Dutch government deeply involved in illusionary budgets and politics (just like the bankers)

In my previous post, one year ago, I outlined that it would be possible that with the PvdA at the helm, the Dutch politics would enter a time of less populist talk and more stability. Boy, was I wrong about that. What happened here in the Netherlands is that the elections turned into a shoot-out between right wing VVD and left wing PvdA. All votes sucked into a battle where right wing voters chose VVD to prevent the PvdA from becoming too big and vice versa.

The end result was that PvdA and VVD both became very big and have a majority in the House of Representatives (Tweede Kamer) but not in the Senate (Eerste Kamer). Rather than seeking a bigger coalition, the two leaders: Rutte (VVD) and Samsom (PvdA) chose to develop a government policy plan within a brief period of time, with very few consultations. This didn't work well for a number of reasons.

It turned out that VVD and PvdA had compromised on important positions by using some simple cards. The result was that the VVD agreed to a very strong income adjustment whereby high income earners would significantly pay more tax than before. This was a PvdA desire that was one bridge too far. After a lot of hassle, the plan was revoked. But it showed the core of the problem: the agreed package of compromises between PvdA and VVD hadn't been thought through sufficiently. This was enough for me to coin their policies: Illusion policies.

Where are we now?
Right now, we are almost one year underway and it seems that the prime Minister has taken aboard some of the criticism that all the government plans were made without sufficient backing in society. As a result he is now setting up deals on healthcare, prison-policy and so on. The number of deals ('akkoorden') is immense and each changes a bit in the start policy of the government. One of the involved social partners at some point in time said: 'I'm getting a bit of tired from al these deals'.

But there is a bigger problem here in the Netherlands. In an effort to fullfil the EU criteria, our government is trying hard to cut expenses. It does so however, without making fundamental choices. It tries to avoid some of the hot issues, such as deductibility of mortgage interest. The reason for this is that ever since the death of Fortuyn, our politicians are scared to lose their votes to the populistic players that promise a lot but cannot deliver a consistent policy (see my previous post).

Meanwhile the public is smart enough to recognize that things aren't going well and they revert to an old Dutch quality and habit: save money, stop spending. Because in this political climate it is quite likely that even if you don't expect it, some sort of measure may affect your personal budget. Until revoked or replaced by an adapted plan or deal.

Much of the macro economic debate focuses on the housing and mortgage market as politicians believe that in this area the solution of the crisis can be found. The paradox here is that polls show that the Dutch public assumes the interest deductibility to disappear and understands that that is necessary. But this government doesn't want to do that and reverts to additional measures to fix the market (a government guaranteed mortgage fund being the latest plan). While in itself useful it keeps consumers in uncertainty as to when the deductibility will be abolished.

Illusionary cuts and budget
We should also note that significant part of the budget cuts of this government only exist on paper. The idea that it is possible to delegate central government task to municipalities while reducing the expenditure with many billions is unreal. It allows the government to book a reduction while municipalities will be blamed afterwards for not achieving their targets.

A similar illusionist trick is done with the government financial assistance (for childcare, raising kids, housing). By reorganising the existing range of reglementations and procedures into 1, it is expected to save us some other billions.  Quite unlikely given the bad track record of the government and tax department in automation and procedural change.

Essentially we have thus sent a paper tiger to Brussels stating that we achieve our budget goals, but we will undoubtedly be in for some surprises. Our government is living on borrowed time, hoping that the other countries pull us out of the mud (which might work as we are an open community, earning in the slipstream of Germany). And it would be a wrong idea to see a role for the ECB here. The ECB can't of course solve the deficiencies and absence of our political statesmanship with monetary instruments.

What do the Dutch think of all this?
In my view, those of us who suffer from the budget cuts do tend to align with the populist parties at the left and right side of the spectrum. Other than that we maybe more mature than the politicians assume. Mortgages are being repaid and there is an understanding that we all need to pay our fair share. But the problem is that the political debate is not about fair shares but about finding easy and quick wins in order not to lose votes. There is a longing for stability and trustworthiness which our politicians are unable to provide.

In analogy with the banking sector: the incentive structure for politicians is skewed towards the short term just as heavily as it was in the banking domain. While in the bank domain this is now being corrected, the politicians lack the self-reflection to apply similar lessons to themselves. The result is that the general trust in politicians is getting steadily lower.

Meanwhile the Dutch draw their own conclusions: stop spending, start saving until the outlook improves and becomes more predictable. Unlocking this spending stop will not just require certainty on the mortgage market. It requires more stability and fairness from politicians, but they are too busy going for votes, to notice that.

In sum: we had our opportunity for a Dutch spring here in the Netherlands, but as in other countries, we let the momentum slip away.