War in Ukraine a hard blow to Dutch purchasing power; 2.5% loss expected: Reports
Purchasing power in the Netherlands is expected to worsen by 2.5 percent this year, the Central Planning Bureau will announce on Wednesday, sources told RTL Nieuws and NOS. Last week, the director of the CPB already warned that low-income households in the Netherlands are most likely to be seriously impacted by the economic blow caused by the Russian invasion of Ukraine.
At the beginning of the year, purchasing power was actually predicted to gain by 0.6 percent, with some further optimism about economic recovery after the Omicron wave of coronavirus infections. Even with a minimal improvement, the elderly were expected to be hard-hit.
As inflation levels soared to record heights amid the escalating price of natural gas and other fossil fuels, Prime Minister Mark Rutte said it was clear something would have to be done to improve the situation. He refused to commit to any plans until more research was carried out.
The coalition is still divided on how best to deal with the issue, RTL News reported. Rutte did say last week that the Cabinet’s immediate focus will be on low- and middle-income households.
Now that it is known that predictions regarding purchasing power have taken a harsh turn for the worse, the Cabinet is expected to soon announce a plan for tackling the issue. Over the weekend, Finance Minister Sigrid Kaag said she was “massively concerned” about inflation and soaring energy costs. The price of petrol at highway stations is at an all-time high of €2.452 per liter, and diesel is at €2.176, according to United Consumers.
In addition to fuel price spikes both before and after the invasion of Ukraine, the cost of raw materials, beverages, and food have all escalated rapidly. The war is even expected to cause the price of bread and pasta to jump up because of its impact on the wheat harvest.
Kaag said she did not want to see an immediate reduction in VAT levied on petrol or diesel, because the Cabinet needs the tax revenue to fund other social measures. “It may sound easy, but the bakers and construction workers do not care how they are helped in the end, as long as there is relief,” Kaag said to NOS.
She also pledged that the Cabinet would soon present a concrete plan to address the financial hardships many households and business owners face.