Cabinet with financial drive

It can’t go on. The new cabinet wants to make tens of billions of euros in extra expenditure. Sometimes once, sometimes structurally. If everything goes according to plan, the coming cabinet will spend almost 28 billion euros more in its last year of government, 2025.

Education, defence, childcare, new infrastructure, solving the nitrogen problem, combating climate change and the shortage of housing. For almost every problem there is a pot of money in the coalition agreement of VVD, D66, CDA and ChristenUnie.

If anything characterizes the forthcoming cabinet, it is the immense expenditure it is willing to incur. After Rutte I, which brooded on budget cuts and stumbled when the PVV no longer wanted to participate, followed Rutte II, in which VVD and PvdA radically reorganized government finances. Then came Rutte III, which started spending sparsely again, but only really pulled the wallet during the corona crisis. And now it is Rutte IV’s turn, a cabinet that wants to tackle the problems with a loaded bazooka full of money. It’s an unprecedented turnaround.

Velvet Revolution

Rutte IV must become a cabinet of great ambitions. The big mountain of money is the lubricant with which the four coalition parties want to realize their big plans without hurting anyone much. This results in the two funds announced by the coalition agreement.

One: a EUR 35 billion climate fund that is generous to companies that are greening their gas-fired power stations, start using hydrogen or want to build nuclear power plants, and for citizens who want to insulate their homes. The other: a 25 billion nitrogen fund that should offer farmers a reasonable price to farm elsewhere.

Those two transformations will not be completely painless. Those who emit greenhouse gases will simply pay more. Force will sometimes be unavoidable when buying out farmers. But the biggest plans in the coalition agreement are more like a velvet revolution. The cabinet promises to increase the green targets and gives a soft landing to those who have to pay the highest price for this: the industry in IJmuiden, the dairy farmer in the Veluwe.

And it doesn’t stop with the two funds. Take the pot of money with which the coalition parties want to subsidize infrastructure to make the construction of new residential areas more affordable for the builder: 7.5 billion. Or the money to build a Lely line to and from the northern provinces: 3 billion. Billions are even structurally released for education and defense. That amount will continue to increase in the coming years: in 2025 the ministries will each have an extra 4.2 billion to spend.

By spending the largest expenditures through funds and other one-off pots, the coming cabinet will also make its own urge to act painless for itself. Yes, the new finance minister will soon recognize that the national debt is rising from 57.5 percent of GDP to 60.4 percent in 2025. But, it will sound like, that is a one-time bump. When the money runs out, the funds are closed, the national debt stops rising and the budget is back to normal.

In this way the cabinet can present itself as a neat treasury keeper – and still spend money on the turbo.

Not everyone will be happy about it. Precisely this cabinet with all its grand plans is breaking with the tradition of having the coalition agreement calculated directly by the planning offices. There was no time, the coalition says. As a result, an independent assessment of the plans is now not required. A calculation by the economists of the Central Planning Bureau will have to wait until next year.

That can sometimes be critical. On Budget Day, the CPB was already skeptical about the plans for large, new publications that were buzzing among political parties at the time. Extra expenditure is not necessary for everything, the CPB said at the time: a new cabinet can, for example, also impose standards on companies when it comes to climate policy. Why a soft landing when hard rules are enough?

Spending money is not easy

The spending pattern of the coalition agreement is not completely unlimited. The new coalition is not generous with extra expenditure in one area: health care. There it is trying to reduce expenditure growth in the long run. This is sensitive after the corona crisis, but fits with the warnings that have been sounding for years about rising healthcare costs, recently from the Scientific Council for Government Policy. Without sharp choices, the costs would have tripled by 2060, the WRR predicts.

And while taxes are dwarfed by the extra expenditure, they are going up. On Wednesday, during the presentation of the agreement, the coalition parties proudly announced that their agreement contains 3 billion euros in tax relief. That’s right, but they do not outweigh the tax increases that Rutte III already had in store for the coming years. The conclusion, also taking into account the new taxes: at the end of the government’s term of office, companies and citizens will not pay less, but more tax.

The biggest question is not whether the government wants to spend, but whether it will succeed. That proved difficult for the current Rutte III cabinet, while that government team had much more modest plans. An additional problem for the new cabinet is the tight labor market: unemployment is low and there are many vacancies. Extra money for childcare is nice, but there is already a shortage of staff there. And can professionals be found to build all those roads and railways, to upgrade the electricity grids and to insulate houses?

Moreover, in an economy that is already struggling with a shortage of personnel, all that extra government money can further boost the already increased inflation, the economists of the CPB also warned on Budget Day. According to the four parties, this will only pose a problem for public finances if interest rates rise, they write in the agreement. Then the state will have to pay more for all the extra money it wants to borrow in the coming years.

The cabinet starts with a favorable star. The economy is growing, interest rates are low, the plans are ambitious, the relations are good. The coalition can hope that this perfect picture remains.