Dutch Prime Minister Mark Rutte’s Liberals agreed a coalition with the Labor Party on Monday and vowed to follow a path of austerity.
Outlining nearly 16 billion euros (US$20.65 billion) of cuts over the next four years, the two party leaders said the measures were needed to ensure a sustainable budget and meet EU deficit rules.
“We realize that this package will affect everyone in the Netherlands, everyone will feel it,” Rutte told a press conference. “But we think it is necessary if our beautiful country is to emerge stronger from the crisis.”
Rutte announced the program alongside Diederik Samsom, whose energetic campaign catapulted Labor to second place behind the Liberals in a parliamentary election on Sept. 12.
The two parties reached a deal far more quickly than expected, underlining the urgency given the eurozone crisis and the fragile state of the Dutch economy.
The parties compromised on central elements of their programs in the interests of budgetary discipline.
Labor agreed to the pension age rising to 67 in 2021 from 65 while the Liberals allowed the scaling back of a mortgage tax credit which is particularly popular with wealthier home owners.
The proposed fiscal policy will bring the budget deficit down to 1.5 percent of GDP by 2017 after it peaked at 2.7 percent of GDP in 2014, the state agency charged with assessing government economic policy said.
However, it would reduce growth by some 0.2 percentage points a year for the next four years in a country suffering rising unemployment in a stagnant economy.
“We are staying within the 3 percent limit and bringing the deficit steadily down,” Rutte said.
The Netherlands, one of a handful of economies in the eurozone still rated “AAA,” is already implementing a 12 billion euro austerity program agreed in April. However, a deterioration in the economic climate means more cuts are needed.
Under Rutte and Dutch Finance Minister Jan Kees de Jager, a Christian Democrat whose party lost heavily in the election, the Netherlands had been at the forefront of countries calling for tight fiscal policies to tackle the eurozone’s debt crisis.
In their agreement, the parties did not rule out further aid to indebted eurozone countries but stressed this would be tied to reform efforts.
“There can be no question of support from countries that take their responsibilities seriously towards those that do not,” the parties wrote.
The biggest spending cuts over the next four years will be in health care, public administration and social security. Economists say the Netherlands must also introduce structural reforms in housing, the labor market and welfare benefits.
Samsom said the government would aim to protect those on lower incomes and expect the wealthier to contribute more to restoring a balanced budget. Labor will hold a party conference on Nov. 3 to finalize the deal.
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