Fiscal Balance in Netherlands

Netherlands - Fiscal Balance

Government announces fiscal aid measures to support economy amid coronavirus outbreak

In response to the economic fallout from the Covid-19 pandemic, the Dutch government announced various fiscal measures in mid-March, with around EUR 10–20 billion to be spent over the next few months. Given the healthy government finances, the measures—which range from an extension of credit guarantees to tax deferrals and income subsidies—should not cause any major fiscal problems. However, they are unlikely to ward off a significant hit to the economy.

The credit guarantee scheme has been extended and expanded, while the corporate finance guarentee scheme has been enlarged to include bigger firms and loans. The authorities also announced that large tax payments can be deferred, the interest rate on late debt payments has been reduced to almost zero, and crisis-hit firms may request revisions to their provisional tax bill. Furthermore, the working time reduction scheme has been adjusted to compensate firms for labor costs, with employees’ salaries to be heavily subsidized conditional on a 20% drop in turnover and the continuation of employment. These measures should ease some liquidity concerns in the private sector. Lastly, the government will provide income support of EUR 1,500 per month for up to three months for self-employed people, which should somewhat buttress consumption.

Carlijn Prins and Nic Vrieselaar, senior economists at Rabobank, noted: “The measures taken by governments and (central) banks will not be able to completely prevent corporate profits to take a hit and unemployment to rise. For 2020, we therefore expect economic growth to turn into a contraction of 0.2 percent. We assume that the virus outbreak will come under control in the second quarter, bringing the economy back to normal in the second half of 2020 and 2021.”

The economy is expected to take a big hit from the global health crisis as it weighs on domestic and global economic activity. FocusEconomics Consensus Forecast panelists see GDP contracting 3.9% in 2020, which is down 5.3 percentage points from last month’s projection. For 2021, the panel forecasts the economy to expand 3.9%.