VZCZCXRO0156
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSL RUEHSR
DE RUEHTC #0569/01 2640809
ZNR UUUUU ZZH
R 210809Z SEP 09
FM AMEMBASSY THE HAGUE
TO RUEHC/SECSTATE WASHDC 3283
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUEHAT/AMCONSUL AMSTERDAM 4260
RUCNMEM/EU MEMBER STATES COLLECTIVE

UNCLAS SECTION 01 OF 03 THE HAGUE 000569 
 
SIPDIS 
 
TREASURY FOR IMI - VATUKORALA 
USDOC FOR 4212/USFCS/MAC/EURA/OWE/DCALVERT 
STATE PASS FEDERAL RESERVE BOARD - INTERNATIONAL DIVISION 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV PREL NL
SUBJECT: NETHERLANDS' 2010 BUDGET: SPEND NOW, TOUGH CHOICES LATER 
 
REF: (A) 08 THE HAGUE 981, (B) THE HAGUE 62, (C) THE HAGUE 221, (D) 
THE HAGUE 60 
 
THE HAGUE 00000569  001.2 OF 003 
 
 
¶1. Summary:  The Dutch government presented its 2010 budget to 
parliament on September 15.  There were no surprises - the 
government agreed in March to maintain current spending levels in 
the 2010 budget in an effort to stimulate economic recovery.  The 
government used the occasion to caution that, once recovery is 
underway as expected in 2011, significant cuts will be necessary to 
rein in a spiraling budget deficit.  End summary. 
 
-------------------------- 
FOCUS ON TOUGH TIMES AHEAD 
-------------------------- 
 
¶2. In a day of tradition and high ceremony, Finance Minister Wouter 
Bos officially presented the 2010 budget to parliament on September 
15, also known as "Prinsjesdag," and Queen Beatrix addressed the 
nation on the fragile state of the Dutch economy.  Several days of 
debate now follow in which parliamentarians question ministers on a 
wide range of spending and policy issues.  This year's budget 
presentation and debate differ from normal years in that the focus 
is not on the 2010 budget, but rather on the difficult spending cuts 
required in the coming few years to reverse a spiraling deficit. 
The coalition government, led by Prime Minister Jan Peter 
Balkenende, agreed in March to maintain stimulus spending and make 
no cuts to the 2010 budget in an effort to extricate the Netherlands 
from the recession it entered in the first quarter of 2009. 
However, the coalition warned this week that, "as soon as the 
economy regains sufficient strength and economic growth rises above 
0.5 percent" (expected in 2011), spending cuts of up to 20 percent 
of the budget will need to begin in 2011 to "restore the health of 
public finances."  Queen Beatrix echoed this message in an unusually 
short speech to parliament in which she urged the country to prepare 
for tough times ahead. 
 
----------------------------- 
HIGHLIGHTS OF THE 2010 BUDGET 
----------------------------- 
 
¶3. Following are highlights of the 2010 budget: 
 
- The 2010 budget of 272.1 billion euro (USD 400 billion) represents 
a 23 percent increase over the 2009 budget of 221.9 billion euro 
(USD 326 billion). 
 
- The government expects revenue of 239.8 billion euro (USD 352.6) 
in 2010, up just slightly from 2009.  Coupled with the deficits 
expected in local government budgets, the overall public sector 
deficit is expected to total 36.5 billion euro (USD 53.7) or 6.3 
percent of GDP in 2010. 
 
 
- Government debt will increase to 381 billion euro (USD 560 
billion) or 65.8 percent of GDP in 2010, compared to 59.9 percent of 
GDP this year. 
 
- The major contributing factors to the rising deficit are decreased 
tax revenue, increased stimulus spending, bank bailouts, interest 
payments on increased national debt, and lower profits from natural 
gas. 
 
