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Dutch Government’s Budget and Climate Deal, Explained
Higher interest rates necessitate spending cuts. The Netherlands must do more to cut emissions.
Mark Rutte’s coalition government in the Netherlands has agreed various spending reforms and additional climate policies to keep its budget deficit under 3 percent and achieve a 55-percent reduction in greenhouse gas emissions by 2030.
The four ruling parties — two liberal, two Christian democrat — were in a rush to do a deal before parliament goes on summer recess.
Negotiations resulted in a delay in child-care reform, an expansion of hydrogen and solar power, and higher subsidies for home insulation and secondhand electric cars, paid for in part by raising taxes on coal use and carbon dioxide (CO₂) emissions.
Rutte’s VVD (of which I am a member) and the Christian Democratic Appeal (CDA) blocked higher taxes on petrol and meat.
Higher interest rates necessitate spending cuts
Rising interest rates on Dutch debt would cause the budget shortfall to reach 3 percent of GDP this year, the EU treaty limit.
All departments except defense were asked to propose cuts totaling €2.5 billion.
There are also one-off expenses the government must pay for this year and next:
Cap on energy prices. The final cost will depend on energy use and market rates. The government has tentatively budgeted €23.5 billion.
€22 billion to repair homes damaged by drilling for natural gas in Groningen.
Both are largely offset by delaying the introduction of more generous child-care subsidies.
Here is an overview of the main policy changes.
Push the implementation of almost-free child care to 2027.
Currently subsidies pay between 33 and 96 percent, depending on the parents’ income, of up to 230 hours of child care per month.
In previous years, some 20,000 families were wrongly accused of benefits fraud when they neglected to report changes in their income. The government is paying out €5.5 billion in reparations.
Nearly all parties want to simplify the scheme, but the government’s proposal, to pay 96 percent of all child care, is expected to raise demand, which the industry says it cannot meet. That would cause higher prices, necessitating higher subsidies. The annual cost could be double the €3.5 billion the government spends on child care now.
Current policy would halve Dutch CO₂ emissions by 2030 compared to 1990. The government’s — and European Union’s — ambition is to cut emissions 55 percent.
To meet the goal, the ruling parties have agreed to:
Expand solar energy at sea.
Require new solar parks to install batteries that can store power generated during the day for use in the evening.
Repurpose gas power stations for the generation of green hydrogen.
The parties previously agreed to expand the capacity of offshore wind farms by a factor of fifteen.
Help low-income homeowners pay for insulation.
Landlords must already invest in insulation. By 2030, they won’t be allowed to rent out poorly insulted homes anymore.
There are subsidies for homeowners to install double-glazed windows, solar panels and wall insulation, but the lowest incomes still struggle to afford it.
Require the use of biomaterials in construction.
Require 25 percent of new plastics to consist of recycled- or biomaterials by 2027.
Raise the CO₂-reduction goals of the Netherlands’ largest polluters.
The country’s fourteen largest polluters, including steel factory Tata and the refineries of Shell in Rotterdam, cause two-thirds of Dutch industrial greenhouse gas emissions, which are a third of all emissions.
The government has budgeted €4 billion in subsidies to help these companies move away from fossil fuels, but so far only four tentative agreements have been signed. Tata alone could require €1 billion in government support to switch from coal to hydrogen.
Raise the share of biofuels blended into diesel and petrol.
Raise subsidies for secondhand electric cars.
Accelerate the rollout of electric car chargers.
Electric cars remain exempt from road tax. The EU is due to ban the sale of new diesel and petrol cars in 2035.
The shift to electric driving is going so fast that the expansion of green energy has not kept up, requiring the Netherlands to burn more coal to meet demand.
The share of renewable power still increased, to 40 percent, thanks to the inauguration of new solar and wind farms and a decrease in natural gas use.
Nuclear power provides 4 percent of Dutch electricity.
Abolish the exemption from coal tax for energy producers and industry.
When a previous government raised coal tax in 2013, companies that burn coal to generate power or make products like steel convinced the courts to exempt them, since they are not the end users of the product. Instead, energy and steel consumers pay the tax.
The Netherlands’ three remaining coal plants are due to close in 2030.
Increase CO₂ tax.
The Netherlands levies a CO₂ tax in addition to the pollution rights large companies must buy, and can sell, under the EU’s Emissions Trading System.
Lower gas tax for households and small businesses.
Dutch gas tax is regressive: the higher the use, the lower the tax rate.
What didn’t make it
Agriculture, which causes 16 percent of Dutch greenhouse gas emissions, remains exempt from CO₂ tax.
The center-right VVD and CDA blocked raising sales tax on meat — responsible for 40 percent of Dutch food-related emissions — from 9 to 21 percent. They also blocked increases in fuel tax and road tax for non-electric cars.
The left-leaning Christian Union, the smallest of the four ruling parties, blocked an increase in health-insurance copays.
There is no deal yet on asylum. Between 67,000 and 76,000 asylum seekers are expected this year, more than double the claims Dutch immigration authorities were able to process last year. Rutte has called for EU-wide reforms, including enforcing the so-called Dublin Regulation, which requires asylum seekers to register in the first EU country they arrive in, and using developmental aid, trade and visas as levers to cut irregular migration and improve returns, especially to countries in North and West Africa.
There is also no deal yet on farm policy. Formally the coalition parties remain committed to reducing ammonia pollution in farming by 2030, even if that means thousands of farmers need to be bought out. The CDA, which lost many of its rural voters to the Farmer-Citizen Movement (BBB) in provincial elections in March, has asked for a delay.