Who should receive financial aid during the coronacrisis?

de Volkskrant
Erasmus School of Economics

Should the State continue to help companies who are owned by foreign firms? Some are concerned that the corona support for companies will end up with foreign investors and shareholders instead of Dutch citizens.

An example is the company Booking.com, owned by an American group since 2005. Top man Glenn Fogel fetched almost 20 million dollars in 2018 and also took advantage of all the tax opportunities that the Netherlands has to offer, which resulted in a discount of almost 2 billion. Still, Booking.com called on the government for financial support after the booking site came to a standstill due to the corona crisis. 

Criteria for financial support

When the measures were introduced, a rough scheme was devised to support companies and to cover a large part of the labour costs. According to Bas Jacobs, Sijbren Cnossen Professor of Public Economics at Erasmus School of Economics, this had to be done quickly and it did not matter whether a company had a lot of equity or not. It was a matter of legal equality. Now that preparations are made for a second package of wage cost support, the government comes up with terms and conditions.

Minister Wouter Koolmees of Social Affairs indicated that he still wants to support companies of which only parts are affected by the crisis. In return, the company may not pay bonuses, dividends or buy back its own shares in 2020. According to Jacobs, it would be beneficial if there came arrangements obliging companies to take losses themselves first, or to give a bill to the shareholders before the government intervenes.

Set everything to zero

In the real estate sector there are suggestions to stop payments. The retailer does not pay rent to the pledgee, who then does not pay interest and redemption to the bank. Jacobs explains that this sounds interesting, but eventually a solution like this will disrupt the whole economic process. Prices are meant to indicate scarcity ratios. If you set everything to zero, this pricing mechanism will no longer work. If everything is free, everyone wants to have it all. You need prices, Jacobs concludes.

The taxpayer's wallet

The bill for the state aid ultimately ends up with the taxpayer, says Bas Jacobs. Part of the production capacity is at a standstill and in many sectors it is not possible to work, so no money is earned there. In fact, this money has simply disappeared. According to Jacobs, it's very fortunate that the government is now providing the people who need it with income, but it does result in an increase in the national debt. We are all going to pay a price for that later.

 

Professor
More information

Read the entire article from de Volkskrant here, 22 April 2020 (in Dutch).