NL Update - Dutch government falls; delays in critical policy areas expected

Indeed, recent polls suggest a possibility to form a new, more right-wing government, for instance with the Farmer-Citizen Movement (BBB) in which the VVD could again play a prominent role. The BBB founded in 2019, is highly critical of the Government’s environmental plans, particularly those aimed at cutting nitrogen emissions by buying out farmers. Their opposition to climate policy and benefitting from broader anti-government sentiment made the BBB the clear winners of the March provincial elections, which made them the biggest party in the Senate. Thereby a right-orientated government would also have a majority in the Senate, whereas the current government lacks such a majority.

Together, the BBB and the VVD are polling at roughly 50 seats (76 are required for a majority), with centre right and right-wing parties polling at approximately 90 seats in total, other parties could join a coalition to form a right-wing government. However, with Prime Minister Mark Rutte today announcing his resignation and increasing uncertainty about the future course of the VVD, a lot can still change. Elections are not expected to take place before November 2023 and until then a caretaker government will remain in place. Given that forming a coalition will also take time (see below) the return of a mandated government will take until 2024.

A lot is still unclear about the implications. However, two issues are worth highlighting. First, the current situation will lead to delays in critical policy areas such as solving the country’s longstanding nitrogen crisis, which is a major bottleneck for housing and infrastructure construction, as well as complicating the execution of current climate policy. The current caretaker government will struggle to take important policy decisions and the current political landscape remains very fragmentated, which will complicate any formation process of a new government.

Second, the fall of the government likely constrains government spending in 2023. Delays to solving the binding nitrogen norms means spending on infrastructure and housing construction is constrained. Furthermore, spending on critical policy areas such as climate is likely also delayed until a new government is formed. Underspending, which troubled the government’s ambitions already over the past 2 years, is therefore likely to increase. On the medium term it is uncertain what the budgetary path of a future coalition might look like. The current budgetary course, which was quite expansionary with future budget deficits at or close to 3% of GDP, has raised quite some criticism among right wing parties.