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Monday, 19 September 2011

The ‘Miljoenennota’ (1): The Budget Memorandum of The Netherlands

With the information that should be officially published at ‘Prinsjesdag’(i.e. Day of the Princes: the opening of the Dutch parliamentary year), it is not the question if it’s leaked, but rather when it’s leaked.
In previous years, the Dutch commercial tv-station RTL4 was often the first to present leaked data from Prinsjesdag.
Frits Wester, RTL4’s (Dutch commercial TV-station) longterm parliamentary reporter, who is a genuine political heavy-weight and a former aide-de-camp for former CDA-leader Elco Brinkman, acquired these leaked official documents always from the proverbial ‘man with the Trilby hat and the mackintosh in a parking garage’:
·        the Macro-Economic Outlook;
·        the ‘Miljoenennota’ or Budget Memorandum;
Also this year, RTL4 seemed right on track with the leaked Macro-Economic Outlook 2011 and I even understood that it already possessed the Budget Memorandum 2012: the most important document of Prinsjesdag, if you don’t count the Queen’s speech that is mainly ceremonial.
At that moment, the webmasters of Dutch government site ‘’ decided to ferociously kick the ball in their own goal; not by leaking the Miljoenennota (Budget Memorandum), but by ‘just’ putting it online one day early. Without hyperlinks, but on a public page where it was found by an smart person that immediately put it on twitter.
This is the reason that I can present the highlights, main data and information from the Miljoenennota before it is even published officially.
Here are the highlights of the Miljoenennota for 2012, where applicable followed by my comments. Translated parts of the Miljoenennota are (like always) printed Italic. My comments are printed normally:
·    Forecasted central government income in 2012      €244 bln
·    Forecasted central government expenses in 2012   €257.4 bln
·    Forecasted total collective income                       €269.4 bln
·    Forecasted total collective expenses                    €287.2 bln
·    Total EMU – balance                                          € 17.8 bln
·    EMU-balance as a percentage of GDP                    -2.9%
·    The central government income is based on 15(!) different taxes, premium receivings of two national insurances and the receivings of natural gas sales.
·    Largest government spendings are: healthcare (€74,5 bln), Social Security and Labor Market (€69,9 bln) and Education, Culture and Science (€31,0 bln)
·    The cabinet is convinced that making cutbacks of €18+ bln  in governments costs helps to get the Dutch economy back on track.

In my ‘SMS from Ernst’ of September 15, I already stated that the Dutch government always tries to ‘cutback’ the economy out of trouble, just like the US government always tries to ‘spend’ the economy out of trouble. These are the Pavlov-reactions of both governments.

However, I’m convinced that in the US case a (Dutch) cutback regime would probably be a better course to run, while the Dutch government could use some quantitative easing.
That is at least, if you think that governments should ‘help’ the economy.

Unfortunately, this in general is NOT true, because governments usually take the wrong decisions and effectively slow down the recovery process, instead of speeding it up.

·     Due to the aging process in The Netherlands, the costs for healthcare and state pensions in The Netherlands will rise by 10% of GDP in the coming years.
·     The Central Planning Bureau ( concluded from their data that there is a sustainability deficit (foreseeable future expenses that are not covered yet) of €29 bln in Dutch finances, due to the costs of aging (see figure 1)
1 Cost increase, due to aging in Europe from 2007-2060 (Source: Miljoenennota)

·    Countries that were traditionally competitive in the past, maintained this advantage by reducing wage increases and carrying out structural reforms. However, countries that could only compete by devaluating their currency traditionally, took little measures. As rates were fixed within the Euro, they became increasingly less competitive. At the same time, the massive influx of cheap capital didn’t lead to initiatives to increase productivity, but to higher housing prices and excess public and private consumption.
This bullet explains largely the misery that the Euro-zone is in now and proves my case on government interference in the economy: Germany and The Netherlands actively interfered in the economy by advocating the medicine of unnatural wage increase reduction. How successful this policy might seem for both countries, it disturbed the trade balances in Europe.
Labour in Germany and The Netherlands became in fact too cheap and consumption dropped in both countries. This caused massive exports from Northwest-Europe to South-Europe and a massive influx of loans and money in the South-European countries enabling them for these exports. Of course, you can blame the peripherals for doing too little (or the wrong things) with their borrowed money, but you can also blame the Northwest European countries for disturbing the South-European markets. In this case, you could consider the Euro as more profitable for the Northwestern countries than for the Southern European countries.
·    This means that the countries in trouble should take all necessary measures to restore their budgets and to restore growing power.
Again, the Dutch government looks away from its own roll in the trouble of the South-European countries and puts the blame totally at these countries. The EU could help there maybe, by considering fining countries with excess export or subsidizing countries with too little exports in order to decrease their loan costs. Of course this is government intervention too, but this might restore the trade and capital balance within Europe.
·    The fact that many South-European countries have a trade deficit with almost all trade partners, points to lack of competitive power.
This is definitely true: not so much for Italy, but it is for Portugal, Spain and Greece.
·    The internal European market led to a increase of Dutch exports by 18%
·    At the moment, 60% of Dutch trade takes place within the Euro-zone. Germany is the biggest trade partner, but The Netherlands trades also heavily with Italy, Spain, Portugal, Greece and Ireland [the PIIGS-EL]: 12% of our total exports go to these countries.
·    The Dutch businesses and the financial sector have substantial possessions in South-Europe and Ireland, of which the value is now under pressure

