How much longer can the government continue its unconditional support?

Buitenhof

With blind faith, the government spent billions of euros on support for businesses. But as the crisis continues and the tourism, hospitality and event sector seem to be changing permanently, the question arises: how much longer can the government continue this unconditional support? Sandra Phlippen, Professor of Applied Economics at Erasmus School of Economics and Chief Economist at ABN Amro talks about the issue in the programme Buitenhof.

Higher taxation for the rich

Martin Wolf, who previously was a guest at the programme, argued that there should be a higher tax for the rich to pay off the increased national debt. Sandra Phlippen supports his statement. According to her, it is obvious that those who can easily bear the burden and have suffered the least should take on the burden. The consequence of higher taxes for the rich is that it could discourage them to work harder, which is needed for economic growth and to decrease the national debt. Therefore, the government should try to find the optimal tax demand, says Phlippen. 'However, the national debt is not the biggest problem right now, there are more important issues that should come first.'

A sound starting position

Phlippen states that the Netherlands has a good starting position, with a strong welfare state. In addition, due to the high internet usage in our country there is a shift in purchasing behaviour. Instead of physically, most of our purchases are made online. The Netherlands is even the European leader when it comes to the amount of online purchases. Furthermore, before the outbreak of the crisis the labour market was very tight, resulting in less unemployment in times of crisis.

Overconfidence

According to Phlippen, this is only the first phase and the damage is already serious after two months of crisis. Especially the leisure and hospitality sector are having a hard time after they had to close their doors for a long period of time. The Employee Insurance Administration Institute (UWV) keeps a good record of all the figures, such as the number of applications for the NWO subsidy schemes. Entrepreneurs must report their losses in the months of March, April and May. The statistics show that the average loss amounts to 70%. At this moment, 110,000 companies are using the funds provided by the government, with 1.8 million employees receiving their wage due to the state funding because their own employees can no longer pay for it. Just as in the United States, 1/5 of all employees would be unemployed without government support. 'We don't realize this', says Phlippen. 'The Dutch have an unprecedented high level of confidence in the company where they work and the support of the state. They realize that they are dependent, but they don't realize that the support can't last forever.'

A big challenge

Phlippen believes that a second phase in the crisis with high levels of unemployment is inevitable. She uses the restaurants and cafes, often run by small entrepreneurs, as an example. 'If they can only receive half of the customers at their usual location, they also earn only half of the usual revenue. Raising prices or lowering wages is not an option in most cases.' According to her, only very few establishments will survive. The next step in this 1.5 meter economy, in which the earnings capacity of some sectors is becoming unsustainable, is to think about how a large number of people can be retrained for other jobs. Phlippen expects that there will be major shifts in the labour market, but that it is also something we need to do together. The government's second support package also contains options for retraining. 'To help people find another profession which they are not familiair with, on such a large scale, is very difficult. This will be a big challenge for The Netherlands.'

Professor
More information

Watch the item of Buitenhof here, 10 May 2020 (in Dutch).