The next Dutch cabinet must cut €7 billion a year from the national budget to keep public finances sustainable, senior civil servants have warned. Spending on healthcare and pensions for the ageing population is rising sharply and needs to be addressed as a priority, they said.
In a report titled The Future Starts Now, the group of senior officials and economic advisers warned that without intervention, the national debt could rise to 126% of GDP by 2060.
Healthcare spending alone is expected to grow from 9.5% to 16.6% of GDP, while the cost of the state pension (AOW) will increase from 4.7% to 5.7% by 2040.
To prevent this, the group recommends raising the state pension age more quickly in line with life expectancy, increasing personal contributions for long-term care, and increasing the tax on the state pension.
That would mean older people with supplementary pensions paying more tax towards their own benefits. “If you don’t act, ageing-related costs will squeeze out all other spending,” said the group’s chairman, Bas van den Dungen.
The current €7 billion target is significantly lower than the €17 billion in cuts suggested by the group before the last election. Officials say this is due to stronger economic growth and €5 billion in savings already set in motion by the outgoing government which the group assumes will continue.
However, such reforms remain politically sensitive. Past proposals to freeze AOW payments or decouple them from the minimum wage have cost various parties votes.
The report leaves room for a temporarily higher budget deficit if the government commits to structural reforms that pay off in the longer term. This would apply not only to ageing-related measures but also to rising defence costs, which are set to grow by €19 billion a year from 2035.
Finance minister Eelco Heinen has taken a stricter line, insisting that defence spending and the increase to 3.5% of GDP must be covered by cuts elsewhere.
Speaking to broadcaster BNR, he said asylum and development aid as areas where budgets could be trimmed. “We spend €450 billion a year. Don’t tell me you can’t cut one or two billion,” he said.
Heinen rejected suggestions that defence investment could be financed through higher national debt, calling that a “short-term solution”. He also pushed back against calls for wealthier EU countries to help others meet the Nato spending target of 3.5% of GDP. “We’ll have to make tough choices at home first,” he said.
Productivity
A second civil service advisory group, made up of economic affairs officials, issued a separate report urging investment in productivity growth. The government should take the lead in financing innovation and training, rather than focusing on small annual shifts in disposable income, the report said.
Both advisory groups stressed that the long-term challenges facing the Netherlands – from demographic ageing to defence and climate – require structural decisions from future coalition partners.
Political parties are currently finalising their manifestos ahead of the October 29 general election.
