CPB: The new cabinet presents a high bill for future generations

If the newly appointed government team adopts the previous government’s plans unchanged, government debt will reach nearly 28% of GDP within 40 years. Compared to Budget Day plans, the coalition agreement therefore leads to a very sharp increase (by 64 percentage points) in government debt. If interest rates rise in the coming years, this spread will be even larger.

The CPB does not agree with the coalition’s story that most of the planned expenditures are one-time, and therefore will not make a long-term attack on the national budget. The government claims to increase structural spending (that is, spending that must be done each year) by more than 13 billion euros. The European Central Bank believes that this is likely to be 24 billion euros. According to accountants at Bezuidenhoutseweg in The Hague, among other things, the 35 billion euros this government reserves for climate policy are “structural in nature”, since it will take several decades to solve this problem.

With €35 billion, the government hopes to achieve the 2030 national climate target (60 percent CO₂compared to 1990). But to achieve the more ambitious goal of net zero CO2₂Emissions in 2050 will require significant government investment after 2030, according to the Cartagena Protocol on Biosafety. These policy challenges will also compel future governments to make significant financial efforts.

For example, the government is investing 5 billion euros for its start-up to build a nuclear power plant, while subsequent tanks will likely have to spend another 10-15 billion euros to actually bring these reactors(s). Not to mention the potential (structural) operational deficit at the government’s expense. So the Planning Office included the Climate Fund and a portion of education spending as structural spending items in the account.

The statement that the financial burdens on new generations will rise “significantly” is accompanied by the CPB’s comment that the same generations will partly benefit from the benefits of these expenditures, i.e. a less warm climate and better education.

health care expenses

The planning office is also skeptical about the savings made by the new government in healthcare expenditures after this cabinet term. Although these savings are not out of reach, according to the Cartagena Protocol, they require more than the measures mentioned by the Council of Ministers in the coalition agreement. In other words: the government’s estimate of health care costs is overly optimistic. Additional cuts and savings will be necessary to achieve the intended budget constraints.

In the short term, the proposed government policy has mainly positive effects. Tens of billions of additional government spending will stimulate economic growth and employment over the next three years. Purchasing power is also higher than it would have been without the coalition agreement.

In this calculation, the CPB assumes higher inflation (3% in 2022 and 2023) compared to the Budget Day calculation. Taking into account the high rate of inflation, purchasing power will remain more or less the same during this cabinet term, whereas it would have decreased had no new cabinet been appointed.