Economic consequences of the Coalition Agreement 2003-2006

This agreement lays down the policy intentions for the new cabinet period up to and including 2006. Starting point for the economic analysis is the so called prudent growth scenario for the period 2003 2006, showing an annual GDP growth rate of 2½% and a budget surplus of 0.3% of GDP in 2006. The Coalition Agreement proposes budgetary savings of around 6¾ billion euros by cutting the number of civil servants and imposing stricter regulation in both unemployment and disability schemes. On the other hand public expenditures are raised by around 3½ billion euros, targeted on health care, education and public safety.

The total burden of taxes and social security premiums is not affected by the Coalition Agreement. However there are numerous shifts between different taxes and premiums, amongst which the introduction of a uniform financing scheme for health insurance. The analysis shows that the policies proposed in the Coalition Agreement have a negative impact on economic growth in the short term, mainly because net government spending is reduced by 0.7% of GDP.

The budget surplus in 2006 improves by only 0.3% of GDP compared to the prudent growth scenario and ends up at 0.6% of GDP. In the longer term the measures taken in the social-security schemes stimulate labour supply and reduce equilibrium unemployment by lowering the replacement rate. Potential GDP in 2006 is 0.9% higher than in the baseline and the structural budget surplus improves more by 0.6% of GDP than the actual budget surplus in 2006.

This publication is in Dutch.