According to figures from Statistics Netherlands, for the first time since the economic crisis, public debt has fallen below 50% of gross domestic product. Nevertheless, the debt still amounts to 395 billion euros. Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, believes this news isn't as good as it sounds. 'If we don't have any government debt in 40 years, this will lead to serious problems'.
In the first nine months of the year, the government achieved a surplus of almost 14 billion euro. As a result, the State budget surplus amounted to 1.7 percent of GDP on an annual basis. The surplus achieved in the first three quarters of 2019 is more than 3 billion euro higher than the entire surplus in 2018. The annual budget assumes a surplus of 10.4 billion euros for this year, or 1.3% of GDP. A budget surplus exists when government revenue exceeds government expenditure. The Netherlands comfortably complies with European requirements stating that the budget deficit may not exceed 3% of GDP and the national debt may not exceed 60% of GDP.
A signal to invest
According to Jacobs, it would normally be good news that public debt has fallen below 50% of gross domestic product. But with the negative interest rates, paying off the debt actually costs the government money. On the other hand, in the case of refinancing, the government would receive money. The fact that we get paid to take out loans is a signal to invest. According to Jacobs, it is better to invest in for example education, the energy transition or research- and development work. There are more profitable alternatives than paying off the debt, says Jacobs.
Unclear reasons
It is unclear what Hoekstra, the Dutch Minister of Finance, wishes to achieve. It seems that he wants to repay the debt and therefore take the Scandinavian countries as an example, but earlier he also mentioned his interest in an investment fund. After 10 years of fixation on a budget deficit and public debt, there is finally the opportunity to reflect on the role of the government in investments and macroeconomics. The state conducts a stimulating fiscal policy but does not manage to spend the planned money every year. Because the state does not reach the planned amount of expenditures, they pay off a part of the national debt with the funds that are left at the end of the year.
Consequences
If the government continues to repay its debt at this speed, we will no longer have any public debt in 40 years' time. This will cause major problems for pension funds, banks and insurance companies. They would need risk-free investment options and these seem to be slowly disappearing. According to Jacobs, with the current low interest rates, an acceptable public debt would be around 60% of the treaty of Maastricht.
- Professor
- More information
Listen to the entire item on BNR Nieuwsradio, 24 December 2019 (in Dutch).