The politics of fiscal consolidation in the Netherlands: mainly compromising but hesitant attempts at targeted priority-setting

Abstract

This article analyses fiscal consolidation in the Netherlands, especially the politics of consolidation and cutbacks. We discuss the contents of the consolidation measures, and the political decision-making processes leading up to the measures. The analysis of the political decision-making focuses on the characteristics and stages of the decision-making. The three stages of fiscal consolidation analysed in this article – the October 2010 coalition agreement, the April 2012 spring agreement, and the October 2012 coalition agreement – show a gradually mounting recognition of the necessity for serious cutbacks. Decision-making was mainly characterized by consensual compromising, that is, incremental, across-the-board, cheese-slicing measures. However, in later stages of the fiscal crisis, hesitant attempts were made at targeted political priority-setting.

Points for practitioners

This article’s main focus is on the political decision-making leading up to cutback measures, whether the decisions were mainly incremental, across-the-board, cheese-slicing, or whether targeted, selective cutbacks based on political priority-setting also occurred. It turns out that hesitant attempts of the latter type were indeed made. After a while some fundamental reconsiderations did seep through in Dutch consensus politics. Another key point is that budget discipline played a dominant role in the government’s fiscal consolidation. The economic experts of the Ministry of Finance, Central Planning Bureau, etc. had a major influence on the financial frames of the cutbacks.

Keywords

cutbacks fiscal consolidation fiscal crisis the Netherlands political decision-making

Introduction

How did the Dutch government respond to the fiscal crisis, what fiscal consolidation measures were undertaken and how did political decision-making take place leading up to the measures? These are the central research questions in this article.

This article analyses fiscal consolidation in the Netherlands in the period 2010–12. After the banking crisis in 2008 that forced the government into expensive bank bail-outs and rescue packages, and the subsequent economic crisis in 2009 that compelled the government to devise an expensive economic recovery package, in 2010 the consequent rise in budget deficit and state debt forced the government to take fiscal consolidation measures (Kickert, 2012a, 2012b). The fiscal crisis was further deepened by the European sovereign debt crisis erupting in 2010. Time and again additional fiscal consolidation measures were deemed necessary to keep the budget deficit in control. Our analysis ends in 2012, but the fiscal crisis is by far not over yet.

The focus of this article is not so much on the economic aspect of the fiscal consolidation, although that aspect is of course crucial, but primarily on the politics of consolidation and cutback measures. We analyse the contents of the measures, both the economic figures and its political policy contents, and the political decision-making processes leading up to these measures. This article provides a ‘thick description’ of the fiscal consolidation; therefore, it is first of all informative. The analytical framework used in this article (the one used throughout the COCOPS WP7 research project on which all articles in this special journal issue are based; see endnote) focuses on the characteristics and stages of the decision-making. As can be expected in the Dutch consensual democracy with its multi-party coalition cabinets, the political decision-making was predominantly of the compromising, incremental, across-the-board, cheese-slicing type. We will show, however, that in the course of the fiscal crisis, hesitant attempts were made at targeted, selective political priority-setting types of decisions. The three stages of fiscal consolidation analysed in this article – the October 2010 coalition agreement, the April 2012 spring agreement, and the October 2012 coalition agreement – show a gradually mounting recognition of the real necessity for serious cutbacks. After the usual denial and defence at the beginning, first hesitant attempts at cutbacks were made, only in later stages to be followed by serious attempts and targeted spending cuts, and some preliminary and hesitant attempts at political priority-setting.

Although the explanatory framework in the COCOPS WP7 project was primarily meant for international comparative use, this article will discuss the financial-economic explanatory factors and the political-administrative factors and external influences that affected the consolidation process. Furthermore, the effects of the fiscal consolidation and cutback measures on public administration itself will be investigated. The following research questions are addressed:

How did the Dutch governments respond to the fiscal crisis, what fiscal consolidation and cutback measures were undertaken and how did the decision-making take place?

How can the consolidation measures and decision-making processes be explained, both from a financial-economic and a political-administrative perspective?

How have the fiscal crisis and consolidation affected public administration itself and administrative reform programs?

After a brief explanation of the analytical framework (of the COCOPS WP7 research project) used in this article, a short sketch is given of relevant background aspects: politics and government, and the decision-making during the banking and economic crisis. We then turn to the core section of this article, the fiscal consolidation measures and decision-making during the period 2010–12. Subsequently we discuss what impact the fiscal crisis and consolidation had on Dutch public administration and reforms, and finally make some concluding remarks.

Analytical framework

The analytical framework applied in this article is the one used throughout the COCOPS WP7 research project (Kickert et al., 2013), as shown in Figure 1.

Figure 1.

Outline of the analytical framework

The focus in this article is on the phase of the fiscal crisis and the subsequent stages of fiscal consolidation in 2010–12. The previous phases of the banking crisis and rescue measures in 2008 and the economic crisis and recovery plan in 2009 are considered as contextual information (Kickert, 2012b; see next section). This article investigates the Dutch government’s consolidation decision-making to handle the domestic fiscal crisis, and does not discuss the joint multi-national decision-making to handle the Eurozone crisis.

