MINFIN: Budget Memorandum 2007: EMU surplus 0.2% GDP

Origineel persbericht.

The Budget Memorandum 2007 expects a budget surplus. The EMU balance will reach 0.2 per cent of GDP in 2007. Reasons for the recovery of public finances include economic growth and the reforms policy as well as budgetary policy of the past few years. The government is giving priority in the 2007 budget to further improvement of the economic structure, purchasing power, safety and youth policy, subject to the necessary conditions that public finances are and remain solid.

The Dutch economy
The accelerating economic growth estimated - at 3 percent of GDP for next year - is beneficial for citizens and companies. The economic recovery offers more opportunities to more people in the labour market.
In 2007 the number of jobs will increase according to the forecasts of the Netherlands Bureau for Economic Policy Analysis (CPB) by 104 thousand in terms of years of employment. Unemployment is expected to decline further in 2007 by 55 thousand people. People resuming or starting paid employment for the first time will see their income grow strongly. The average increase in purchasing power for people starting paid employment after receiving welfare benefits will be 15 per cent, now that the economy is recovering so strongly.
Inflation in the Netherlands will remain low: the CPB is expecting an inflation rate of 1. per cent for 2007. In 2007 private consumption is expected to increase by 2 per cent compared to 2006. The recovering economy will lead to greater disposable income for citizens in 2007. The wage increase, at 2 per cent, is expected to be slightly higher than in the past few years.

Public finances
Public finances have recovered from the low of 2003. An EMU balance of 0.2 is expected for 2007. This means it will be better than expected in the first Budget Memorandum of the cabinet Balkenende II, when it was put at -0.6 percent of GDP in 2007. The Netherlands scores significantly higher than average in this respect within the euro zone. The favourable starting position for 2007 is to a considerable extent due to the reforms policy of the past few years.

Another important goal of the budget policy pursued is to improve the structural public budget balance. The specific goal was a structural deficit of at most 0.5 per cent GDP in 2007. The structural balance is expected to amount to 0.0 per cent of GDP in 2007.

Whereas the debt ratio continually increased in the past few years, a turnaround is discernible from 2006 onwards. The Budget Memorandum 2004 states that the EMU debt ratio must decrease 'towards 50 per cent of GDP'. The expected debt ratio in 2007 is 48 per cent of GDP. That is the best ratio of the past 25 years and well over 10 per cent below the European average. Factors contributing to the decline in the debt ratio are the higher economic growth and the improved EMU balance.

Economic recovery, the reforms policy pursued, policy decisions and a number of technical factors mean that the government potentially has modest additional scope in 2007 from below-budget expenditure. That scope - 0.3 billion - euros is not being utilised now that the economy is at full steam. Arrangements have been made in the government for this type of windfalls for extra expenditure that is not to be used.

Citizens purchasing power
For the year 2007, reduced EU contributions and other factors provide scope for further strengthening of purchasing power. A significant portion of the tax and social security contribution reduction for citizens is effected by reducing unemployment benefit contributions. Also, the labour tax credit and the supplementary combination tax credit will be increased. These measures will benefit those in employment. Parents will benefit from the reduced parents contribution to child day care and higher child benefit. The purchasing power of senior citizens will be increased by raising supplementary old-age pension benefits. Everyone will benefit from the reduction of the tax rate in the first bracket and the increase in the general tax credit. The measures will result in an overall increase in purchasing power of 1 per cent per household.

Economic structure and business climate
With the reduction of the rate for corporation tax as proposed in 'Working on profit' ('Werken aan Winst') the government is contributing to an attractive and competitive business climate, both for large companies and for small and medium-sized enterprises. Therefore the corporation tax rate for 2007 will be reduced from 29.1 per cent to 25.5 per cent. In parallel with this reduction, businesses whose profits are liable to income tax will receive an SME exemption of 10 per cent.
The strengthening of the economic structure by the reduction in the corporation tax rate and SME exemption will be reinforced by distribution of the extra funds from the Economic Structure Enhancing Fund (FES). In the coming years, 1.9 billion euros out of the rising natural gas revenues will be devoted via the FES to projects for knowledge, education and innovation, spatial economic development and acceleration of infrastructure.

Total FES investments : E 1.9 billion
Knowledge/Innovation/Education : E 0.8 billion
Spatial economic development : E 0.4 billion
Acceleration of infrastructure : E 0.7 billion

The economic structure will be further strengthened by a reduction of the administrative burden. The government will further eliminate unnecessary and streamline unnecessarily complicated legal and regulatory requirements in 2007: steps will be taken to reduce the number of permits by 1 million. For example a number of spatial permits will be combined into a single permit and supervisory bodies and inspectorates will be combined in a single desk. It is expected that the target of the cabinet Balkenende II (25 per cent reduction in administrative burden, a saving of 4 billion euros) will be achieved in the course of 2007.

Ten measures in 2007
In terms of expenditure in the Central Government Budget, the government is earmarking extra funds in 2007 for extending existing policy and for unexpected increased expenditure. The funds will be applied for instance for child day care, police tasks, integration, TBS (detention under a hospital order), jeugd TBS (detention in a youth custody centre), camera surveillance, aliens police, nursing homes, infectious diseases, water safety, glass horticulture, shipbuilding, fisheries, environment and education.
The reduction in tax and social security contributions amounts to a total of 1 billion euros in 2007 and is evenly distributed between citizens and businesses.

The government is taking a series of measures to boost the entire populations purchasing power in general and that of some groups in particular. These include:
The parents contribution for child day care will be reduced by 125 million euro and child benefit increased by 125 million euro.
The employers contribution to child day care will become mandatory.
Reduction of first bracket by 0.50 per cent and reduction of second bracket by 0.05 per cent.
The unemployment benefit contribution will be reduced by 1.35 per cent. That will add 200 euros to the average families income.
Old age pension/surviving dependants benefits will be increased by 48 euros per person.
The costs counting towards premium calculation for healthcare will be reduced to limit the increase in the healthcare premium.
The consumers rate for MEP (Milieukwaliteit Elektriciteitsproductie or Environmental Quality of Electricity Production) will definitely be eliminated from energy bills in 2007. This will benefit households by 52 euros on an annual basis.

Total government income : E 157,5 billion
Indirect taxes
Value added tax (BTW) : E 42.4 billion
Excise duties : E 9.7 billion
Taxes on legal transactions : E 5.5 billion
Environmental taxes and levies : E 4.7 billion
Private vehicle and motorcycle tax (BMP) : E 3.6 billion
Motor vehicle tax : E 2.9 billion
Import duties : E 1.9 billion
Consumption tax on non-alcoholic drinks
and other products : E 0.1 billion
Heavy goods vehicle tax : E 0.1 billion

Direct taxes on income, profit and wealth
Wage and income tax : E 38.6 billion
Corporation tax : E 16.5 billion
Dividend tax : E 2.8 billion
Inheritance tax : E 1.7 billion
Betting and gaming tax : E 0.2 billion

Non-tax receipts : E 26.6 billion
of which gas revenues : E 10.1 billion

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