In Q2, government finance was dominated by the coronavirus crisis. Whereas the government still achieved a surplus exceeding 9 billion euros in the first quarter, it was deep in the red in the second quarter with a negative balance of -24 billion euros.
|Jaar||Kwartaal||Budget balance (bn euros)|
Strong increase in subsidies on account of coronavirus
In the first half of 2020, public spending was up by 21 billion euros relative to the same period last year, largely on account of an increase in government subsidies of almost 18 billion euros. Almost 10 billion of this amount was in the form of wage subsidies provided under the Temporary Emergency Measure for the Preservation of Employment (NOW). Subsidy costs increased further by over 4 billion euros on account of continued payments to care providers as well as coronavirus-related additional costs. On the other hand, the government spent less on care services rendered. On balance, the effect of this expenditure on public deficit therefore remained below 1 billion euros. The income support measure for the self-employed (Tozo) led to an additional expenditure of 1.7 billion euros.
The government furthermore spent over 2 billion more on benefits and paid nearly 2 billion more in remunerations to government employees in the first half year.
|Jaar||Kwartaal||Revenue (bn euros)||Expenditure (bn euros)|
Lower tax revenues
Public revenue fell by 5 billion euros. The Tax and Customs Administration granted deferral of tax payments starting in March, which merely resulted in higher outstanding receivables for the government. This did not directly affect the decrease in public revenue. The COVID-19 crisis did however affect the amount of corporate tax due by enterprises over the year 2020. Partly due to this effect, corporate tax revenues came out lower by over 4 billion euros. However, this decline may lead to a slightly distorted interpretation as in 2019, higher amounts were levied in provisional tax assessments which were also received in 2019. For 2020, this results in relatively lower tax revenues received over last year than in previous years. Another decline during the first six months was recorded in VAT revenues. The relatively sharp drop in Q2 - 0.9 billion euros - was compensated somewhat by a slight increase of 0.3 billion in Q1, when the government’s coronavirus measures still had a limited impact on the economy. Other relatively substantial losses in tax revenues were related to excise duties, motor vehicle taxes (taxes on passenger cars and motorcycles), energy tax, gambling tax and tourism tax. Revenues from wage and income taxes remained at a reasonable level, partly due to the wage subsidies that were provided by the government.
Other public revenue falling as well over the first half year concerned dividends, which declined by 0.5 billion euros. The State’s substantial interest in Air France-KLM meant that the negative performance of the company contributed to the government’s negative income as part of public revenue. This resulted in an additional loss of revenue of 0.5 billion euros.
At the local government level, the government was mainly affected by lower revenues from the sale of goods and services. These declined by 0.4 billion euros, partly as less was collected in parking fees.
Gross debt ratio up sharply, to 55.2 percent
At the end of June 2020, government debt came out at nearly 442 billion euros, i.e. approximately 47 billion higher than at the end of 2019. The rising level of debt was due to the financing of the public deficit to the amount of 15 billion euros. In addition, the debt level rose on account of an increase in accrued receivables of nearly 11 billion euros, mainly tax receivables. The tax receivables did boost the government’s fiscal balance, but did nothing to reduce the debt ratio as there were no revenues yet to contribute to the exchequer. However, the rise in public debt was tempered by the sale of shares worth 4.5 billion euros, mainly as a result of ENECO’s privatisation. Furthermore, the government kept an additional debt amount of nearly 32 billion euros in the exchequer to cover part of its spending on support measures over the second half of 2020.
Government debt as a percentage of GDP declined by 5.7 percentage points to 55.2 percent of GDP.
|Jaar||Kwartaal||Debt-to-GDP ratio (right-hand axis) (% of GDP)||EMU target (% of GDP)|
The government balance and the debt-to-GDP ratio are important indicators for the state of public finances in a country. The Netherlands has complied with the 3-percent deficit criterion of the European Union since 2013 and it has complied with the European standard of fault of 60 percent since 2017. The 2021 Budget Memorandum anticipates a deficit level exceeding 56 billion euros by the end of 2020, equivalent to 7.2 percent of the estimated GDP. At the end of Q4, the government debt is expected to reach close to 463 billion euros or 59.1 percent of the estimated GDP.