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Extended Dutch government support: Necessary foundation for economic recovery

Economic Comment

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  • The third support package is not as generous as its predecessors
  • Most measures will remain intact with additional requirements and higher eligibility standards
  • Additionally the government announced extra investment stimulus and social support
  • The support lays a foundation for economic recovery, but more could be done to help businesses adapt

While the more stringent safety measures implemented during the “intelligent lockdown” have been phased out, the coronavirus is not fully under control and many rules remain. Nightclubs for example continue to be closed and the social distancing rules limit business activity in many sectors. The Dutch economy is also still experiencing the negative economic impact of the coronavirus. The government therefore decided to extend its support for business with a third package.

Support package 3.0 is less generous than its predecessors but will be in place longer, until the first of July 2021, reducing uncertainty for businesses. The 3.0 aid package is worth an extra €11 billion, roughly 1 percent of GDP, in addition to the €36 billion for the first two support packages.

Extended support measures for companies

One of the extended measures is the compensation for labor costs: the job retention scheme NOW. It will phase out in two different ways. Firstly, from January, firms will need to incur a revenue loss of 30 percent or more to qualify, versus the current 20 percent. Secondly, the maximum of labor cost covered by the government, currently 90 percent, will be gradually lowered to 60 percent.

Stricter conditions and lowering the covered costs will motivate firms facing persistent loss of revenues to start finding more sustainable business models or shut down. Also, workers will be incentivized to find a job elsewhere, as firms are allowed to renegotiate wages while receiving NOW or even to lay off employees (under the normal restrictions of the labor law). While this probably will prevent many bankruptcies, it will also raise unemployment. Although the government reserved one billion euros for retraining and work-to work guidance, we do expect unemployment to rise to 6.6 percent in 2021. 

Besides the NOW, the support for the self-employed (Tozo) was also extended, with a new condition, personal liquid assets should not exceed the €46,520. This includes for example money on their bank accounts. 

For SME’s operating in specific affected sectors, like restaurants and theaters, the compensation for fixed costs (TVL) will be available for an extra nine months. The amount covered by the government will be increased to €90,000 per three months, instead of the previous €50,000. However, the incurred revenue loss to be eligible for the TVL will be increased.

Regarding the tax deferral for entrepreneurs, this expires on January, followed by repayment over two years.

Additionally the loan guarantee arrangements, like the BMKB-C, the GO-C and the KKC, will remain available after October. Companies with sustainable business models can make use of these programs to supplement government support.

Extra measures

In addition to the above mentioned schemes, the cabinet has announced that it will provide an investment stimulusas part of this third package. It has not yet elaborated further, but this stimulus includes for example bringing forward public investments in infrastructure.

As previously mentioned, the additional social package of one billion will be available for retraining and work-to-work guidance for people who have lost their job. This package will also support people with a high risk of poverty an problematic debts.

What else could the cabinet have done?

The government support package 3.0 lays a necessary foundation for economic recovery. The focus has shifted somewhat to adaptation, like the decrease in covered governmental costs for the NOW. But more could have been done, for example by setting requirements for environmental sustainability and digitalization effort.

In the meantime, the cabinet is busy preparing for Budget Day on September 15. Media reports suggest that work is still being done on tax rules, including abandoning the previously planned profit tax cut for large companies. For smaller companies, with profits up to €400,000, a lower tax rate is still in the cards.

In addition, we also expect concrete announcements for the long-awaited investment fund aimed at boosting potential growth. It is positive and much needed that the cabinet is still showing ambition despite the approaching elections.

In its August forecast the Bureau for Economic Policy Analysis expected government debt to rise to 60% of GDP this year and next. Especially relative to most other advances economies, the Netherlands’ public finances are still in a strong position to weather the Covid-19 storm. 

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Author(s)
Lize Nauta
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO
+31 6 8311 4525

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