The Dutch government is likely to face renewed public opposition following the unveiling of a EUR6-billion (USD8-billion) austerity budget for 2014 and Prime Minister Mark Rutte may have to bring an opposition party into the centrist coalition administration in order to pass the bill.
IHS Global Insight perspective | |
Significance | The Dutch government is highly likely to face renewed public opposition to the submission of a EUR6-billion (USD8-billion) austerity package. Spending cuts, higher taxes, and an underlying threat to the traditional welfare state model risk further weakening political consensus on the pace of the effort to reduce the deficit below the EU ceiling. |
Implications | The Federation Dutch Labour Movement (Federatie Nederlandse Vakbeweging: FNV), the country's largest trade union federation, is organising a "national day of action" for 30 November in protest against the government's budget cuts and in support of a 3% wage increase in the context of collective bargaining negotiations. |
Outlook | Prime Minister Mark Rutte may potentially have to reshuffle and stabilise the ruling centrist coalition by bringing an opposition party into the administration in order to pass the 2014 budget in the Senate (upper house of parliament). |
Finance Minister Jeroen Dijsselbloem submitted the Dutch 2014 budget memorandum to parliament yesterday (17 September). The annual budget day submission saw the Dutch monarch address a joint session of parliament (Prinsjesdag) in a speech outlining the government's future policy direction (see Netherlands: 28 August 2013: Dutch coalition agrees new spending cuts, anti-austerity resistance set to intensify). The budgetary measures outlined include provisions for lower healthcare refunds, a reduction in social welfare, and further sharp cuts in defence spending. Ministers have described the package as an end to the "classic welfare state" model. However, the government did appear to backtrack on moves to freeze public-sector salaries in 2014, although a temporary 2013 "crisis levy" will be extended. The tax payable by employers is relevant for businesses employing workers on more than EUR150,000 (USD200,316) per annum. The budget plan comes on top of a four-year EUR16-billion reduction in spending and tax increases passed by the Dutch government in November 2012, EUR3.5 billion of which is earmarked for 2014.
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Finance Minister Jeroen Dijsselbloem at a meeting of Ministers |
The centrist coalition government comprising the People's Party for Freedom and Democracy (Volkspartij voor Vrijheid en Democratie: VVD) and the Labour Party (Partij van de Arbeid: PvdA) has a majority in the lower house of parliament to pass the 2014 budget bill. However, it will be forced to depend on smaller opposition parties – such as Democrats 66 (Democraten 66: D66) and the Christian Democratic Party (Christen-Democratische Partij: CDP) – to win approval as the government lacks a majority in the Senate (upper house). The D66 and CDP reaction to aspects of the budget memorandum has not been favourable. However, the leadership of both parties has indicated that they are open to backing the budget – subject to political concessions on higher investment in education and reducing the financial burden on households.
IHS Global Insight assesses that the D66 is likely to support the government, although in order to avert the possibility of an early election Prime Minister Mark Rutte could potentially be forced to bring this liberal-progressive party into his coalition government. This would shore up the government's parliamentary support in the Senate but would also mean a cabinet reshuffle, and once in government the centrist D66 would be likely to put the policy of a public-sector pay freeze in 2014 back on the political agenda, as well as seeking to accelerate labour market and pension sector reforms. The coming weeks are set to see extensive rounds of policy trading among the ruling and opposition parties, ensuring that the government's budget proposals are not cast in concrete. Amendments are likely prior to a vote later this year.
A failure to pass the budgetary measures would cause a government collapse and an early election. However, the ruling parties are likely to opt to expand the composition of the coalition formation instead. In recent months opinion polls have consistently shown falling support for the liberal-labour coalition. Both parties would be likely to lose up to half of the 79 seats (out of 150 in the House of Representatives) they won at the 2012 election. In comparison the far-right Party of Freedom (Partij voor de Vrijheid: PVV) would be difficult to keep out of a future coalition administration. The hard-left Socialist Party (Socialistische Partij: SP) has also made sizeable gains in the polls, reflecting deepening public frustration with ongoing austerity. Polling shows the pro-business and pro-European liberal-labour coalition administration down in popularity, with voters switching their preferences to Eurosceptic opposition parties. The anti-immigration and anti-Euro right-wing PVV now tops the polls and its leader, Geert Wilders, is threatening anti-austerity demonstrations. The Federation Dutch Labour Movement (Federatie Nederlandse Vakbeweging: FNV) union is also calling for a "national day of action" on 30 November.
Outlook and implications
Although the government is at an increased risk of collapse, we assess that the liberal-labour coalition is likely to find opposition partners to support the passage of the 2014 budget. However, the unpopularity of those budgetary measures will make it more difficult for the government, and the struggle to pass the legislation is likely to be prolonged. The European Commission will assess the Netherlands' budget proposals in mid-October to determine whether they do enough to bring the deficit below the EU target of 3% of GDP by 2015. The Commission is likely to show some leeway over the budgetary projections.