The Netherlands set to exceed European spending guidelines; Only country to do so

The Dutch government’s mid-term spending plans, and its draft proposal for next year's annual budget, both exceed new European Commission guidelines for fiscal responsibility among European Union Member States. The Netherlands was the only country whose in the bloc that failed to meet standards in either of the two assessments, the Commission said on Tuesday.

The Netherlands will now have to make adjustments to budget spending, and possibly revenue generation or investments, to fall in line with the expectations from the EU's executive body. The European Commission has judged 21 of the 22 Member States on whether their government expenditure is aligned with the new spending rules. According to the Commission, the Netherlands' budget deficit is expected to increase from 0.2 percent in 2024 to 2.4 percent in 2026.

The European Commission believes that the Netherlands should draw up a new medium-term plan, said Valdis Dombrovskis, the European Commissioner for Trade. The EU Member States are required to comply with such recommendations.

While the Netherlands was criticized, the other 20 Member States were praised for plans that either reduced national debt levels or maintained adequate levels. The European Commission's review of mid-term plans submitted by Hungary is still in progress.

Not only did the Netherlands miss the mark on its mid-term planning, but the country’s draft budget for 2025 was also the only one that did not meet European requirements. A total of 17 annual budget plans have been reviewed by the Commission thus far.

When Prime Minister Dick Schoof’s Cabinet released their first-ever annual budget proposal in September, it was already clear that debt levels would rise to 548.4 billion euros if the budget made its way intact through Parliament. That amount is roughly equivalent to 46.6 percent of gross domestic product, the Ministry of Finance said at the time. This would likely increase the debt-to-GDP ratio for the first time in five years, creating a deficit of 31.9 billion euros.

“The Netherlands is assessed to be not in line with the recommendation, as the net expenditure is projected above the ceilings,” said European Commissioner for Economy Paolo Gentiloni on Tuesday. Lithuania’s budget also risks not being in line with economic governance rules.

Among the issues raised were Cabinet plans to lower various taxes in different measure, and how the Dutch State will have to compensate people who overpaid Box 3 asset taxes. Domestic courts ruled that the country unfairly used a model to assess taxes based on fictional capital gains. This meant that those households with assets in real estate or company shareholdings paid a much lower effective tax on their gains, compared to those who kept money in savings accounts earning next-to-nothing in interest.

The compensation for those who overpaid their taxes will increase the deficit by roughly 0.5 percentage points next year, the European Commission projected in its autumn review of the economies of Member States. The Commission also took issue with plans to adjust the retirement scheme for people who served in the Dutch military.

Conversely, there were eight countries which passed the review of their annual budgets without issue, specifically Croatia, Cyprus, France, Greece, Italy, Slovakia, and Slovenia. Estonia, Finland, Germany, and Ireland were told their net expenditure would be too high, while Luxembourg, Malta, and Portugal need to phase out emergency energy subsidies to be in compliance.