The Dutch Budgetary Framework and the European Fiscal Rules

The Netherlands has a unique budgetary framework that is built around multiannual expenditure ceilings. The underlying principle is that budgetary policy should be trend-based, with a longer-term perspective. Independent macroeconomic forecasts and non-partisan evaluation of the budget plans have a longstanding tradition and predate similar requirements set at the European level. A central element of the national framework is the commitment of a government to adhere to pre-agreed expenditure ceilings over a four-year term. However, experience with meeting the European fiscal targets is mixed, and it appears that the Dutch framework does not necessarily ensure compliance with the European objectives. This note discusses possible reasons for this discrepancy. When compared along different dimensions, the operational objectives of the domestic and EU frameworks are not fully aligned. Long-run sustainability is assessed differently at the national and the EU level. Also, the medium-term objective is not fully operationalised within the national context. Finally, there are methodological differences with regard to the expenditure rules. Overall, this may lead to a dilemma for Dutch policy makers, who use the same policy instruments to fulfil different policy objectives. The current initiative at the EU level towards a greater emphasis on the expenditure benchmark offers an opportunity to bring the Dutch framework closer to the European one. Nevertheless, this analysis is non-exhaustive and a further discussion could identify possible ways to align the objectives, while preserving the successful elements of the Dutch budgetary framework.