In this article we investigate the government’s fiscal consolidation from both an economic and a political perspective. In the first perspective the focus is on the economic contents of the consolidation measures. In the second perspective the focus is on the political decision-making processes leading up to these measures, the political efforts of the government towards fiscal consolidation.

As to the contents of consolidation measures, the OECD (2011) applied the common economic distinction between measures to cut expenditures (operational, program and investment) and measures to increase revenues (consumption tax, income tax and corporation tax). In our overview of the contents of consolidation measures we are not going into details about expenditure or revenue measures, and primarily pay attention to their political policy contents.

As to the political perspective on fiscal consolidation, we interpreted the ‘political effort’ of the government primarily in terms of the government’s decision-making, and we further conceptualized that along two lines, first by distinguishing characteristics of decision-making, and second, by distinguishing stages of decision-making.

Based on the basic distinction in the cutback management literature of the 1970s and 1980s between across-the-board, cheese-slicing, equal-proportional cuts on the one hand, and selective political priority-setting on the other (Raudla et al., 2013), this rational-comprehensive versus incremental dichotomy (Lindblom, 1959) was elaborated by Peters et al. (2011) into a number of characteristics of decision-making. Decision-making was distinguished along several dimensions into swift, large and drastic versus slow, small and gradual decision-making, into centralized versus decentralized decision-making, into coherent and systematic versus incoherent patchwork decisions, and into long-term sustainable solutions versus short-term quick fixes (Peters et al., 2011). The characteristics we focused on were size and speed of decisions, and targeted versus across-the-board decisions (Kickert et al., 2013). The political decision-making of the Dutch government is shown to be mainly colored by the key features of Dutch consensual politics, that is, slow and incremental compromises.

Second, the political decision-making can also be distinguished into stages of decision-making. Fiscal consolidation decision-making was not a one-off event, but took place in a series of different stages. Analogous with the social-psychological theories about ‘resistance to change’ (people first deny the need for change, then defend the advantages of the current situation, and only afterwards recognize and comply with the need for change, adapt to it, and in the end internalize the need and agree to take action to change (Carnall, 2003)). The experience with cutback management in the past (Raudla et al., 2013) has taught us that cutbacks also took place in a series of stages. In the first denial and defence stage, political decision-makers were unconvinced of the gravity and duration of the fiscal crisis, and therefore took only temporary small measures. Cutbacks were postponed or planned for later. In the second stage politicians began to recognize and comply with the need for serious cutback measures, and first attempts at spending cuts were made. Only in the third stage, when the political decision-makers were really convinced of (internalized) the need for cutbacks, were resolute cutback decisions to be expected. At first across-the-board and efficiency cuts. Later targeted down-sizing and cuts in public tasks. And finally fundamental political priority-setting. In the sequel we show how far the cutback decision-making by the Dutch government illustrates this multiple stages scheme.

The explanatory factors for analysing the consolidation measures and decision-making are divided into three types: financial-economic factors, political-administrative factors and external influences. The economic indicators are GDP growth, gross debt and budget deficit. The political indicators are the political system (consensus), the type of government (multi-party coalition), the role of the Prime Minister, the ideology of governing parties (right–centre–left), the structure of administration and political–administrative relations. These will briefly be described in the next section on political context. External indicators are the worldwide economic development (especially influential for the small and internationally oriented Dutch economy), EU regulations (ceilings on budget deficit and debt), and the Eurozone crisis.

Although interference from Brussels in domestic government was a politically sensitive issue, it is undeniable that the EU Maastricht Treaty prescription of a 3 percent ceiling on the budget deficit had a paramount influence on the fiscal consolidation. Although the absolute necessity of the 3 percent deficit ceiling was now and then politically argued and disputed, the primary objective of all successive fiscal consolidation measures was to reduce the budget deficit to that percentage.

Finally, this article investigates the effects of the fiscal crisis and consolidation on public administration and management. The effects of cutback measures on changes in central, regional and local administration are discussed, both in terms of the size of the cuts and the political contents of the changes. Attention is also paid to the effects of the fiscal crisis on the already existing civil service reform programs.

Context

Consensus politics and coalition cabinets

The political system in the Netherlands is a multi-party consensus democracy with proportional elections. Governments are coalitions between multiple parties. Grand coalitions are exceptional; generally the coalition is a minimal winning one. Minority coalitions are an exception as well.

The multi-party coalition cabinet is chaired by the Prime Minister (from the largest coalition party), who has no formal authority over the other cabinet ministers. The Prime Minister formally is merely ‘primus inter pares’. Deputy Prime Ministers are appointed from the other (smaller) parties in the coalition.

The usually time-consuming coalition procedure consists of first appointing an ‘explorer’ of a possible party combination (a senior politician suggested by the political parties immediately after the elections, and selected and appointed by the Queen), then having ‘informers’ (idem) deliberate and negotiate with parties about policy compromises (when such negotiations fail, other party combinations are tried out by other ‘informers’), and only in the last phase does the intended Prime Minister ‘form’ the coalition agreement.