This smells like potential debt destruction: this might be a harsh, but effective way to restore balances within Europe.

·    The credit crisis [Lehman – EL] increased Dutch debt by 20% of GDP.
·    In 2011 the average deficit in the Euro-zone will in our expectation decrease to 4.3% of GDP,  while deficits in the US, Japan and the UK are still 10.0, 9.7 and 8.4% of GDP. Seen in this light, the figures of the South-European member states are not extremely bad.

This statement seems like a ‘gotcha’ to the countries mentioned here. IMO it is always a stupid strategy to celebrate a victory, before the match is over. These figures are probably based on minor changes in the economy. But what, if major change comes?!

·    The cabinet will strive for reinforcing the European Stability and Growth Pact (SGP) with automatically enabled sanctions and stricter national rules.
·    The Dutch government spendings suffered substantially from the crisis. The governments budget showed a surplus of 0.5% of GDP in 2008. In 2009, there was a deficit of 5.6% of GDP.
·    In spite of the fact that the Dutch economy shrunk by 3.5% in 2009, the statical purchase power rose by 2%. But the bill cannot be passed to future generations without any costs. The financial buffers have been depleted, after the financial crisis in 2008 and 2009. The coming years the purchasing power of the Dutch citizens and government spending will be under pressure.

This bullet proves my previously stated opinion that the credit crisis didn’t hurt the Dutch very hard. And I’m sure that the effects of the credit crisis will start to set in the remainder of 2011 and the coming 5-10 years. The only thing that the government did was postponing the inevitable in 2009. But now the money’s gone and the crisis isn’t.

·    A consequence of the decreasing economic growth is that the EMU-deficit will be bigger in 2011 and 2012 than forecasted in the first half of 2011.
·    There is no financial room for extra stimulation of the Dutch economy.
·    The cabinet will also carry through extra cutbacks, when the EMU-deficit is more than 1% higher in the coming years than predicted at the beginning of this government stint. This is not yet true, but this could easily happen at the end of this cabinet periods, according to our current forecasts.
·    The government handed out large warranties to both banks and other European countries, as an effect of the credit crisis. These warranties are a risk for government finances.

This is almost the first times that the Dutch government admits that these warranties pose a risk for government finance. The Dutch government always acted in verbal expressions, as if those warrants were totally risk-free. Even last week, Finance-Minister De Jager acted as if we would get every cent back from our loans to Greece. I called this a blatant lie. And so does he now himself, seemingly.

·    The Dutch government only submits warrants, loans and insurances, when there is a public interest and the risks can’t be carried by the markets.

This seems like a smart statement, but at the first occasion (a default of Greece?; Italy?; Spain?) the banks will be bailed-out again… and again… and again…

·    In spite of the reduction of the EMU-deficit in 2011 and 2012 [which is not achieved yet!!! – EL], The Netherlands is yet far from repairing the damaged government finances. National debt was 45% of GDP in 2007. As a result of the crisis, the debt quote rose to 65%. Return to lower debt is not at all a ‘no-brainer’. At a structural growth of 1.5% [overly optimistic IMO – EL] and an inflation of 2%, the debt quote remains rising as long as the EMU-deficit is larger than 2.2% of GDP. At a balanced government budget, it still lasts at least until far behind 2020, until debt is back at 2007 levels.

And so far the Gungho attitude of Wouter Bos, the last Finance Minister, to save the large Dutch banks. These banks herewith socialized their losses, due to excess risk and are now again showing off with their ‘fake’ profits, based on still too optimistic risk profiles.

Here I stop this first part of the highlights of the ‘Miljoenennota’. The next part will be published tomorrow.


  1. My knowledge of Dutch is paltry, so can you tell me 'Miljoenennota' refers to planned expenditure or actual expenditure?