2023: a better financial outcome, despite turbulent economic times
With the world in flux, 2023 was an economically turbulent year. Inflation was high, interest rates rose and the Netherlands saw virtually no economic growth. The war in Ukraine sent energy prices soaring. The Dutch government took a range of extra measures to prevent a rise in poverty, such as setting a cap on the price of energy and raising the minimum wage by 10%. Despite the decline in economic growth, unemployment remained low. A sharp rise in wages helped ensure that purchasing power improved for many households in the second half of the year. The Netherlands’ EMU balance ended the year at -0.3% of gross domestic product (GDP) and the national debt at 46.5%.
These conclusions can be found in the Central Government Annual Financial Report, submitted to the House of Representatives by Minister of Finance Steven van Weyenberg on Accountability Day.
According to Mr van Weyenberg, ‘In 2023, the plans set out in the government’s ambitious investment agenda continued to come to fruition. The government invested in solutions for key challenges facing society, in areas such as equality of opportunity, education, climate action and defence. Obstacles to the realisation of these solutions were caused by a range of factors, including a shortage of staff. We are also reaching the limits of what is possible in terms of the environment and physical space in our country. Nevertheless, the budget deficit was smaller than expected, the national debt lower than in 2022 and investments and expenditures delivered results.’
Government finances
In 2023, not all budgeted funds were spent. This was due in part to the labour market shortage. The government spent € 13 billion less than expected, including a sum of € 5.8 billion that has been rolled over to future years, to ensure that those resources are spent on the things for which they were originally intended. The remaining € 7.2 billion is what is known as ‘underspend’: funds that have not been spent by the time the year comes to an end. This underspend related mainly to investment budgets and complex issues, such as benefits, the situation in Groningen, and the nitrogen emissions crisis.
In 2023 the government spent a total of € 5.4 billion on support for Ukraine. This was used to provide both military and humanitarian support, as well as reception in the Netherlands for Ukrainian refugees.
In 2023, the budget deficit was far lower than expected. In the 2023 Budget Memorandum the deficit was estimated at 3% of GDP but was ultimately 0.3%.
There are various reasons for this. Firstly, actual revenue in 2023 was significantly higher (€ 19.1 billion) than estimated in the Budget Memorandum. This was a result both of policy changes, such as reversing the decision to reduce energy tax in order to cover the cost of the price cap, and of positive economic developments, such as higher wages and profits, which translated into higher tax revenues.
A second reason was the underspend in 2023. Lastly, subnational authorities also had a budget surplus, and spending that was attributed to another budget year. At the same time, there was also additional expenditure, such as asylum, interest, and the energy price cap.
In 2023, the EMU debt stood at € 480.7 billion, or 46.5% of GDP. This was lower than the figure estimated in the 2023 Budget Memorandum (49.5% of GDP). It was also lower than it has been in the past few years (51% in 2022 and 52.1% in 2021). In 2023 the Dutch national debt remained below the European Union limit of 60% of GDP.
Financial management
Over the past year, central government’s financial management has been focused largely on making improvements, concluding the support measures from previous years relating to the COVID-19 pandemic and the energy crisis, and administrating Dutch aid to Ukraine. According to the Netherlands Court of Audit, the regularity of obligations, expenditures and receipts in 2023 stood at 98.9%, 99.6% and 99.9% respectively. In relation to previous years, the regularity percentage has continued to improve This progress is attributable to the extra efforts of government ministries. Furthermore, compliance with the procedures concerned with informing parliament in a timely and correct manner has improved.
In 2023 the number of irregularities fell from 44 to 36. Working jointly within a task force aimed at enhancing financial management, the ministries have worked hard to address shortcomings. Although too many procurement management errors are still being made within complex contract award procedures, central government’s financial management is generally moving in the right direction. It goes without saying that that taxpayers’ money must be managed properly. In the year ahead, the government will maintain its focus on enhancing and strengthening financial management across central government.
Incidental supplementary budgets (ISBs)
At the request of the House of Representatives, the number of interim budget adjustments (known as incidental supplementary budgets (ISBs), has been significantly reduced. In 2023, a total of eight ISBs were submitted, compared with 51 in 2022. This amounted to spending of € 2 billion in 2023, compared with € 18.6 billion the previous year. The main reasons for these ISBs were the war in Ukraine, energy compensation measures and the COVID-19 pandemic.
There are various reasons to create an incidental supplementary budget (which is an adjustment to the original budget), such as unexpected expenditure or specific measures that require additional funding.
In 2023 the government started a pilot scheme to further reduce the number of ISBs. To this end, it adjusted the budget schedule around the Netherlands’ Budget Day, thus bridging the gap between the first (Spring Memorandum) and second (Autumn Memorandum) supplementary budgets. Before the summer the government expects to present plans aimed at further improving the budget process.