Public deficit almost 15 billion euros in the first half year

© Hollandse Hoogte / Nederlandse Freelancers
In the first six months of 2020, the Dutch government spent nearly 15 billion euros more than it received. This was mainly due to measures implemented by the government to support the economy throughout the coronavirus crisis. Implementation of these measures over this period cost approximately 14 billion euros. Public debt rose by 47 billion to 442 billion euros over the first six months. Statistics Netherlands (CBS) reports this on the basis of new figures on public revenue, expenditure and debt.

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.

Government budget balance
JaarKwartaalBudget balance (bn euros)
'061e kwartaal-1.2
'062e kwartaal-1.5
'063e kwartaal0.0
'064e kwartaal3.3
'071e kwartaal0.4
'072e kwartaal-2.9
'073e kwartaal-3.1
'074e kwartaal5.0
'081e kwartaal1.6
'082e kwartaal-2.3
'083e kwartaal-1.5
'084e kwartaal3.5
'091e kwartaal-4.7
'092e kwartaal-8.9
'093e kwartaal-11.2
'094e kwartaal-6.9
'101e kwartaal-6.7
'102e kwartaal-10.4
'103e kwartaal-12.6
'104e kwartaal-3.9
'111e kwartaal-2.9
'112e kwartaal-10.8
'113e kwartaal-8.7
'114e kwartaal-6.4
'121e kwartaal-2.2
'122e kwartaal-9.0
'123e kwartaal-10.4
'124e kwartaal-4.0
'131e kwartaal-0.6
'132e kwartaal-6.6
'133e kwartaal-7.9
'134e kwartaal-4.2
'141e kwartaal-0.8
'142e kwartaal-6.2
'143e kwartaal-5.7
'144e kwartaal-1.7
'151e kwartaal0.0
'152e kwartaal-6.5
'153e kwartaal-5.9
'154e kwartaal-1.6
'161e kwartaal1.7
'162e kwartaal-1.8
'163e kwartaal-2.1
'164e kwartaal2.3
'171e kwartaal7.0
'172e kwartaal-0.9
'173e kwartaal-0.3
'174e kwartaal3.5
'181e kwartaal9.8
'182e kwartaal0.5
'183e kwartaal1.0
'184e kwartaal-0.6
'191e kwartaal10.7
'192e kwartaal0.7
'193e kwartaal-0.4
'194e kwartaal3.0
'201e kwartaal9.3
'202e kwartaal-23.9

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.

Public revenue and expenditure, moving annual total
JaarKwartaalRevenue (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.

Gross debt ratio in six-month periods
Jaar KwartaalDebt-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.