. At that time, CPB
(Netherlands Bureau for Economic Policy Analysis) forecast an
economic growth of 1 per cent in 2009. Looking back, we see that
the Dutch economy did not grow in 2009, but contracted
substantially. On account of the crisis, there is a historically high
difference between the estimated figures (the economic forecast) for
2009 and the figures realised (the actual developments) in 2009.
The discrepancy between estimated figures and realisation is found
throughout this Financial Annual Report.
2. The Dutch economy in 2009
From crisis to cautious recovery
In 2009, the Dutch economy shrank by a total of 4 per cent
compared to 2008. This was primarily due to a sharp decline in
exports. Because the Dutch economy is so strongly dependent on
other countries, the decline in international trade had big
repercussions on our national prosperity. The economic contraction
in 2009 was the largest since World War II.
More than half of the substantial contraction of the Dutch economy
in 2009 can be attributed to decreased foreign sales. Private
consumption, investments in housing and business investments
declined as well. Government spending, however, made a positive
contribution to economic growth. The other side of the coin is that
the budgetary deficit showed a sharp rise in 2009. Business also had
to accept a loss of income. Families, on the other hand, had more to
spend; purchasing power rose thanks to the then still high wage
rises (and lower inflation).
The worldwide economic recession had a substantial downward
effect on inflation (rising prices) in the Netherlands. In 2009,
inflation was 1.0 per cent, which is 1.2 percentage points lower than
2008. This largely resulted from falling prices for energy and other
resources. To illustrate: in July 2009 consumer gas prices dropped
by nearly 20 per cent compared to the previous month.
But the sombre figure for the year is also the harbinger of a cautious
economic recovery. The crisis was at its deepest point in the first
quarter of 2009, with economic contraction at more than 2 per cent.
In the second quarter economic contraction (which started in 2008)
slowed for the first time in a calendar year. In the second half of
2009, the Netherlands benefited as world trade picked up and
economic growth returned (see figure 1). Production in the
Netherlands has been on the rise since the third quarter of 2009,
and this signals the end to the recession. But it is too early to call
the recovery definitive; the financial and economic situation is still
too uncertain and too fragile. For instance, growth showed another
slight decline in the fourth quarter of 2009.
Figure 1 Quarterly growth in GDP in 2008 and 2009
* Growth figures are always in comparison to the preceding quarter
Dutch employment market
When production began to decline at the end of 2008, the demand
for labour fell in many sectors. The number of vacancies dropped
and from the beginning of 2009, the number of jobs in the
commercial sector also fell sharply. This was not accompanied by a
comparable rise in unemployment: in 2009 the jobless rate was an
average of 4.9 per cent, which meant a moderate increase over
2008. In part, this was because jobs in the healthcare sector
continued to increase. But it was also because certain groups
withdrew from the labour market or chose not to join at that point:
young people stayed in school, women postponed their return to the
workforce and older people took early retirement. Part-time
unemployment benefits also helped check a rise in unemployment:
participants in this scheme retained their jobs and so they were not
included in unemployment figures. Taking the sharp economic
contraction into account, the rise in unemployment was relatively
small, both internationally and historically.
Recovery of financial markets
The cautious recovery of the economy was preceded by a recovery
on the financial markets. At the close of the first quarter of 2009,
the uncertain and troubled situation on the financial markets came
to an end. Confidence in the financial sector was restored and
uncertainty diminished. This was accompanied by a decline in the
interest rate on corporate bonds as compared to the risk free rate.
Especially in the latter half of 2009, the stock exchanges also
showed signs of recovery; stock prices rose and price fluctuations
were smaller (see figure 2).
Figure 2 Votality of share prices in the United States and the
euro zone
Source: CEP2010 (CPB)
World economy and euro zone
The real world economy also showed cautious signs of recovery in
2009. In Asian countries (including Japan) GDP turned around and
started rising in the second quarter. Domestic spending in Asia
contributed to economic recovery elsewhere in the world. In the
euro zone, the United States and Japan, the economy expanded in
the second half of 2009. The recovery can partly be attributed to the
budgetary incentive measures, the non-restrictive monetary policy,
the improved situation on the financial markets and a positive
impetus from stock build-up in industry.