Table 1 summarizes the coalition cabinets, the political orientation of the coalition parties, and the margin of parliamentary majority. More information about the cabinet formations in 2010 and 2012 is provided in the next section.

Table 1.

Political parties in coalition cabinets

From 2007 until 2010	From 2010 until 2012	From 2012
Christian-Democrat (CDA)	Conservative Liberal (VVD)	Conservative Liberal (VVD)
Prime Minister Balkenende.	Prime Minister Rutte.	Prime Minister Rutte.
Social-Democrat (PvdA)	Christian-Democrat (CDA)	Social-Democrat (PvdA)
Deputy Prime Minister Bos.	Deputy Prime Minister Verhagen.	Deputy Prime Minister Ascher.
Christian Union (Protestant)	Minority in parliament.	Majority in parliament.
Deputy Prime Minister Rouwvoet. Minimal winning coalition. Elections in June 2010.	Supported by right-populist Party (PVV) of Wilders. PVV withdrew support in April 2012. Early elections September 2012.	Minority in Senate. Ad hoc coalitions with opposition parties necessary.

Table 2.

Socioeconomic characteristics of the crisis

	2007	2008	2009	2010	2011	2012
GDP growth rate (% of GDP)	3.9	1.8	−3.7	1.6	1.0	−1.0
Government surplus/deficit (% of GDP)	0.2	0.5	−5.6	−5.1	−4.5	−4.1
Government gross debt (% of GDP)	45.3	58.5	60.8	63.1	65.5	71.2
Unemployment rate (% of workforce)	3.6	3.1	3.7	4.5	4.4	5.3

Source: Eurostat.

Table 3.

Characteristics of fiscal consolidation decisions

	October 2010 Coalition	Spring 2012 Agreement	October 2012 Coalition
Size of decisions (euros)	18 billion	14 billion	17.7 billion
Speed of decisions	5 months	A few days	Half a month
Targeted decisions	Pension-age (as of 2020)	Pension age (as of 2013)	House mortgage interest (new and old cases)
	Home administration (plans only)	Unemployment House mortgage interest (new cases)	Student bursaries Home administration (specified)

Table 4.

Cutbacks in public administration (euros)

	October 2010 Coalition	Spring 2012 Agreement	October 2012 Coalition
Total size of cuts	6.1 billion out of 18 billion	4.5 billion out of 14 billion	3.5 billion out of 17.7 billion
Cuts in central administration	1.5 billion Hiring and pay freeze Mergers of ministries	3.7 billion Hiring and pay freeze Efficiency cuts	1.1 billion Hiring and pay freeze Efficiency cuts Shared service centres
Cuts in home administration	1.65 billion	0.38 billion	2.16 billion
Targeted cuts in home administration	Reduce number of provinces Increase size of municipalities	No targeted cuts planned	Mergers of 13 provinces to five regions One specific merger announced Size of municipalities increased to 100,000-plus Decentralization to municipalities

Political decision-making during the banking and economic crisis

The contents of fiscal consolidation, and especially the political decision-making during the fiscal crisis, differed from the decision-making during the preceding phases of the global banking crisis and the global economic crisis.

Banking crisis in 2008

Decision-making during the banking crisis was urgent-crisis-management (Kickert, 2012b). A small group consisting of the Finance Minister, the chairman of the National Bank and the Prime Minister made quick and far-reaching decisions, without much parliamentary interference. Time was pressing, the crisis was urgent and billions were at stake. The most prominent political role was played by Finance Minister Bos (Social-Democrat). Because of strict confidentiality, the number of persons involved was kept to a minimum for danger of leaks of highly sensitive information. Crisis meetings convened late at night and during weekends when the financial markets were closed. At the Ministry of Finance only about a dozen top officials of the Treasury Department were involved. External advisors and specialists were involved, such as investment bankers, lawyers and accountants, to assist in taking over banks, checking banks’ balances and books, determining banks’ (toxic) assets, etc.

Economic crisis in 2009

The decision-making process regarding economic recovery was explicitly politicized (Kickert, 2012b). The March 2009 economic recovery plan was officially an addition to the 2007 coalition agreement. After the urgent crisis management in 2008 when parliament more or less stood off-side, now the ‘official political’ path was followed of making a new (additional) coalition agreement, which implies a process of political consultation with the parliamentary parties and deliberation between the coalition party leaders.

The recovery plan actually did not involve much extra investment, but rather accelerated the spending of already planned investments, and postponed already planned cutbacks. A future budget cutback of 3.2 billion euro was part of the recovery package. Although the package was sold politically and publicly as an economic recovery program, below the public surface austerity was a major message: no hard bashing now, postpone the cutbacks and accelerate the investments, but when conditions improve cutbacks will certainly be made.

