Annexes to SEC(2005)11 - Recommendation for a Council opinion in accordance with the third paragraph of Art. 5 of Council Regulation 1466/97 On the updated stability programme of the Netherlands, 2004-2007 - Main contents

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dossier	SEC(2005)11 - Recommendation for a Council opinion in accordance with the third paragraph of Art. 5 of Council Regulation 1466/97 On the ...
document	SEC(2005)11
date	January 18, 2005

agreement between the government and social partners reached on 5 November 2004 are broadly offset by positive risks of the impact of higher oil prices on revenue from the sale of natural gas and the cautious nature of the assumptions on the tax intensity of economic activity in the upturn. In view of this risk assessment, the budgetary stance in the programme seems sufficient to reduce the deficit to below 3 % of GDP by 2005 but does not seem to provide a sufficient safety margin against breaching this threshold as a result of normal macroeconomic fluctuations in the following years. It is also insufficient to ensure that the Stability and Growth Pact's medium-term objective of a budgetary position of close to balance is achieved within the programme period.

The debt ratio is estimated to have reached 56,3 % of GDP in 2004, below the 60 % of GDP Treaty reference value. The programme projects the debt ratio to increase by two percentage points over the programme period.

The budgetary strategy outlined in the programme puts the Netherlands in a relatively favourable position with regard to the long-term sustainability of public finances, despite important projected budgetary costs of an ageing population. Given the projected increase in the old-age dependency ratio, and in the absence of further fiscal consolidation leading to a budgetary position close to balance or in surplus in the medium term, further reforms that would modify the trends in age-related expenditures and raising further participation rates would reduce sustainability risks over the longer term.

The economic policies outlined in the programme are partly consistent with the country-specific broad economic policy guidelines in the area of public finances. The budgetary framework with expenditure ceilings is adhered to, and budgetary adjustment to correct the excessive deficit is well under way. However, the expected reduction in the headline deficit in 2006 and especially 2007 is quite slow, while the cyclically-adjusted balance would not show progress towards the medium-term objective of a budgetary position of close-to-balance after 2005.

In view of the above assessment, the Netherlands is recommended to continue to ensure that the deficit is brought below 3 % of GDP by 2005, and, in view of the risk of pro-cyclicality and the challenges of ageing population, to take the necessary measures to achieve a budgetary position close to balance thereafter.

Comparison of key macroeconomic and budgetary projections

	2004	2005	2006	2007
Real GDP (% change)	SP Nov. 2004	1,25	1,5	2,5	2,5
COM autumn 2004 00	1,4	1,7	2,4	n.a.
SP Oct. 2003	1	2,5	2,5	2,5
HICP inflation (%)	SP Nov. 2004	1,25	1,25	1,5	1,5
COM autumn 2004	1,2	1,3	1,4	n.a.
SP Oct. 2003	1,5	1,5	1,5	1,5
General government balance (% of GDP)	SP Nov. 2004	– 3,0	– 2,6	– 2,1	– 1,9
COM autumn 2004	– 2,9	– 2,4	– 2,1	n.a.
SP Oct. 2003	– 2,3	– 1,6	– 0,9	– 0,6
Primary balance (% of GDP)	SP Nov. 2004	– 0,1	0,3	0,7	0,8
COM autumn 2004	0,0	0,5	0,9	n.a.
SP Oct. 2003	0,6	1,2	1,8	2,1
Cyclically-adjusted balance (% of GDP)	SP Nov. 2004 (2)	– 1,6	– 1,2	– 1,2	– 1,3
COM autumn 2004	– 1,4	– 1,0	– 1,0	n.a.
SP Oct. 2003 (3)	– 0,7	– 0,3	– 0,2	– 0,2
Government gross debt (% of GDP)	SP Nov. 2004	56,3	58,1	58,6	58,3
COM	55,7	58	58,4	n.a.
SP Oct. 2003	54,5	53,7	53,0	52,2
Sources: Stability programmes (SP); Commission services' economic forecasts (COM); Commission services' calculations. Forecast growth rates in the update have been rounded to the nearest quarter of a percentage point.

(1) OJ L 209, 2.8.1997, p. 1.

(2) Commission services' calculations on the basis of the information in the programme.

(3) Commission services' calculations applying the commonly agreed methodology to the information in the programme.

Sources:

Stability programmes (SP); Commission services' economic forecasts (COM); Commission services' calculations. Forecast growth rates in the update have been rounded to the nearest quarter of a percentage point.