Government balance deteriorating, but less than elsewhere in Western Europe

In 2020, the coronavirus crisis drained the government budgets of countries all across Europe. Nevertheless, in the Netherlands the government budget was not affected as severely as in the surrounding countries. While public spending increased relatively sharply, revenues did decline less markedly than elsewhere around Western Europe. Statistics Netherlands (CBS) reports this in an article on Dutch government finance during the coronavirus crisis from a European perspective.

In the survey, Dutch national finance was compared to the situation in Belgium, Germany, France, Italy and the United Kingdom. The countries surveyed all recorded a considerable rise in public expenditure in 2020, with the United Kingdom showing the strongest increase at nearly 20 percent last year, against 13 percent in the Netherlands. The results indicate that the United Kingdom, the Netherlands and to a lesser extent Germany were implementing significant income support measures, which pushed up public expenditure.

Different measures were implemented in the various countries. In the Netherlands and the United Kingdom, tax deferrals were relatively common. This caused a rise in government debt. As deferred payments are also included in the tax records of that particular year, their effect on the government deficit is nil. Only a higher estimate of the expected uncollectible tax receivables may have some effect on the government balance. Belgium and Italy were foremost focused on supporting businesses through the provision of loans and/or guarantees.

Rise in public expenditure, 2020
 2020 (y-o-y % change)
Source: CBS, Eurostat, ONS

Public spending relatively high

Both the increased expenditure and the decreased revenues from taxes and contributions affected the government budget balance. The fall in public revenue had limited repercussions for this balance in Germany, the Netherlands and the United Kingdom. The lower balance in these countries was mainly due to greater public spending. On the other hand, falling revenues affected the balance more severely in France, Italy and Belgium. This is closely linked to the extent to which the various economies were hit by the coronavirus crisis. In 2020, there was a relatively sharp drop in GDP value in France and Italy, namely 6.1 and 7.8 percent respectively, compared to -1.4 percent in the Netherlands, -3.4 percent in Germany, -4.8 percent in the United Kingdom and -5.3 percent in Belgium. The relatively strong economic downturn led to more sharply falling public revenue in France and Italy compared to the other countries.

General government deficit, % of GDP
 2019 (%)2020 (%)
Source: CBS, Eurostat, ONS

The general government balance and government debt are the main indicators for the current public finance conditions. The European convergence criteria allow a maximum deficit of 3 percent of GDP and a maximum debt level of 60 percent of GDP. However, the exceptional circumstances have prompted the European Commission to suspend the European budgetary rules temporarily.

Public debt shows lowest increase in the Netherlands

In 2020, government debt expressed as a percentage of GDP rose in all six countries. Compared to the other five countries, the Dutch debt-to-GDP ratio showed the lowest increase at 5.7 percentage points. Across Europe, four countries had a less marked increase in debt-to-GDP ratio. The sharpest rise in debt-to-GDP ratio throughout Europe was recorded in Belgium, France and Italy. These are also the countries with the highest growth in public deficit. As a result, the debt-to-GDP ratios are converging more widely between these countries. Net debt per capita was approximately the same in Italy as in Belgium at more than 40 thousand euros. In the Netherlands, net debt per capita at the end of 2020 stood at approximately 25 thousand euros. This represents an increase of more than 2 thousand euros per capita over the past year.

Debt-to-GDP ratio, development in 2020
 2019 (%)2020 (%)
Bron: CBS, Eurostat, ONS