Other important background factors: budget discipline

Study group on budget-room

A regular procedure before general elections is that a ‘study group on budget-room’ produces an advisory report. The study group consists of top officials from various ministries and from the Central Planning Bureau and the National Bank, and is headed by the Treasury-General of the Ministry of Finance. The study group works without interference from politics, and the cabinet sends the study group’s advice to parliament without adding any commentary. The advice forms authoritative financial-economic input for the coalition deliberations after the elections. The April 2010 report of the study group contained major retrenchment proposals.

Central Planning Bureau

Another regular procedure before general elections is that the (legally independent and highly authoritative) Central Planning Bureau publishes its economic forecast (which forms the input for the ‘study group on budget-room’). The forecast in 2010 was that the budget deficit would in the long term rise to 29 billion euro. Notwithstanding the enormity of this amount, this figure came to be widely accepted. All political parties (except the left-wing Socialist Party and the right-wing populist Freedom Party) in their party programs used this long-term figure, which thus became a leading feature in the political debate on cutbacks. Party programs before general elections have their economic aspects checked by the Central Planning Bureau.

Another influential role of the Central Planning Bureau is that it checks the financial outcomes of the final coalition agreement.

Fiscal consolidation: measures and decision-making

Fiscal consolidation I: October 2010 coalition agreement

Contents of measures

In October 2010 the newly formed Liberal-Christian coalition cabinet, supported by the right-wing populist Freedom Party, announced a retrenchment program of up to 18 billion euro (cumulative total in 2015). The largest cuts (about 1.5 billion) were to be realized in national administration. Cutbacks of 1.1 billion were imposed on the provincial and municipal general funds. Salaries of civil servants were to be frozen. Some ministries were merged, others reshuffled. The number of government levels was to be reduced. Provinces were to restrict themselves to their core tasks: space, economy and nature. Mergers of provinces in the ‘Randstad’ were proposed. The city regions were to be abolished. The number of regional police corps would be reduced. In total the cutbacks in public administration amounted to 6.1 billion (on a total of 18 billion euros).

In order to reduce social unrest, the new cabinet in reforming the pension age more or less followed the advice of the trade unions and employees: the pension age would be increased to 66 years in 2020. Major reforms in the youth unemployment and benefits system were announced, as well as in social security. Social workplaces were to be cut. And a range of other retrenchment measures in unemployment benefits, social welfare, health and hospitals were announced. For elderly care additional funds were announced. Students in higher education who studied for many years were to pay a much higher tuition fee.

The innovation budget of the Ministry of Economic Affairs was abolished. Subsidies for enterprise climate were cut, and regional-economic policy as well.

The budget for international development aid was cut from 0.8 to 0.7 percent of GDP. In climate policy all measures above the European norms were to be abolished. And nuclear energy was no longer taboo.

Decision-making process

Reconsideration working groups: Decision-making on the fiscal crisis was politically sensitive as cutback measures were politically unpopular. At the time that the Christian-Social-Democrat cabinet Balkenende-Bos-Rouwvoet announced its economic recovery plans in March 2009, it was already clear that somehow this had to be compensated for by major retrenchments. The cabinet, however, had no intention of taking harsh decisions in its last year in government (although it did propose to raise the pension age to 67 years, and did plan some 3.2 billion euros cutbacks, both measures to be executed after the cabinet’s period in office). Instead, in the fall of 2009 the cabinet installed 19 ‘reconsideration working groups’ on all relevant policy areas (energy, nature, mobility, housing, education, etc.), consisting of expert top officials and presided over by a senior politician or official. These working groups were requested to develop three scenarios: one resulting in relatively minor cutbacks, a second with more severe cuts, and a third resulting in drastic savings. The first scenario largely consisted of efficiency gains, the second cautiously introduced some stronger cuts, and the third consisted of what the policy sector experts knew to be the fundamental cutback decisions. For insiders in central administration it was clear that here the fundamental priorities and targeted retrenchments were prepared. The working groups published their reports in April 2010, just before the June 2010 elections. Remarkably, however, the reports received hardly any publicity and barely played a role during the election campaign. And although the working group reports were brought to the attention of the cabinet (in)formers, hardly any of the actions proposed in the 19 ‘reconsideration reports’ were recognizeable in the retrenchment plans of the new cabinet in October 2010.

Cabinet formation: The decision-making on the cutback package actually coincided with the cabinet formation process, which was a sequence of political party alterations. First in June a coalition of centre-right was investigated, then in July a coalition of left-plus-right, subsequently in August a centre-right-populist cooperation, which became shipwrecked but was later restored, in September resulting in plans for a Liberal-Christian coalition supported by the populist party, which in October led to the final coalition agreement. During the coalition formation the ‘cabinet-informers’ negotiated with the party leaders and their adjutants, while every deal was extensively discussed in the party factions, and was also publicly debated when leaked to the press. The ‘cabinet-informers’ normally ask questions about specific policy issues to be answered by officials in the respective ministerial departments. Departments have long since prepared answers to every conceivable question, to make sure that the cabinet-informers are immediately served when a request arrives. Furthermore, hundreds of widely different interest groups write letters to the cabinet-informers. No wonder that in such hectic circumstances fundamental priority-setting could hardly take place. Moreover, fiscal consolidation was certainly not the only political hot-issue at stake. The coalition agreement contained a financial attachment, which specified the cutback measures and was composed by the financial party specialists with the support of expert officials.

