Eelco Heinen’s first budget as finance minister struck a very different tone from the ambitious, big-spending plans of the Rutte era.

The VVD minister painted a picture of the Netherlands as a prosperous country that consistently topped international league tables for health, wealth and happiness.

It was not a “coincidence or a law of nature”, Heinen said, but the just reward for Dutch people’s hard work and sensible choices.

But those fruits had been jeopardised by what the finance minister stopped just short of describing as reckless spending by his predecessors, which were driving up the national debt and annual deficit. “This really has to stop,” Heinen said.

“Every euro is the result of the hard work of ordinary Dutch people who expect us to use their tax money responsibly,” he said. “That requires a change of course, back to financial discipline and clear agreements on the budgetary rules.”

At first glance the public finances look to be in good health. The economy is forecast to grow by 0.6% this year as it emerges from a short recession and 1.5% in 2025.

Preventive austerity

The government’s plans are expected to boost spending power by an average of 0.7%, while the number of people living below the poverty line will fall to 4.7%.

The budget deficit and national debt will fall well inside the EU’s limits of 3% and 60% of GDP respectively.

But Heinen said the Netherlands needed to enter a period of preventive austerity now to avoid future generations having to foot the bill.

“This cabinet will be parsimonious with its scarce means so that we can adapt to changing circumstances and generations after us can continue to benefit,” he said.

“Although the government debt looks low now, we see the deficit and debt growing as a result of rising spending.”

A total of €430 million of savings have been earmarked in education, culture and science. There will also be cuts to healthcare and social security, and the civil service has been told to downsize by 22%.

International development aid is due to be trimmed and the maximum time limit for unemployment benefit is being reduced.

Make work pay

The latter is part of Heinen’s drive to “make work pay”, another right-wing shibboleth, which also includes a new lower tax band to cut the bill for lower earners. The biggest beneficiaries will be not the lowest earners, whose spending power will go up by 0.5%, but those earning just below the average, who will get a 1.1% boost.

Curiously, people on benefits will see their spending power increase by 0.9% next year, but in the long run the VVD wants to tilt the balance in favour of working people. The health insurance rebate for the lowest earners will rise by a maximum of €6.50 a month, even though premiums are expected to go up by around €10.

Social security will prioritise lifting people out of poverty, to ensure that “nobody in a prosperous country should to worry about being able to pay their bills”. The government has retained the free school meals programme and has pledged to build more affordable homes.

Funding pots drained

The long-term investment schemes of Mark Rutte’s cabinets are being pared back or scrapped and redeployed. “The government should not be subsidising and compensating for everything,” Heinen said.

The €25 billion to fund the buyout of farmers to cut nitrogen pollution has been stripped back to €5 billion, the energy transition fund is being redirected to “green growth” and the innovation fund launched four years ago is being abolished with nearly €8 billion still in its account.

Instead Heinen nailed his colours firmly to another liberal flagship, the free market. The government’s plans to encourage more private capital include cutting the property transfer tax for second homes to 8% and continuing to exempt companies that repurchase their own shares from dividend tax.

30% rule salvaged

The same imperative has led to the government almost entirely reversing parliament’s decision last year to cut back the 30% expat tax ruling, which exempts some skilled foreign workers from being taxed on part of their income. The tax-free portion will now be trimmed to 27% for the full five-year term.

The Netherlands had prospered from its open economy and strong trading links, with membership of the EU at its heart, Heinen said – a statement that will not be wholeheartedly welcomed by the more Eurosceptic parties in the coalition such as the PVV and BBB.

“The EU internal market is very beneficial for us and it is crucial we remain a part of this and strengthen our position,” he said.

State aid threat

But European companies are being challenged by “rising power blocks” using state aid to distort the market, which has put European countries under pressure from within to do the same. “In the long term that can damage growth,” Heinen said.

The budget includes some extra spending, mostly in the VVD’s favoured areas such as defence and law and order. Defence spending is being raised to meet Nato’s 2% target from next year, reflecting the Netherlands’ new self-image as a custodian of global security.

And an extra €130 million is being invested in border controls, as part of the government’s wider crackdown on migration that Heinen says is essential for the well-being of the economy.

“in a decent country where there is always room for people in need, they shouldn’t have to worry about uncontrolled migration,” he said. “And yet people are worried about those things and we have to take those concerns seriously.”

Concern about cuts

Some of Heinen’s plans appear to be contradictory. His ambition for a stronger role within the EU risks being undermined by the government’s demands for an opt-out on asylum quotas and exemption from farming restrictions, to say nothing of plans to curb €1.6 billion from its EU funding.

The government’s own economic advisers, the economic policy analysis bureau CPB and the social analysis agency SCP, criticised the plans as vague and poorly evidenced.

They said cuts to research and innovation risked sacrificing long-term benefits for short-term gain – exactly the scenario Heinen says he wants to avoid.

And in one of the most criticised measures in the budget, the government is withdrawing funding for the volunteer scheme for young people known as maatschappelijke diensttijd. The system was praised for giving deprived and vulnerable youngsters skills and experience they needed to participate in society.

But Heinen was adamant that the age of “free money” was over. “Money is not free,” he said. “Those days are gone. The bills have to be paid.”

The main financial points of the budget

Taxes and premiums

• A new tax band is being introduced covering income up to €38,441 with a tax rate of 35.82%, just over one percentage point down on the current rate.
• Between €38,441 and €76,816 the rate will rise to 37.48% and above that there is no change at 49.5%.
• Overall, spending power will rise by an average of 0.7%
• The 30% ruling will be cut to 27% and will continue to run for five years but the salary minimum to qualify will go up from €46,107 to €50,436
• The tax on gambling will go up to 37.8% in two stages
• Property transfer tax for investors will go down from 10.4% to 8% in 2026

Government finances

• Economic growth will reach 0.6% this year and 1.5% in 2025
• The budget deficit will hit 1.8% this year and 2.5% in 2025
• The percentage of households in poverty will drop 0.1 percentage point next year to 4.4% and there will be no change in the number of children (4.7%) growing up in a poor household

Other fiscal measures

• Solar panel owners will no longer be able to subtract the amount of energy they feed back into the electricity grid from their bills in 2027
• The government is setting up a special €60 million “energy fund” to help the poorest families meet fuel bills
• The tax on gas will go down by an average of €33 per household per year, according to calculations by Nibud
• No increase in taxes on petrol, diesel or lpg
• Plans to scrap the tax break on charitable donations by companies have been delayed for a year
• Value added tax on culture, sports events and gyms, books and hotels will go up from 9% to 21%

Other measures

• Train tickets will be 6% more expensive, not 12% as indicated earlier
• The king, queen, his mother and oldest daughter will have 7% more to spend next year. Ordinary wages are set to rise 4.3% in 2025.
• Schools will get compensation for the increase in value added tax on school books
• Healthcare benefits will rise by €6.50 a month maximum and the government expects health insurance premiums to rise by €10 a month
• The education ministry expects to save €293 million a year by reducing the number of international students and to raise €282 million from bringing in higher fees for slow students
• €360 million will be saved by reducing “subsidies” for education and culture. More details will be published in November