Future Trends in Government Budgeting: Lessons from the Netherlands
The Impact of "Perfect Storms" on Budget Estimates
Government budgeting is a complex process, often riddled with uncertainties. Recent years have shown that macro-economic events can significantly deviate from budget predictions. In the Netherlands, two "perfect storms" — the COVID-19 pandemic and the Russo-Ukrainian war — have led to substantial discrepancies in budget estimates.
Between 2021 and 2023, these unprecedented events accounted for 60% of the deviations in the Dutch budget estimates. For instance, in 2021, the rapid post-pandemic economic recovery led to an 80% deviation in budget estimates. The Central Planning Bureau (CPB) underestimated the amount of corporate income tax collected, resulting in an overestimation of the budget deficit.
Did you know? The Dutch CPB systematically underestimates corporate income tax, leading to inaccuracies in the budget.
Identified Areas for Improvement
While 60% of the deviations are attributed to macro-economic shocks, the remaining 40% can be improved. The expert group, led by former director-general of the Government Budget at the Ministry of Finance, André de Jong, has provided key insights.
1. Corporate Tax Forecasting
The amount collected annually by corporation tax has been consistently underestimated over the past decade. Experts suggest a clearer prediction model for corporate income tax revenue.
2. Government Spending Efficiency
Better planning can ensure that budgeted money is utilized. In recent years, too much optimism among politicians about short-term project implementation goals, leading to a delay in funding disbursement for projects like road construction and defense equipment production.
Pro Tip: Be realistic in project estimates to avoid under-exhaustion. For example, projects often get delayed due to labor shortage or production capacity issues, so take those factors into account, especially in essential items like defense and infrastructure.
3. Budget Adjustments
Interim adjustments made by experts can be improved. The government should consider implementing
4. Financing Provision for Decentralized Authorities
The government’s oversight of finances for provinces, municipalities, and schools remains inadequate. Better coordination and detailed projections for these bodies should be implemented.
Future Trends in Budget Management
Looking ahead, structural improvements in forecasting corporate tax, more realistic project planning, and a more transparent understanding of decentralized finances are crucial.
Real-Life Example
After being criticized by Pieter Omtzigt, president of the NSC, the statutory body that approved the report. He stated with "It becomes clear that the deviations in the estimates in the Netherlands have been 200 percent higher in the last three years than in the surrounding countries. The problem we are recognized by the expert group," says Omtzigt.
Table: Summary of Budget Deviations and Recommendations
| Factor | 2021-2023 Deviation Influence | Recommendation |
|---|---|---|
| COVID-19 and Russo-Ukrainian War | 60% | Improved macro-economic forecasting |
| Corporate Tax Underestimation | 15% | Better prediction models for corporate income tax revenue |
| Optimistic Spending Estimates | 15% | More realistic project implementation timelines |
| Budget Adjustments | 5% | Enhanced interim assessment and more effective execution of budget revisions |
| Decentralized Finances | 5% | Increased oversight and detailed projections for decentralized bodies |
While major global events such as the COVID-19 pandemic and the Russo-Ukrainian war cannot be predicted, focusing on improving the areas highlighted above will ensure a more robust and accurate budgeting process.
Given the lack of sight into the coming years from experts today governments can reassess domestic policies but they will have to identify a new operational strategy that fulfill: defense spending, solving the nitrogen, climate crisis and the reversal of the VAT increase.
FAQ Section
Q: How much money has been left unallocated in recent years?
A: Between 2021 and 2023, an average of 25 billion euros per year was left unspent in the Netherlands. In 2021, deviations were attributed to unique circumstances due to the pandemic, which resulted in a significant economic turnaround.
Q: Can the identified 40% of deviations in the estimates be mitigated?
A: Yes, improvement is possible through better corporate tax forecasting, more realistic project planning, enhancement of interim budget adjustments, and increased oversight of decentralized authorities’ finances.
Conclusion
The Netherlands’ recent experiences underscore the need for a more resilient and flexible budgeting strategy. By addressing the identified areas for improvement, governments can better prepare for future uncertainties and maximize the allocation of public funds.