During the coalition formation the ‘main negotiation table’ was composed of the party leaders, Rutte of the (conservative) Liberal party (VVD), Verhagen of the Christian-Democrats (CDA), and Wilders of the right-wing populist party PVV. Besides the ‘main table’ a financial ‘side-table’ existed where the financial specialists of the negotiating parties convened. The CDA representative De Jager at the time also functioned as Minister of Finance in the outgoing cabinet, giving him a linchpin position (he became the new Minister of Finance). He had been Deputy Minister of Finance when the 3.2 billion euros cutbacks in the 2009 economic recovery program were planned, and was now central in conceiving the 18 billion cutback package of October 2010.

Minority cabinet: The VVD-CDA coalition government headed by Prime Minister Rutte had a minority in parliament, which in the Dutch political tradition was exceptional. The parliamentary minority coalition was supported by the right-populist ‘anti-Muslim’ Freedom Party (PVV) of Wilders. A ‘support agreement’ was reached between VVD, CDA and PVV concerning immigration, integration, security and elderly care, that is, the political hot-issues on which Wilders’ Freedom Party profiled itself. The Freedom Party reserved the right to vote against government proposals, and frequently did so on issues of foreign policy (e.g. Afghanistan, the Eurozone crisis) and social security (e.g. the pension system), forcing the coalition to look for an ad hoc agreement with opposition parties. In particular, the Eurozone crisis and support for failing states like Greece became a divisive theme, on which Wilders’ Freedom Party increasingly profiled itself. Cabinet decisions to support the bail-outs for Greece were strongly opposed by Wilders, and were instead sustained by opposition parties. Moreover the coalition cabinet also had a minority in the Senate, which has no right of amendment but has to approve proposed legislation.

Fiscal consolidation II: April 2012 spring agreement

Contents of measures

In April 2012 an agreement was reached on the 2013 Budget, containing an additional 14 billion euros cutback package to ensure that the budget deficit would remain under 3 percent in 2013.

The package contained several hard decisions on politically sensitive issues. The pension age of 65 years would gradually be increased as of 2013, instead of the earlier agreed 2020. The Unemployment Act was reformed. The deduction of housing mortgage interest, a vital issue for private home-owners and long considered a political taboo, was to be restricted in new cases. House rentals were to be increased. Civil servants were to have another salary freeze. Personal contributions to health care would be raised, and 1.6 billion cuts were announced in health care. The VAT rate would be increased from 19 to 21 percent. Several measures were taken to promote sustainable energy and economy. International development aid was protected from extra cutbacks (keeping it at 0.7 percent of GDP). And several cutbacks that had been introduced by the Rutte cabinet under pressure of the Freedom Party were withdrawn.

Decision-making process

Following negative forecasts published early in 2012 by the Central Planning Bureau about impending budget deficits, the two coalition partners VVD and CDA and the supporting Freedom Party (PVV) in March 2012 started negotiations about an additional 14 billion euros cutback package. After six weeks, the PVV leader Wilders left the negotiating table, withdrawing his support for the cutback package and also his support for the coalition cabinet. Early general elections were called.

Immediately after the fall of the cabinet, the three parties Green Left (left-wing ecologists) D’66 (progressive Liberals) and ChristenUnie (Protestants) took the initiative to reach an agreement on cutbacks necessary to fulfil the European 3 percent deficit ceiling. The parties agreed to reverse some of the painful cutbacks of the Rutte cabinet, and invest more in sustainability and nature. Finance Minister De Jager deliberated extensively with the parties, and within a couple of days the three parties were able to agree on a cutback package that was presented to the coalition parties VVD and CDA, resulting in a five-party agreement on measures to consolidate the budget deficit in 2013. The five parties together had a majority in parliament.

This event was quite exceptional, and unique in Dutch consensual political history. Dutch consensual politics invariably lead to eternal deliberations, endless compromise seeking, and lengthy decision-making processes. And now suddenly three small opposition parties reached an agreement within a few days on 14 billion euros cutbacks. Both the speed and the extent of the decision-making were an incredible accomplishment in the sluggish and lingering Dutch political scene. The large opposition party PvdA (Social-Democrats), presumably expecting that the unique event could not possibly succeed, had stayed away from the negotiations. The other large opposition part SP (left-wing Socialist Party) opposed the cutback package. Three small progressive parties assuming their democratic responsibility to take hard decisions made all the more clear how ‘irresponsible’ the populist Freedom Party was in governing the country in hard times, an issue that was time and again highlighted during the election campaign. The electoral victory of Wilders’ Freedom Party in 2010 was not repeated in September 2012.

Fiscal consolidation III: October 2012 coalition agreement

Contents of measures

The budget agreement of the new Liberal-Social-Democrat coalition contained the following remarkable elements.

