Help the people in trouble – not everyone

Is this the time to worry about the purchasing power of the Dutch? While Ukrainians experience unimaginable horrors? I fully understand the discomfort about the Dutch purchasing power concerns. We are lucky in a prosperous and safe country. I understand the reaction doubly well because I am by no means a fan of how politicians deal with the purchasing power figures of the Central Planning Bureau. Those pictures are a reality on paper: the CPB estimates what will change in purchasing power as a result of the government’s policy and its own forecasts about the economy. But they’re too theoretical to say anything about what people actually have left at the end of the month. The CPB is always clear about this. Yet governments are so eager for those paper pictures to show pluses that they turn all kinds of buttons in the tax system to get that done. An abomination with real effects: it complicates the tax system.

Nevertheless, the purchasing power estimate published by the CPB this week does deserve special attention.

Not because most Dutch people will probably lose out this year due to the high energy prices. The purchasing power of an average household will fall by 2.7 percent this year, the CPB estimates now – in the midst of an uncertain war and the future. (‘Average’ sounds nice and homely, but it’s CPB jargon: half of the households suffer less, the other half more.)

That 2.7 percent is a very exceptional minus, but as the CPB notes, most Dutch people can suffer that. For them it means making choices: using less energy or spending less on other things. Deal with it. As a country, we have simply become poorer because we pay those higher energy prices abroad. There’s nothing you can do about it. For comfort, remember that in the economically difficult corona year 2020, the reverse happened: then purchasing power increased by the same percentage.

No, this purchasing power estimate is important because the CPB showed that people with lower incomes are particularly hard hit. The economists warned that without aid, poverty will increase. And that people above the poverty line who have little buffer can also run into financial problems.

It was precisely for these vulnerable groups that the cabinet did too little when it lowered the tax on energy bills in October: with an average consumption of 400 euros. That was a gift for everyone, even those households that didn’t need it.

Such broad compensation is “soon very ineffective,” the CPB warned this week: “it is not necessary for everyone, and for those who need it, it is insufficient.”

On Friday, the cabinet only partly corrected that mistake. Roughly 800,000 households around the social minimum receive 800 euros as compensation. But the cabinet is now also accommodating everyone: the excise duties on petrol and diesel will be temporarily reduced, as will the VAT on energy bills. Various economists responded very critical† Higher incomes mainly benefit from cheaper fuel (because they drive more cars), noted Marieke Blom, chief economist at ING† It helps Russia, because it does capture higher prices without encouraging people to consume less, warned Mathijs Bouman† I would rather have given that 800 euros to a few more low-income households. Just before the municipal elections, the cabinet apparently could not resist.

Marike Stellinga is an economist and political reporter. She writes about politics and economics here every week.