¶4. The government's 2010 Budget Memorandum asserts that "an end to 
the economic freefall is now in sight."   The projected 4.75 percent 
decline in GDP in 2009 is expected to be followed by zero growth in 
¶2010.  The government's priority in 2010 is to maintain stimulus 
spending to promote this recovery.  The government announced three 
stimulus packages in November 2008, January 2009, and March 2009. 
The first package was worth 6 billion euro; the second consisted 
mainly of government guarantees to stimulate lending and exports; 
Qmainly of government guarantees to stimulate lending and exports; 
and the third package was worth 6.5 billion euro.  (See refs A, B, 
and C.)  The coalition has earmarked 4.2 billion in the 2010 budget 
to maintain these stimulus measures.  This includes: 
 
- 1.2 billion euro for infrastructure and construction projects, 
including youth care institutions, housing, schools, and restoration 
of historic buildings 
 
- 905 million euro for labor market measures, including targeted 
action to reduce youth unemployment, additional funding for 
education and work placement, and part-time unemployment benefit 
payments 
 
- 478 million euro to strengthen "economic sustainability," 
including speeding up environmental protection projects, sustainable 
farming, a trade-in program for old cars, additional funding for the 
 
THE HAGUE 00000569  002.2 OF 003 
 
 
energy investment tax credit, and tax incentives for entrepreneurs 
wishing to invest in environmentally friendly assets 
 
- 1 billion euro in municipal and provincial stimulus measures 
 
------------------------------ 
HIGHLIGHTS OF MINISTRY BUDGETS 
------------------------------ 
 
 
¶5. Ministry of Defense:  The defense budget will decrease slightly 
from 8.472 billion euro in 2009 to 8.461 billion euro in 2010.  The 
ministry is required to find ways in 2010 to offset a number of 
internal setbacks, including reduced revenue from the sale of 
surplus material.  Importantly, the ministry also must find ways to 
cut 65 million euro by 2011 as part of the government's overall 
austerity program.  To realize these savings, some infrastructure 
projects will be delayed and support services will be cut, including 
scaling down the operations of the Command Service Center and 
Defense Material Organization to save about 100 million euro (USD 
147 million).  The ministry also will postpone spending on its 
Vehicle Replacement Program and scale down its Mortar Detection 
Radar and Apache Helicopter Self Protection projects.  Importantly, 
most of the ministry's operational activities will remain untouched. 
 The only exceptions are two Fokker 50 aircraft to be phased out in 
2010, the scaling down of the Operational Support Brigade, and a 
reduction of 5 million euro annually in the budget for military 
exercises. 
 
¶6. Ministry of Development Cooperation:  Despite a spiralling 
deficit, the government is maintaining its standing commitment to 
donate 0.8 percent of GDP to foreign development assistance. 
However, as GDP continues to decline, the ministry will lose about 
600 million euro, resulting in a 2010 budget of 4.7 billion euro. 
The cutbacks include 140 million euro less for bilateral aid to 
partner countries; of that, middle-income countries will receive 25 
percent less and low-income countries will receive 12 percent less. 
Minister for Development Cooperation Bert Koenders stressed that aid 
to fragile states will not be cut.  The bilateral assistance budget 
for Afghanistan will shrink from actual expenditures of 57.8 million 
euro in 2008 to an expected 22 million euro in 2010.  According to 
Peter Schuurman, Development Assistance Budget Coordinator at the 
Ministry of Foreign Affairs (which houses the Ministry of 
Development Cooperation), the smaller budget does not reflect any 
policy change in bilateral aid to Afghanistan.  Instead, he said the 
Dutch Embassy in Kabul (though which the bilateral funds are 
channelled) has reported that it would have difficulty spending more 
than 22 million euro in 2010 because of the poor "safety situation 
in the country." 
 
¶7. Meanwhile, the Dutch contributions to the UN and international 
financial institutions will decrease by 80 million euro in 2010, and 
the budget for Dutch NGOs operating in developing countries will 
decrease by 31 million euro.  Koenders noted, however, that his 
ministry will continue cooperation with other ministries involved in 
development projects.  For example, the Ministry of Justice will 
receive an additional 141 million euro in 2010 to shelter asylum 
seekers during their first year in the Netherlands. 
 
¶8. Following are highlights from other ministries' 2010 budgets: 
 
 
- The Ministry of Transport and Water Management will increase its 
budget from 8.8 billion euro in 2009 to 9.7 billion euro in 2010. 
Qbudget from 8.8 billion euro in 2009 to 9.7 billion euro in 2010. 
This is due to coalition plans to invest in several major 
infrastructure projects as part of its stimulus plan, including 
construction of bridges, railways, and highways. 
 