The nominal premium for health care insurance was substantially reduced, and was replaced by an income-dependent premium. This measure was quickly withdrawn when the effects on household incomes turned out to be disastrous, and it was replaced by more moderate income tax alternatives. The measure to replace the nominal personal risk for health care insurance by an income-dependent personal risk was maintained.

The income tax rates in the second and third income tiers were to be reduced, and the maximum tax rate of 52 percent was to be reduced to 49 percent. This measure was also quickly withdrawn because of the severe effects on household incomes.

The deduction of housing mortgage interest was to be gradually restricted for the highest incomes, not only in new cases (as agreed in April 2012) but also in existing cases. Housing rentals would increase and become income dependent.

The student bursary system was to be abolished and replaced by a loans system. International development aid was to be cut by 1 billion euros (to about 0.6 percent of GDP).

Cutbacks in administration were announced, especially drastic reforms in sub-national administration. The existing 13 provinces were to merge into five regions, and municipalities were to scale up to 100,000 inhabitants (see below).

Decision-making process

The September 2012 general elections resulted in the conservative Liberals (VVD) and Social-Democrats (PvdA) becoming the two largest parties. The two ideologically opposite parties started coalition negotiations. Although usually the Dutch coalition procedure (see above) is time-consuming and normally takes many months, this time it only took half a month to reach a budget agreement and another month to finalize a coalition agreement, at the end of October resulting in the new Rutte-II cabinet.

One of the main reasons for this speedy outcome was a deliberate change in decision-making procedure by the negotiators. Instead of both parties endlessly searching for intricate compromises on every single policy issue, which was anticipated to be troublesome in view of the two opposite ideologies, the two parties more or less swapped policy issues. In exchange for one issue gained by one party, the other party acquired another issue in return. There were no endless negotiations at the many side-tables of the coalition formation by numerous party specialists, just a quick exchange of cards between the two informers, the two party leaders, and their two adjutants. The two party leaders Rutte (VVD) and Samsom (PvdA) were both youthful and energetic, and eager to show that they could break through the Dutch political viscosity.

Although this novel way of negotiating certainly was time-saving, the negotiators had miscalculated the risk of political side-effects. In particular, the decision to make the health care insurance premium income-dependent and some other income-levelling measures turned out to have excessive effects on household incomes. This Socialist-won issue caused such major discontent and turmoil in the conservative Liberal Party that it had to be quickly withdrawn. Apparently the negotiators in their hurry had forgotten to calculate detailed household income effects. The Rutte-II cabinet made an unhappy start.

Another imminent problem was that although the coalition did have a majority in parliament, it had only a minority in the Senate, which has the right of consent on legislation.

Table 3 demonstrates that the size of the cuts in the three rounds was roughly the same, though each new structural budget cut came above of the previous ones. The speed of decision-making increased remarkably, though the spring 2012 decision-making was exceptional and unique. The summary table does substantiate the multiple-stage scheme introduced into the analytical framework, that targeted cuts took place more and more in later stages of decision-making. The increase in pension age was brought forward. The taboo about house mortgage interest deduction was broken, first only for new cases, later for all existing cases. Unemployment benefits were cut. Student bursaries were replaced by loans. And administrative reform plans were announced and later specified (see below).

Fiscal crisis and administration

Fiscal crisis and cuts in public administration

October 2010 coalition agreement

As stated before the total cuts in public administration amounted to 6.1 billion euros (by 2015) on a total cutback package of 18 billion. Of these cuts, 1.5 billion were to be realized in national administration.

Salaries of civil servants were frozen, and hiring of new personnel was frozen. A (further) reduction in the number of civil servants was proposed, although lay-offs were not planned. The reduction in the size of the national administration (both in budget terms and in personnel numbers) had already been the major objective of earlier civil service reform programs.

Some ministries were merged. Agriculture was merged into Economic Affairs, Home Affairs merged with Justice into a new Ministry of Safety, and other departmental reshuffles took place. The merger of ministries in Dutch consensual politics usually has little to do with management and organization insights, but rather with the distribution of minister and deputy minister posts to the political parties in a coalition. One of the reasons that the number of ministries was reduced this time was that the 2010 coalition comprised only two parties. Afterwards complaints were heard that the political heads of the new super-ministries suffered a severe work overload.

Cutbacks of 1.1 billion euros were imposed on the municipal and provincial funds. The coalition agreement announced that provinces were to restrict themselves to their core tasks, and that provinces in the ‘Randstad’ (the Amsterdam-The Hague-Rotterdam-Utrecht area) had better consider a merger. One of the aforementioned ‘reconsideration working groups’ which had been installed in 2009 by the Balkenende cabinet, dealt with public administration and had developed scenarios for drastically reducing the number of provinces (and municipalities). Although the contents of the working groups’ reports of April 2010 could hardly be recognized in the coalition agreement of October 2010, the budgetary cutbacks on provinces and municipalities that the working group had envisioned as a possible outcome of drastic mergers was booked into the budget agreement. As we will see below, the idea of merging provinces and up-scaling the size of municipalities reappeared in the 2012 coalition agreement.

