Dutch political parties want to continue fiscal expansion of previous administration

A lot could potentially change in Dutch politics after the elections for the House of Representatives (Tweede Kamer) on 22 November. Many (traditional) political parties have a new leader, and most recent polls suggest some significant changes in support. Compared to the election results of March 2021, those polls suggest losses for the Rutte IV coalition parties comprising of the Liberal conservatives VVD, centrist liberal democrats D66, Christian democrats CDA and the Christian-social CU, with particular losses for the CDA and D66.

The new NSC party, led by former CDA member Pieter Omtzigt, has put public sector accountability on the political agenda and is currently the largest winner in the polls with 27 of the total of 150 seats, potentially receiving as many votes as VDD. Another relatively new party, the farmers’ and citizens’ BBB, seems to have gained much more support (with 12 seats compared to the previous 1 in recent polls), while the new combination of formerly independent parties, the social democrats PvdA and progressive green left GroenLinks, are also projected to make a substantial gain in votes (from their combined 17 seats currently to 24). Such changes in votes potentially bring about substantial policy changes. Here, we look at what political parties intend for fiscal policy.

This week, CPB (Netherlands Bureau for Economic Policy Analysis) analysed the fiscal and economic effects of the policies in manifestos of a number of volunteering political parties. This allows us to get a feel for the degree of fiscal expansion that we could expect. Not all parties participated in this exercise. We therefore also rely on more broad-brush analyses of former CPB-economist Wim Suyker, who tried to estimate the fiscal deficit resulting from the plans of elderly-centred social-conservatives 50+, BBB, populist conservative liberals BVNL, the diversity-focused Denk, NSC, progressive left animal-friendly party PvdD and socialist party SP. Unfortunately, the manifestos of Geert Wilder’s populist conservative party PVV, Thierry Baudet’s populist conservative liberals FvD and Edson Olf’s inclusion-focused BIJ1 were too nebulous to even put a rough number on. As such, we are more or less able to quantify the plans for parties that have 85% of the votes in the latest poll.

The Rutte IV coalition agreement was set to have the most expansionary set of policies in recent Dutch history, but the government collapsed. These plans are taken as the base case, as they have, to a significant extent, already been broadly set in motion. For our classification of the intended fiscal stance of political parties in the next government term, we focus on the projections for the structural government budget estimated for 2028. The picture appears very mixed: there are parties, with BVNL, SP and Denk on the one extreme, that wish to implement even more expansionary policies than the previous government (-3.0% GDP structural balance in 2028), while there are also those, especially pan-European social liberals Volt and to a lesser extent D66, VVD and CU, which opt for more fiscal prudence.

Parties that are fiscally loose in many cases would widen the deficit by one or a few percentage points of GDP whereas more prudent parties generally aim to reduce the structural deficit by about half a percentage point of GDP.

If we weight the estimates for the parties by their share of votes in the most recent polls, Dutch political parties on average look like they intend to continue the expansionary policy that the previous government had already planned. Together, they would aim at a structural deficit of 3.0% of GDP, similar to the base case.

Such a weighted average includes parties that are not so likely to govern. It is, however, also quite difficult to exactly predict the composition of the next coalition. If we focus on the parties that are, in our view, somewhat more likely to govern (for example, because of more support, a history of participating in coalitions, fewer populist tendencies, etc.), we do however observe that there is a tendency towards a bit more fiscal prudence than the course that the previous government had set out.

That said, independent of which parties will govern, fiscal policy is most likely to remain expansionary when we have a look at the structural deficit over time. The structural government budget was estimated at -1.6% of GDP for 2023. All parties will increase that deficit toward 2028. Only Volt (-1.7% of GDP) comes close to having hardly any fiscal thrust intended. Hence, we can conclude that it seems likely that fiscal policy will remain at least somewhat supportive of economic growth in the coming years.