'High price for bringing the 2013 deficit under 3%'

14 June 2012

'High price for bringing the 2013 deficit under 3%'

A high price will have to be paid for bringing the budget deficit for 2013 down below 3% of GDP. This was the conclusion of SP Member of Parliament Ewout Irrgang after examining the analysis of the austerity agreement between the outgoing governing parties and certain opposition groups conducted by the official state Central Planning Bureau (CPB), and the projected budget deficits from 2013 to 2017. 'We are paying a high price for the enormous spending cuts in the agreement,’ says Irrgang. ‘Already feeble economic growth will become even lower as a result and unemployment will increase with 100,000 people once again added. The budget deficit will have gone down only slightly because the cuts will lead also to much lower tax revenues as a result of their negative effects on the economy.'

Ewout Irrgang'The CPB figures show that the agreement will lead by 2017 to savings of some €9 billion,’ says Irrgang. ‘The negative effects on the economy, however, will drive the economy so far down that this will be partly offset by a reduction in tax revenues worth almost €6 billion. Only a limited reduction of the deficit will therefore on balance remain. The negative effects add up to more than 60% of the total level of the spending cuts. That’s why the SP wants first of all to stimulate the economy instead of frustrating the recovery. In the years following, we want to build at a responsible pace towards a balanced budget.’

According to the CPB, before a balanced budget can be achieved by 2017, further cuts of some €25 billion would be needed over and above the currently agreed austerity measures. In Irrgang’s view, following such a policy would be irresponsible. ‘The small amount of economic growth that will survive the negative effects of the current agreement is almost entirely based on increased exports. Domestic expenditure will be nipped in the bud as a result of all of the cuts as well as tax increases such as the rise in VAT and the commuter tax. To add another 25 billion to this in cuts to be imposed in 2017 is a very bad idea.' The SP economics spokesman says that this isn’t only about the consequences for the Netherlands. ‘Throughout Europe countries are imposing austerity. Countries like the Netherlands have still got the space to stimulate the economy. From the point of view of finding a solution to the eurocrisis this is of enormous importance. Dutch consumers would then not only buy more from domestic producers, including small and medium-sized firms, but also more products from other European countries. This is badly needed if we are to find a solution to the eurocrisis. Because in the rest of Europe too you can see that austerity alone doesn’t work. Prime Minister Rutte says that you have to prune a plant if you want to see it grow. But you also have to water it.'

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