Higher benefits, wage increases behind rise in government debt

Dutch government expenditures were even more in the red last year than previously expected. The deficit of 0.4 percent was the second highest since 2015, equating to 3.8 billion euros, according to a final calculation by Statistics Netherlands. The initial estimate released in March pegged the deficit at 0.3 percent.

The worst deficit in the past ten years was recorded in 2020, the first year of the coronavirus pandemic. At that time, the budget deficit was much higher at 4 percent. Last year, the budget deficit was at 0.1 percent.

In particular, expenditure on social benefits and civil servant salaries increased significantly in 2023. Despite this, it is still far below the maximum European Union standard of 3 percent. The Netherlands Bureau for Economic Policy Analysis (CPB) is expecting the deficit for this year to rise to 2.2 percent due to increased expenditures.

Benefits are by far the most significant government expenditure, accounting for almost half of the total, and they also rose the fastest. The costs in the care sector also rose, with over 7 billion euros spent on basic and long-term care. However, the government also spent more on the AOW State pension due to the increase in the minimum wage. The pension hike rose along with the minimum wage by an initial 10 percent, and then again by 3 percent. The cost increase of almost four billion euros is by far the largest since the start of this measurement method in 1995.

The wage increases to compensate for the high rate of inflation also resulted in the government paying its staff more. This was mainly why the operating costs, the government's second-largest item, rose by 9 percent more than in previous years. Additionally, billions of euros also went to the price ceiling for energy and debt repayments last year.

At the same time, revenue was more than 30 billion euros more than in 2023, a 9 percent increase due to higher taxes and social security contributions. But it was not enough to fully cover the higher expenditure. Wage and income tax yielded much more for the government because of better collective labor agreements, as did value added tax collected on top of rising prices for products and services.

Income from the dividend tax more than doubled to more than 11 billion euros. Statistics Netherlands thinks that is due to a new arrangement this year, which has seen high incomes being taxed more heavily, which is why major shareholders already chose to distribute more profits to themselves last year.