Dutch finance minister relies on austerity and free markets

Eelco Heinen’s first budget as finance minister differed significantly from the ambitious, high-spending plans of the Rutte era.

The VVD minister painted a picture of the Netherlands as a prosperous country that consistently ranks at the top of international rankings in the areas of health, prosperity and happiness.

It is not a “coincidence or a law of nature,” said Heinen, but a just reward for the hard work and sensible decisions of the Dutch.

But these fruits were jeopardised by the reckless spending of his predecessors, which the finance minister almost described as such, and which drove up the national debt and the annual deficit. “This really has to stop,” said Heinen.

“Every euro is the result of the hard work of ordinary Dutch people who expect us to use their tax money responsibly,” he said. “This requires a change of course, back to budgetary discipline and clear agreements on budgetary rules.”

At first glance, public finances appear to be healthy. The economy is expected to grow by 0.6% this year, after emerging from a brief recession, and by 1.5% in 2025.

Preventive savings measures

The government’s plans are expected to increase purchasing power by an average of 0.7 percent, while the number of people living below the poverty line will fall to 4.7 percent.

The budget deficit and public debt will be well within the EU limits of three and 60 percent of GDP respectively.

However, Heinen said the Netherlands must now enter a phase of preventive austerity to avoid future generations having to pay the price.

“This cabinet will use its limited resources sparingly so that we can adapt to the changing circumstances and the generations after us can also benefit from them,” he said.

“Although government debt appears low at present, we see the deficit and debt growing as a result of rising spending.”

A total of 430 million euros in savings are planned in the areas of education, culture and science. Cuts are also planned in the health and social sectors. The number of employees in the public sector is to be reduced by 22 percent.

International development aid is to be cut and the duration of unemployment benefits is to be shortened.

Making work worthwhile

The latter is part of Heinen’s campaign to “make work pay,” another right-wing slogan that also includes a new lower tax bracket to cut costs for low earners. The biggest beneficiaries will not be low earners, whose purchasing power will rise by 0.5%, but those earning just below the average, who will get a 1.1% increase.

Curiously, the purchasing power of benefit recipients will increase by 0.9 percent next year, but in the long term the VVD wants to shift the balance in favor of the working population. The health insurance subsidy for low-income earners will increase by a maximum of 6.50 euros per month, although premiums are set to rise by about 10 euros.

Social security will be primarily focused on lifting people out of poverty to ensure that “no one in a wealthy country needs to worry about paying their bills”. The government has maintained the free school meals programme and promised to build more affordable housing.

Funding pots emptied

The long-term investment plans of Mark Rutte’s cabinet are being scaled back or cancelled and restructured. “The government should not subsidise and compensate everything,” said Heinen.

The 25 billion euros to finance the purchase of farmers to reduce nitrogen pollution has been cut to five billion euros, the fund for the energy transition is being diverted to “green growth” and the innovation fund set up four years ago is being abolished, even though it still had almost eight billion euros in its account.

Instead, Heinen clearly committed himself to another liberal flagship: the free market. The government’s plans to encourage more private capital include reducing the property transfer tax on second homes to 8% and maintaining the dividend tax exemption for companies that buy back their own shares.

30% rule maintained

The same pressure has led the government to almost completely reverse a parliamentary decision taken last year to cut the 30% expat tax that exempts some foreign professionals from paying taxes on part of their income. The tax-free portion will now be cut to 27% for the entire five-year period.

The Netherlands has benefited from its open economy and strong trade relations, with EU membership being the main focus, said Heinen – a statement that is unlikely to be fully welcomed by the more eurosceptic parties in the coalition, such as the PVV and the BBB.

“The EU internal market is very beneficial for us and it is crucial that we remain part of it and strengthen our position,” he said.

Threat of state aid

But European companies are facing “emerging power blocs” that are distorting the market with state aid, putting pressure on European countries from within to do the same. “In the long term, this can harm growth,” said Heinen.

The budget provides for additional spending, especially in the VVD’s preferred areas such as defence and law and order. Defence spending will be increased to meet NATO’s 2% target from next year, reflecting the Netherlands’ new self-image as a guardian of global security.

In addition, a further €130 million will be invested in border controls – as part of the government’s broader anti-migration measures, which Heinen says are crucial for the economy to thrive.

“In a decent country where there is always room for people in need, there should be no need to worry about uncontrolled migration,” he said. “And yet people are worried about these things, and we have to take those concerns seriously.”

Concern about cuts

Some of Heinen’s plans appear contradictory. His ambitions for a stronger role within the EU risk being undermined by the government’s demands for an opt-out on asylum quotas and an exemption from restrictions on agriculture, not to mention plans to cut EU funding by €1.6 billion.

The government’s economic policy advisers, the Bureau for Economic Policy Analysis CPB and the Agency for Social Analysis SCP, criticized the plans as vague and insufficiently substantiated.

They said that cuts to research and innovation risk sacrificing long-term benefits for short-term gains – exactly the scenario Heinen says he wants to avoid.

And one of the most criticized measures in the budget is the elimination of funding for the volunteer program for young people, known as regular service time. The system has been praised for providing disadvantaged and at-risk young people with the skills and experiences they need to participate in society.

But Heinen insisted that the era of “free money” was over. “Money is not free,” he said. “Those days are over. The bills have to be paid.”

The most important financial points of the budget

Taxes and premiums

• A new tax bracket will be introduced, covering income up to 38,441 euros and meaning a tax rate of 35.82%, just over one percentage point less than the current rate.
• Between 38,441 euros and 76,816 euros the rate increases to 37.48 percent, above that it remains unchanged at 49.5 percent.
• Overall, purchasing power increases by an average of 0.7%
• The 30% rule will be reduced to 27% and will continue to apply for five years. However, the minimum salary for qualification will increase from €46,107 to €50,436.
• The gambling tax will rise in two stages to 37.8%
• Real estate transfer tax for investors drops from 10.4% to 8% in 2026

Public finances

• Economic growth will reach 0.6% this year and 1.5% in 2025
• The budget deficit will reach 1.8% this year and 2.5% in 2025
• The share of households living in poverty will fall by 0.1 percentage points to 4.4% next year, and the number of children growing up in a poor household (4.7%) will not change.

Further fiscal measures

• From 2027, solar system owners will no longer be able to deduct the amount of energy they feed into the power grid from their electricity bills.
• The government is setting up a special “energy fund” of 60 million euros to help the poorest families pay their energy bills.
• According to Nibud’s calculations, the gas tax will fall by an average of 33 euros per household per year.
• No tax increases on petrol, diesel and LPG
• Plans to abolish tax relief for corporate charitable donations have been postponed by a year
• VAT on culture, sporting events and gyms, books and hotels will rise from 9% to 21%

Further measures

• Train tickets will become 6% more expensive, not 12% as previously stated
• The king, queen, their mother and their eldest daughter will have 7% more money to spend next year. Ordinary wages are expected to rise by 4.3% in 2025.
• Schools receive compensation for VAT increase on school books
• Health benefits will increase by a maximum of 6.50 euros per month, and the government expects health insurance contributions to increase by 10 euros per month.
• The Ministry of Education expects to save 293 million euros annually by reducing the number of foreign students and to raise 282 million euros by increasing fees for low-performing students.
• 360 million euros will be saved by cutting “subsidies” for education and culture. Further details will be published in November.

More to follow