April 2012 spring agreement

The spring agreement on the 2013 Budget between the three small opposition parties and the two care-taker cabinet parties was primarily aimed at realizing the necessary 14 billion euros cutbacks, and concentrated on a number of political policy-issues such as increasing the pension age, reforming the unemployment system, deduction of mortgage interest, and sustainable energy and economy. The measures taken in public administration were no substantive reforms but were mere budget cutbacks. Civil servant salaries were to be frozen again, departments were cut once more, and provinces and municipalities too.

October 2012 coalition agreement

The 2012 coalition agreement did contain far-reaching announcements about public sector reform, especially regarding sub-national administration. The new cabinet stated as its long-term perspective that the existing 13 provinces should be reduced to five regions, and that municipalities should increase on scale to 100,000 inhabitants, more or less the figures that the aforementioned ‘reconsideration working group’ had proposed in 2010, although no public reference was made to it. Central government announced its wish for a large-scale decentralization of tasks and authorities, but only to 100,000-plus municipalities. And it announced that the provinces North-Holland, Utrecht and Flevoland were to merge. Other provinces were invited to take their own initiatives.

Immediately a storm of protest arose. Although the cabinet had announced that it did not intend to unilaterally impose these reforms, provinces and municipalities felt that they were under attack, and brought forward many counter-arguments. The Minister of Home Affairs is currently trying to persuade the unwilling provinces and cities, and repeats his assurance that the reforms will not be imposed but must be realized voluntarily.

Note that in 2010 similar plans to merge provinces and municipalities had been announced, so that obviously nothing had happened since. The difference with the 2010 announcements was that this time the cabinet explicitly mentioned its long-term ambition and hard figures, and clearly specified a first provincial merger, although the chances of successful implementation of these plans are greatly doubted.

Central administration was confronted with an extra 1.1 billion euros of cutbacks, to be realized by (across-the-board) managerial efficiency measures in ministries and agencies, such as ‘shared service centres’, which more or less coincided with the proposals of another of the 2010 ‘reconsideration working groups’, this one about ‘management and administration of the civil service’, again without reference to the public.

Apparently the attempts to fundamentally reconsider public tasks and come to fundamental priority-setting which was carried out by expert top officials in 2010, and which seemed to have little impact on political decision-making at that time, now started to indeed have an effect on political priorities in home administration, although not publicly accredited.

Fiscal crisis and civil service reforms

Reform in Dutch central administration is not centrally planned and coordinated. Due to the consensual political tradition, and the fragmentation between highly autonomous ministries, there is no foundation for central coordination.

In 2003 a civil service reform programme (PAO) was launched by the incoming government, headed by a project minister, who also was minister of Home Affairs and Deputy Prime Minister, and by a project director-general. Although this program explicitly used a network approach to manage the complex change processes, it was commonly considered to have failed because of its overly high ambitions. In particular, the extensive efforts to have all ministries determine and define their ‘core tasks’ resulted in a fiasco.

In 2007 another reform program (‘civil service renewal’) was launched by the new government, this time headed by a secretary-general. The program had been suggested by the joint secretaries-general themselves, and mainly focused on cutbacks both in budget (750 million euros) and personnel (reduction of 15,000). Learning the lesson from the disappointing previous program, this one had no grand reform visions, but rather concentrated on technical-operational improvements in management and administration, such as housing, salary administration, personnel services, and shared services. The budgetary and personnel targets were met, and many of the managerial reforms were successfully carried out.

In 2010 this technical-operational and managerial type of reform was continued in a subsequent program (‘compact government’), which further pursued the path of shared services and other managerial modernizations. Gradually, more and more ministries actively participated in these bottom-up and cooperative endeavors, leading e.g. to successful and cost-effective shared service centres. In 2012 the new cabinet announced that it would continue and conclude this latter reform program.

The civil service reforms seem quite unrelated to the fiscal crisis. The 2003 reform program did not contain budgetary cutback targets. The 2007 program was explicitly targeted at cutbacks in central administration, but was launched before the fiscal crisis. Technical-operational and managerial reforms were aimed at increasing cost-efficiency and related to budgetary retrenchments, but managerial modernization had already been taking place for a long time in Dutch administration. The fiscal crisis was not its cause, but did enhance its necessity, and therefore fueled its further implementation. The 2010 ‘compact government’ program was related to the cutback package announced at the time.

As in Dutch politics, reform in the Dutch civil service was also small, gradual and incremental rather than swift, drastic and fundamental. Public management reform was politically less sensitive and visible, which probably contributed to its successful implementation. An evaluation of 60 years of civil service reform (van der Steen and van Twist, 2010) reached the conclusion that most major grand reforms had failed, and that reforms needed be small and technical-operational to be successful in the Dutch civil service.

Conclusions and discussion

Volume of fiscal consolidation: budget discipline

The volume of fiscal consolidation mainly depended on the financial size of the fiscal and economic crisis in the country. This held true for the Netherlands as it did for many Western European countries (Kickert et al., 2013). After all, fiscal consolidation was primarily a response to the deteriorating state of the economy and public finances. In the Netherlands the relationship between volume of fiscal consolidation and the budget deficit (above the 3 percent ceiling) was strong because of the prevailing strict budget discipline.

