Government budget surplus up to 1.5 percent in 2018

The government balance and government debt are the most important government finance indicators. The European Union’s standards in this regard are to keep to a maximum deficit to GDP ratio of 3 percent and a maximum debt ratio of 60 percent of GDP.

Since 2013 , the Netherlands has not breached the 3 percent deficit ceiling. In 2018, the Dutch government achieved a budget surplus for the second consecutive year. During the presentation of the Budget Memorandum for 2019, the Ministry of Finance assumed a surplus of 0.8 percent of GDP. The realised surplus of 1.5 percent is considerably higher.

Government debt dropped below the European ceiling in 2017. After reaching a high in 2014 (67.9 percent), it stood at 52.4 percent at the end of 2018, totalling more than 405 billion euros or over 23 thousand euros per capita.

Tax and social security burden at record high

Public revenue rose by 4.7 percent to 337 billion euros, mainly due to higher taxes and statutory contributions, which represent the bulk of the government revenues. As these revenues increased more rapidly than GDP, the tax and social security burden rose to 38.4 percent of GDP. Since the introduction of the current measurement method in 1995, the tax and social security burden has not been this high.

Last year’s increase in taxes and premiums of 14 billion euros was largely attributable to the collection of VAT, corporate tax and wage and income taxes. A relatively strong increase (each by over 10 percent) was seen in proceeds from dividend taxation, a surcharge on the energy bill, tax on capital transfers, excise duties on tobacco, passenger car and motor vehicle taxation, and taxation on betting and gambling. This was partly due to adjustments in various tax rates.

The Dutch bank ING agreed on a settlement with the Public Prosecution Service, which contributed 0.8 billion euros to public revenue. The scaling down of natural gas extraction resulted in a 0.7 billion euro drop in income from mineral reserves.

Sharp increase in public expenditure

In 2018, government expenditure rose by 4.1 percent to 326 billion euros. Spending was stable for a long time as of 2010, but started to rise noticeably in 2017 with an increase of nearly 5 billion euros that year. At nearly 13 billion euros, the increase was considerably higher in 2018. Last year, central government mainly spent more on labour cost and care, both totalling over 2 billion euros. The government was required to pay 1.5 billion euros more in contributions to the EU and also spent more on international cooperation, including the reconstruction of St Maarten. On the other hand, interest expenses continued to decline, as did expenditure on social assistance and unemployment benefits.

Municipal and provincial deficits

While central government and social security funds showed surpluses, local government tipped into the red. The deficit incurred by local government last year amounted to 0.7 billion euros, slightly higher than in 2017. Municipalities and provincial government in particular spent more than they received.

Public debt further reduced by revenues from derivatives

Due to the positive balance of public revenue and expenditure, government debt was reduced by 11 billion euros in 2018. At nearly 5 billion euros, revenue from interest rate derivatives contributed to this again, as has been the case for several years, mainly due to the early settlement of derivative contracts by the Ministry of Finance. There are also other factors which may lead to a change in public debt, such as the sale of shares. These had a small impact in 2018. Total debt reduction amounted to over 14 billion euros last year.