Poverty will decrease due to new budget proposal, but Dutch deficit will grow

The number of people living in poverty will decrease due to the measures announced in the 2023 budget program. Without the Cabinet intervening to slow or prevent the consequences of astronomically high inflation, the Central Planning Office (CPB) predicted a sharp increase in poverty. The government's office for economic policy analysis said that the gigantic package of measures being introduced to help the public will ensure that this trend is reversed.

The package of measures was officially presented on Tuesday during the program for Prinsjesdag, the annual deadline for the Cabinet to present its budget proposal for the upcoming year. In a new estimate released on Budget Day, the CPB said it expects 833,000 people to be living below the poverty line in the Netherlands next year, down from 1.15 million. In August, the planning office projected that the number of people in poverty would increase by about 150,000 to a total of almost 1.3 million people.

It previously leaked out that the CPB is counting on an increase in purchasing power by an average of 3.9 percent next year thanks to government interventions, such as the increase in the minimum wage and related benefits. That will make up for a proportion of the 6.8 percent loss in purchasing power expected this year. In August, the CPB painted a gloomy picture of inflation, which should remain at a high level of 4.3 percent in 2023.

The CPB now expects inflation to hold hold at about 2.6 percent next year. That said, the CPB's report on macroeconomic outlook for the Netherlands, published annually on Budget Day, noted the great deal of uncertainty which remains. Even until Monday night, the Cabinet was still in negotiations about measures against unaffordable household energy bills which were not included in the calculations.

The government is now introducing a price cap for gas and electricity, as well as an emergency fund to prevent families from being left out in the cold this winter. The CPB assumes that its estimate will remain more or less the same if the amounts that the government spends on it remains the same. That would be the case, for example, if billions of euros for new energy measures are covered by the reversal of the energy tax cut, an earlier measure against poverty. But if the government spends billions more, the figures from the CPB estimate are essentially worthless. Purchasing power figures would then improve, but public finances will be in worse shape.

In the current estimate, the economy is growing faster than previously expected. Gross domestic product will increase by 1.5 percent next year, compared to 1.1 percent in the August estimate. That is still a significant slowdown compared to this year, in which the economy is expected to grow by 4.6 percent. The government deficit will rise significantly next year due to the extra expenditures by more than double the deficit estimated in August.

In order to pay for all of its plans, the Cabinet said it will temporarily increase the budget deficit. Next year, the deficit will be about 3 percent of gross domestic product (GDP). That is just within the budgetary norm that the European Union usually uses.

At 49.5% of GDP, the national debt remains well within the European budgetary agreements. But the situation looks less rosy over the long term. Due to the persistent deficits, government debt may exceed the limit of 60 percent of GDP by 2030.

Rising government debt has hardly been a problem in recent years, given the historically low interest rates on government bonds. For some time, the Netherlands actually turned a profit on money that it borrowed on the capital market. But that time seems to have passed. Rising interest rates on the national debt are leading to "additional pressure on the budget," according to the Ministry of Finance.