- The Ministry of Justice's budget will increase from 5.7 billion 
euro in 2009 to 6.0 billion in 2010, largely because of an extra 214 
million euro needed to support the 17,000 asylum seekers that the 
Netherlands expects to receive next year. 
 
- The Ministry of Finance will significantly increase its budget 
from 4.2 billion euro in 2009 to 7.3 billion euro in 2010.  Most of 
this increase is related to the government bailout of Dutch banking 
and insurance giant ING, in particular the ministry's decision in 
January to guarantee 80 percent of ING's 27.7 billion euro portfolio 
of U.S. medium-quality 
mortgage-backed securities (ref D). 
 
- The Ministry of Economic Affairs' budget will grow from 2.8 
billion euro in 2009 to 3 billion euro in 2010.  This is due in 
large part to new loan guarantees and micro-credits for small- and 
medium-size companies. 
 
 
THE HAGUE 00000569  003.2 OF 003 
 
 
- The Ministry of Agriculture's annual budget will remain unchanged 
at 2.5 billion euro.  This includes 900 million euro for R&D and 386 
million euro for sustainable food production. 
 
- The Ministry of Foreign Affairs will increase its budget from 9.9 
billion euro in 2009 to 11.9 billion euro in 2010.  The majority of 
these funds will continue to be devoted to the Netherlands' required 
financial contributions to the wide range of EU activities. 
 
---------- 
NEXT STEPS 
---------- 
 
¶9. Alongside the presentation of the 2010 budget, the government 
also set out a timeline for winding down stimulus spending and 
deciding upon the budget cuts necessary to counteract the rising 
deficit.  The coalition noted that even if the economy recovers and 
GDP returns to its average 2 percent annual growth before the 
crisis, the budget deficit will barely improve and the national debt 
will continue to mount.  The predicted deficit of 4.75 percent of 
GDP in 2009 is forecast to become 6.3 percent of GDP by 2010. 
National debt is expected to rise to 65.7 percent of GDP in 2010, 
with nearly 50 billion euro of that related to government 
intervention in the financial sector.  Despite its planned outlays 
of 1.6 billion euro in 2009 and 4.6 billion euro in 2010 for 
unemployment benefits, the government acknowledges that the labor 
market will likely recover more slowly than the rest of the economy. 
 The unemployment rate is expected to rise from 5 percent in 2009 to 
8 percent in 2010, leaving about 600,000 people jobless. 
 
¶10. In keeping with its plan to maintain stimulus spending in 2010 
and begin to rein in the deficit in 2011, the coalition has called 
for a series of "broad-based reviews" of the budget from October 
2009 to May 2010.  During this period, the government will ask 20 
expert groups (comprised mainly of civil servants) to make 
recommendations on how to cut the 2010 budget by 20 percent 
beginning in 2011.  The government will then consider these 
recommendations when preparing the Spring Budget Memorandum, a 
standard mid-year review of the budget in preparation for the 
release of the next year's budget in September. 
 
------- 
COMMENT 
------- 
 
¶11. Comment:  Reaction to the 2010 budget and the government's calls 
for significant cuts beginning in 2011 has been wide-ranging.  At 
one end of the spectrum, opposition parties accuse the coalition of 
failing to govern and simply pushing tough decisions to the next 
government that will take office after the 2011 elections.  At the 
other end, the coalition argues that a reversal of stimulus spending 
now would spell disaster for the Netherlands' fragile recovery 
expected to begin in 2010 as GDP stabilizes and exports increase. 
While the Dutch public largely agrees that now is not the time for 
drastic spending cuts, they also view the current government as weak 
and willing to pass along difficult decisions to its successor.  For 
now, the coalition has united in the face of criticism from 
opposition parties, labor unions (who criticize what they see as the 
government's lack of focus on rising unemployment), and other 
corners.  The debate over the government's economic strategy will 
likely continue unabated in the run-up to the 2011 elections.  The 
coalition's proposals for new austerity measures in the Spring 2010 
budget review will play a major role in the upcoming election 
Qbudget review will play a major role in the upcoming election 
campaigns and the subsequent formation of a new government in 2011. 
End comment. 
 
LEVIN