Dutch budget day overshadowed by upcoming elections

At yesterday's Prinsjesdag the politically impaired Schoof I Cabinet, consisting now of only the centre-right liberal VVD and the right-wing BBB after the far-right PVV and centre-right NSC quit the coalition earlier, presented the 2026 budget. The budget featured little surprises for two reasons. First, given the caretaker status of the cabinet and the upcoming elections, it is customary to submit only a ‘policy light’ budget, as this was reemphasized by parliament in recent weeks. And second because – similar to other years – most measures were already leaked. Similar to last years, the government intends to boost purchasing power with a 1 year-extension of lower fuel levies (EUR 1.6 bn). Additionally, the government supports the strategically important Dutch high-tech industry (EUR 0.5 bn), of which the Dutch semiconductor sector, to which ASML belongs, receives the largest chunk. Other smaller measures were taken on amongst others; public transport, windfarm subsidies and reducing nitrogen emittances. Crucially were the topics that were absent. The ramping up of defense spending, agreed earlier this summer when the Netherlands was hosting the NATO-summit in The Hague, alongside comprehensive policies on other longer term goals such as for instance solving the housing shortage, the electricity grid congestion and the nitrogen dossier were left to the next cabinet to be formed after the 29 October elections. All in all, today’s budget was fitting for the ‘more than caretaker status’ of the Schoof I Cabinet that can rely on just 32 seats out of the 76 seats needed for a majority in parliament.

With elections in sight, today’s budget is not final

It is hard to assess at this stage how to look at today’s budget as large changes to the budget are still expected. The cabinet was urged by parliament to deliver a ‘policy light’ budget, but the same does not necessarily hold for parliament itself. The parliament will discuss the 2026 budget after the October elections. As such, the new make-up of parliament will want to leave its mark on the 2026 budget as was already signalled by GL/PVDA, the second largest (opposition) party. In that sense the current situation may resemble the frowned-upon budget proceedings in 2023, where the Rutte-IV caretaker government saw its budget heavily altered overnight by parliament. This fits the picture we have seen over the last years. Since 2020, the Netherlands only had a mandated government for 60% of the time, with governments having a caretaker status the rest of the time.

The Dutch economy is resilient but structural issues increasingly constrain activity

Prinsjesdag takes place against the backdrop of a resilient economy with very low unemployment. In the near term, Dutch economic growth is set to slow due to US tariff related headwinds which primarily affect the Dutch economy indirectly via lower growth in main trading partners. Further out and over the course of 2026, growth is set to increase on the back of rising real incomes, helped by the budget’s proposed purchasing power measures, ECB rate cuts feeding through, and higher growth in Germany on the back of the expansive fiscal stance of the German government. However, the potential growth of the Dutch economy is slowing. Different supply-side bottlenecks such as persistent labour shortages, electricity grid congestion, binding nitrogen emittance norms which limit (construction) activity and others increasingly constrain the economy and hamper Dutch competitiveness. And as mentioned by the IMF, this comes on top of upcoming challenges such as decarbonisation, climate adaptation and ageing. A more longer term view of the incoming government would help navigating these challenges.

Funding need for 2025 not affected, uncertain what effect will be for 2026

Dutch government finances are solid in international perspective. However, the deficit is set to widen over the coming years. Amounting to -1.9% of GDP this year, down from -0.9% of GDP in 2024, and widening further to -2.7% of GDP in 2026. As a result, after four consecutive years of declining, 2025 will be the first year where the ratio of Dutch debt to GDP is rising again.

Given that the budget will not lead to any major changes this year due to the caretaker status of the government, the impact on the Dutch state's funding need in the current year will be limited. The DSTA estimates this year's funding need at nearly EUR 90 billion, of which EUR 40 billion will be raised through the issuance of DSLs. In recent years, the DSTA has revised its funding needs downwards during the year. The reasons for this were the strong economy, which resulted in higher than budgeted tax revenues, and underspending of budgets due to labour market shortages. This year, too, the DSTA has already revised its funding needs downwards, and there is a possibility that this will happen again towards the end of the year.

As the new parliament is expected to make (major) adjustments to next year's budget after the elections, it is still unclear what effect this will have on the funding requirement for 2026. This depends, among other things, on the length of the coalition negotiations, which have taken a long time in recent years due to fragmentation. If this is also a lengthy process this time, a new cabinet will not be installed until sometime next year, and new policy will also have only a limited impact on the funding need for the Dutch state next year in 2026.