3. Government intervention
When the world economy seemed to have gone into free fall in late
2008 and early 2009, national governments, both in Europe and outside
of it, vigorously intervened. They took measures to support and
stimulate the economy in 2009 and 2010, and to restore the confidence
of consumers and business. In view of the reasonably favourable
national and international forecasts for economic growth in 2011, it
would seem that these interventions came at the right time.
Dutch measures and economic development
The government took measures to combat the financial and economic
crisis at several points. The year 2008 was primarily characterised by
unrest on financial markets, the year 2009 by the protracted effects of
the financial crisis on the real economy. The measures taken by the
Dutch government are in line with this. At the end of 2008 the
government had to intervene forcefully on the financial markets. These
interventions were outlined in the Financial Annual Report for 2008. 1
Crisis policy in 2009 basically aimed to cushion the effects of the crisis
on the real economy.
The Netherlands made huge efforts to stop the recession and to prevent
structural damage to the economy. Although the economic outlook for
2010 and 2011 is still uncertain, it does show that the Netherlands will
return to more or less normal structural growth rates of 1.5 and 2 per
cent respectively in those years. This is not to say that the expected
recovery can be fully attributed to the measures taken in the
Netherlands, Europe and the world. In its Central Economic Plan 2010
(CEP) the CPB analysed the consequences of government policy: what
would have happened if public finance had not cushioned the blow dealt
by the economic crisis as it did? The CPB also looked at the effects of
the extra government expenditures.
Supplementary Policy Agreement
A targeted package aimed at quickly and temporarily stimulating the
real economy was set forth in the Supplementary Policy Agreement,
concluded in the spring of 2009. First and foremost, this agreement
allowed the automatic stabilisers to operate in full. This means that the
government did not take austerity measures when less revenue started
to come in due to poor economic developments. In part because of this,
the budgetary deficit rose to 5.3 per cent (expressed as a percentage of
GDP). Ordinarily, the deficit would have been limited to a maximum of
3 per cent in accordance with the European rules of the Stability and
Growth Pact. If the government had not allowed the deficit to rise, but
had limited it to 3 per cent, then according to the CPB, the only option
would have been to cut spending while raising taxes by 11 billion euro
in 2009 and 25 billion euro in 2010. In that case economic growth
would have been lower by ¾ percentage point in 2009 and by 2
percentage points in 2010, so that economic contraction would have
continued in 2010.
Second, on the expenditures side, it was agreed that, for the time
being, extra funds would be reserved for higher spending on
unemployment benefits and for a reduction in the terms of trade. This
meant that on balance, 3.3bn euro more was spent in 2009. Allowing
the automatic stabilisers to operate (i.e. allowing the deficit to rise as a
consequence of rising unemployment expenditures and lower tax
revenues) was effective. This incentive moves in sync with the economy
and primarily finds its way to people whose income has dropped.
Third, the agreement included a targeted and temporary incentive
package to stimulate the economy with injections of 2.6bn euro in
2009 and 4.3bn euro in 2010. The incentive measures were aimed at
improving the liquidity position of businesses, protecting
employment for people in danger of being made redundant,
preventing youth unemployment, making the Dutch economy
sustainable and bringing forward infrastructure projects and housing
and other construction.
The measures to improve liquidity include monthly rather than
quarterly VAT returns and extra deductions from wage costs of
researchers. A number of capital market instruments have been
included, such as the SMEs Credit Guarantee Decree, the Business
Finance Guarantee and the Growth Facility.
1
Parliamentary papers II 2008/2009, 31 924, no. 1 (and see also the monitor in annex 5).
As part of the labour market measures, incentive budget has been
made available for the part-time unemployment benefits. The
cabinet has also invested in creating extra work placement jobs and
trainee positions for young people through the action plan to combat
youth unemployment. The Netherlands has been able to retain
highly qualified staff thanks to the scheme for leading high-tech
projects and knowledge workers, and funds have been made
available to launch new innovation projects and to accelerate
existing ones.
