Dutch government debt was reduced by 18 billion euros in 2017. This is the most substantial reduction in a span of one year. The government achieved a surplus of 8 billion euros, which is also exceptionally high. The only time this surplus was exceeded was in the year 2000.
Government debt as a percentage of GDP declined from 61.8 percent to 56.7 percent, well below the European ceiling of 60 percent. The last time the Netherlands met this standard was in 2010. However, the EDP (excessive deficit procedure) has not been applied to the Netherlands since 2013 as public debt was sufficiently reduced. The credit crisis drove up the gross debt ratio to nearly 68 percent in 2014. After that, the debt was settled on balance.
Not only the surplus contributed to a reduction of government debt in 2017. The Dutch state also received revenues by selling shares including ABN AMRO and ASR shares and settlement of derivative contracts, amounting to over 8 billion euros for debt reimbursement. Like the surplus, this contributed to a reduction of the gross debt ratio by over 1 percentage point. GDP growth had a major impact as well; it resulted in a decline of the government debt-to-GDP ratio by nearly 3 percentage points.
Deficit at local government level
At 8 billion euros, the government’s balance of revenue and expenditure was exceptionally high. This is equivalent to 1.1 percent of GDP. In the previous year, the balance amounted to 0.4 percent of GDP. The Netherlands has complied with the 3 percent deficit criterion of the European Union since 2013.
Both central government and social security funds achieved a surplus in 2017. This is the first time in ten years. On the other hand, local government showed a deficit exceeding 1 billion euros, against a minor surplus recorded one year previously. State contributions to local government lagged behind the increased expenditure.
Sharply rising tax revenues
The improvement in public finances over 2017 was mainly due to rising revenues from taxes and social security contributions. These were almost 13 billion euros higher than in 2016. The largest contribution came from wage and income taxes. Other tax revenues as well increased in line with economic growth. Taxes on new cars rose relatively sharply, by almost 30 percent. This rise is not only explained by increased car sales but also by higher revenues per individual car. The fiscal burden stood at 38.5 percent, slightly higher than in the previous year.
In comparison with previous years, government expenditure rose considerably in 2017. Spending went up from between 300 and 307 billion euros over the period 2010 – 2016 to 312 billion euros in 2017. This was nearly 7 billion euros higher than in the previous year. Remittances to the European Union rose relatively sharply, namely by 1 billion euros. Reductions in respect of previous years had lowered expenditure in 2016 significantly. In addition, public investments rose sharply, by over 5 percent. Completion of the A1/A6 highway junction had a major effect on investment expenditure. At the same time, expenditure on benefits and care - central government’s single largest expenditure category - rose by nearly 2 percent. Wages and salaries increased by slightly over 2 percent, similar to one year previously. Interest expenditures continued their decline, as in previous years. This created a financial advantage of around 0.8 billion euros.