Billion-dollar windfall: the budget deficit turns out to be ten times smaller than expected

The alarm bells were already going off. The budget deficit would amount to 3 percent last year, the forecast was in early 2023. By the summer, this was adjusted to 2.2 percent. Then to 1.5, no, 1 percent.

Thanks to the Central Bureau of Statistics, we now know the final figure: 0.3 percent. In other words, in 2023 the government ultimately spent 3.5 billion euros more than it received, much more favorable than a minus of approximately 30 billion – on an economy of 1,000 billion euros. Even in the autumn, the government still expected the deficit to amount to 18 billion euros.

These are not marginal differences. Anyone who records a deficit of 3 percent has some explaining to do in Brussels: the European governments have mutually agreed that they would rather not allow the deficit to exceed that percentage. A high deficit also increases the national debt. And voters like frugal treasuries who make the budget deficit a priority.

So the current cabinet can be happy. While the Council of State warned in May last year that the government team was “steering close to the guardrail” by budgeting well over its limits, the final settlement that Rutte IV leaves behind now looks like a sunny route without a single obstacle in sight.

Also read: Kaag’s sudden departure from The Hague is not unexpected for several reasons

National debt

That feeling will be even stronger for Sigrid Kaag. In recent years, the D66-huize Minister of Finance has often been criticized for spending too much money, such as on the climate and nitrogen funds and the large support packages aimed at dampening energy prices.

Now Kaag, who left the cabinet in December to work for the UN in Israel and Palestine, can look back on a term in government in which the national debt fell to below 50 percent of GDP.

Has the guardrail really disappeared? There are some caveats to this optimism. Steven van Weyenberg, Kaag’s party colleague and successor at the Ministry of Finance, provided an explanation on Monday immediately after the CBS figures.

Cabinets have been ending with more positive figures than expected for years

The majority of the windfalls are one-off, Van Weyenberg wrote to the House of Representatives. The next cabinet cannot therefore count itself rich yet. Some windfalls now will even lead to setbacks in the future.

An example: the government has raised billions of euros extra because major shareholder directors have paid out much more dividends and paid taxes on them. They did this because they will pay more tax on such dividend payments from this year onwards. That yielded more than 4 billion euros, writes Van Weyenberg, but that tax item will probably yield less next year.

Underexhaustion

The government also appears to be once again struggling with under-exhaustion: many ministries are unable to actually spend money in the budget, for example because it is difficult to find staff in the tight labor market. The fact that the budget subsequently looks good is little consolation.

What is certain is that this is not the first year in which the budget deficit is difficult to predict. A comparison of the predicted and final budget deficits shows that successive governments have been ending for years with much more positive figures than expected.

This is relevant now that government finances are going to play a leading role in the attempt by PVV, VVD, NSC and BBB to form a right-wing cabinet. Negotiations formally started this week. Agreements on the budget deficit serve as a logical anchor in such conversations.

On Sunday, VVD leader Dilan Yesilgöz and PVV leader Geert Wilders were still at odds over whether cuts should be made at all. Yesilgöz advocates that, Wilders is against it.

For NSC leader Pieter Omtzigt, estimates of setbacks in February were reason to walk away from a previous formation attempt.

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Yesilgöz and Wilders are publicly at each other’s throats about budget cuts

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