To strengthen economic sustainability of the country as a whole,
funding was made available to speed up execution of FES (Economic
Structure Enhancing Fund) projects for sustainable spatial
development, extra subsidies were made available for double glazing
and the VAT rate for insulation of homes was lowered. In addition,
extra funds were released for matters such as sustainable
agriculture and a cash-back scheme for scrapping old cars.
On the housing market, the national mortgage guarantee was
temporarily expanded and subsidies were made available to
stimulate the construction of new homes. Funds were also released
for construction plans of schools, care institutions and youth care
agencies. Finally, infrastructure projects were given the option to
accelerate construction. Examples of this are extra sand suppletions
and accelerated investments in maintenance of roads and civil
engineering projects.
In comparison with other countries, automatic stabilisers play a
larger role in the Dutch incentives and specific measures a smaller
one. It is the question whether specific measures always satisfy the
following criteria: they must be timely, temporary and targeted, and
effective. Only a partial answer can be given; the CPB investigates
the broad effects of extra expenditures or lower taxes, not their
specific aim or intention. Given the degree of uncertainty as to the
speed and the strength of economic recovery, it is unclear how to
optimise the phasing of incentives (expenditures/measures) over the
years. The effectiveness of economic crisis policy is another aspect
that is difficult to determine. For example, how effective is crisis
policy in restoring consumer and business confidence? This is an
extremely important element of economic recovery, but one that is
difficult to measure.
However, CPB has established that this incentive package and the
decision to set aside extra funds for unemployment benefits and
terms of trade slowed the contraction of GDP by around ¾
percentage point in 2009 and increased economic growth in 2010 by
approximately ½ percentage point. The Accountability Letter of the
Prime Minister discusses in greater detail the results of the specific
incentive measures. The measures are also reviewed in the
ministerial annual reports. 2
2
At the request of the Dutch Lower House, the integral notes on progress made with the
incentive package were annexed to the Provisional Accounts. Between the presentation of
the Provisional Accounts and the Final Accounts, a total of 12m euro in public funds was
moved from 2009 to 2010. Because this is a fairly minor change, the reader is referred to
annex 2 of the Provisional Accounts. The Spring Budget Memorandum will present a new
overview of the current pace of payments made out of the incentive package.
4. Public finance in 2009
Dutch public finance deteriorated dramatically in 2009. The expected
budgetary surplus, an EMU balance of 1.2 percent of GDP, turned
into a deficit of 5.3 per cent of GDP. This is a drop by 37bn euro.
EMU debt grew in 2009 from an expected 39.6 per cent of GDP to
60.9 per cent of GDP, or an increase of some 101bn euro. For the
Netherlands, these are unprecedented figures.
(% bbp)
Figure 3 Development of expectations for EMU balance and EMU
debt 2009 (%)
3%
120%
1%
100%
-1%
80%
-3%
60%
-5%
40%
-7%
20%
-9%
0%
MN
VJN
EMU-schuld (rechter as)
NJN
FJR
EMU-saldo (linker as)
MN = Budget Memorandum
VJN = Spring Budget Memorandum
NJN = Autumn Budget Memorandum
FJR = National Financial Annual Report
EMU debt (right axis)
EMU balance (left axis)
The deteriorating EMU balance was due to two factors. First, the
unfavourable economic developments caused government revenues
to decline sharply, particularly revenues from value added tax,
corporation tax and wage and income tax. Receipts were lower by
over 27bn euro (4.8 percentage points of GDP) in 2009 than was
expected on the basis of estimates. Second, government spending
was not lower but higher, increasing by 7bn euro more than the
estimate. This primarily involved higher spending on unemployment
benefits and the expenditures in the incentives package. Local
government also showed a higher deficit than expected in the 2009
budget (a rise of 3.2bn euro). Altogether, this means that the
general government balance deteriorated by more than 37bn euro,
which is 6.5 percentage points of GDP.
EMU debt increased by around 101bn euro. Around 37bn euro stems
directly from the budgetary deficit. Furthermore, EMU debt rose by
over 63bn euro as a result of the interventions in the financial
sector, such as the takeover of Fortis/ABN AMRO, capital
reinforcements and loans to banks (‘this is offset by assets’). The
figure of 63bn euro includes the repayments made in 2009.