Dutch government's billions in Covid support prevented at least 12,500 bankruptcies

The billions of euros in coronavirus support measures the Dutch government provided during the pandemic prevented at least 12,500 bankruptcies in the past four years, Rabobank concluded based on new bankruptcy models. Without the support, the Netherlands could have faced high unemployment and a bigger recession. While successful, the government intervention also came with a high price tag and likely hampered healthy business dynamics by keeping non-viable companies afloat, the bank said.

Rabobank called the figure of 12,500 prevented bankruptcies a conservative estimate because its calculations took limited account of the fact that the Dutch economy could have fallen into an even deeper trough if government support had not been provided.

The government made substantial support packages available during the pandemic, including the wage costs subsidy NOW, the fixed costs allowance for SMEs TVL, and the deferral of tax payments. The NOW and TVL schemes have saved at least 4,000 companies from bankruptcy, and tax deferral kept at least 8,500 companies afloat. The bank calculated. The improved starting position provided by these support measures, despite the repayment of coronavirus debt, will likely save another 5,000 companies up to the end of 2027.

“We do expect that repaying the deferred taxes will lead to 1,500 additional bankruptcies in the coming years compared to a situation in which the support would not have been repaid,” Rabobank said. “But the negative effect of this is roughly equal to the ongoing positive effect of the NOW and TVL.”

The government support was, therefore, successful. Without support, the pandemic could have led to a large wave of bankruptcies that also toppled healthy companies, the bank said. “This would have resulted in unnecessary destruction of capital, knowledge, and skills. Furthermore, without government support, confidence in the economy may have taken a nosedive, resulting in a (sharp) increase in unemployment and a contraction of the economy that would have been much deeper than was the case now.”

“However, some critical comments are also appropriate,” the Rabobank researchers said. Firstly, the government support came with high public costs, as the Bureau for Economic Policy Analysis (CPB) calculated in a recent evaluation. The CPB concluded that the support lasted too long and was not targeted enough.

Secondly, the coronavirus support kept many non-viable companies afloat, likely hampering business dynamics in the Netherlands. “This is not only visible in the historically low number of bankruptcies in recent years,” Rabobank said. “It is also suggested by an increase in the share of non-viable companies, a steadily declining productivity growth, and since 2022, even a declining labor productivity level.”

Sufficient business dynamics are essential for a healthy economy. “Unprofitable, non-viable companies are pushed out of the market, and scarce production factors (labor, land, capital) are released for more productive companies,” Rabobank said. “This process of creative destruction ensures innovation and more efficient market operation in the long term. The process also requires a restrained government where possible.”