Budget discipline played a major role in the Dutch governments’ fiscal consolidation. Besides the political ‘world’ of extensive multi-party deliberations and negotiations about cutbacks, there also seemed to exist a financial-economic ‘world’ in which budget discipline predominated. During the 2009 decision-making on the economic recovery package, budget cutbacks were postponed but already planned, and instead of creating new extra investments only the already planned investments were brought forward. During the 2010 fiscal crisis these two ‘worlds’ also seemed to exist. The decision-making on the October 2010 fiscal consolidation was highly politicized as it coincided with the coalition negotiations. But here again another financial-economic ‘world’ existed in which the financial framework of the cutbacks was determined and maintained, and where budget discipline was predominant. During the rapid April 2012 Spring Agreement negotiations the Minister of Finance, de Jager, well known for his straight and strict budget discipline, played a vital role by extensively informing and deliberating with the three small opposition parties. And during the 2012 coalition formation the regular Dutch budgetary procedure was once again followed: first the economic forecasts of the Central Planning Bureau, then the inter-departmental ‘study group on budget-room’ delivering its recommendations, and finally the check by the Central Planning Bureau of the financial outcomes of the coalition agreement.

One gets the impression that the financial frames and the sizes of the cutbacks were determined in the one ‘world’, and that the other political ‘world’ was about policy-making substance within these predetermined financial constraints. The experts at the Ministry of Finance, Central Planning Bureau, etc. determined the financial figures; the politicians the policy contents.

Swift and drastic decision-making

During the 2008 banking crisis the government was forced by circumstances to apply strongly centralized decision-making. Only a few actors took quick and drastic decisions. This is highly exceptional and unique in the consensual Netherlands with its eternal consultations and deliberations, but apparently possible when necessary. Parliament grudgingly stood off-side, and responded by installing an Inquiry Commission.

During the 2009 economic crisis the decision-making about the economic recovery plans was explicitly politicized by considering it as an addition to the coalition agreement. Extensive multi-party negotiations took place.

The first round of fiscal consolidation measures in 2010 was the outcome of the formation of a new coalition cabinet, so the decision-making was completely politicized. No wonder that in such politically hectic circumstances swift and drastic decisions, let alone fundamental priority-setting, can hardly take place.

The decision-making about the second round of fiscal consolidation measures in April 2012 after many weeks of difficult negotiations between the coalition parties and Wilders’ Freedom Party broke up. Astoundingly within a few days three small progressive opposition parties managed to reach an agreement about a 14 billion euros cutback package, which was embraced by the two government coalition parties. This was an incredible accomplishment in Dutch consensual politics.

The decision-making on the October 2012 coalition agreement, and its budget, was again exceptionally swift. Only half a month after the general elections was budget agreement reached and after another month the final coalition agreement. The two negotiating parties had deliberately changed the decision procedure to a mutual exchange of political policy-issue wins. Dutch political viscosity seemed to have been penetrated.

Characteristics and stages of decision-making: hesitant attempts at targeted priority-setting

As fiscal decision-making about major cutback packages usually coincides with coalition formations or annual budget preparations, which consist of extensive multi-party deliberation and consultation, it is virtually impossible for fundamental political priority-setting to take place. The installation in 2009 of 19 ‘reconsideration working groups’ illustrated that politicians side-stepped their responsibilities and delegated them to top officials. And the virtual absence of any of the proposals of the working groups in the 2010 coalition agreement again illustrated that targeted cutbacks were hardly possible in consensual politics.

However, later stages of political decision-making did reflect some of the working groups’ proposals. The reform of housing mortgage interest deduction, the increase in the pension age, the reform of the unemployment benefit system, the replacement of the student bursary system with a loan system, and the scaling-up of provincial and local administration reflected some of the fundamental and targeted cutback proposals made by the ‘reconsideration working groups’. Apparently it was impossible for Dutch consensual politicians to take the lead in fundamental priority-setting, and very difficult to take such decisions, but after a while some fundamental reconsiderations did seep through in politics, especially at the time of a new coalition formation, the only moment when more-than-incremental reforms are conceivable in Dutch politics.

The three stages of fiscal consolidation illustrated the multiple-stage scheme described above. In the first stage of fiscal consolidation only non-targeted across-the-board measures were taken. Then gradually the severity and duration of the fiscal crisis became recognized, more cutback measures were taken, and first hesitant attempts at targeted political priority-setting were made. The increase in pension age planned for 2020 was brought forward to 2013. The taboo about house mortgage interest deduction was broken, at first only for new cases, and later for all existing cases. The unemployment system was retrenched. The student bursary system was replaced by loans. And administrative reform plans that were at first merely announced were later specified and targeted. The Dutch case of fiscal consolidation to some extent illustrates the multi-stage model of cutback decision-making.

The fiscal crisis is certainly not resolved yet, and more stages of fiscal consolidation are therefore to follow. The future will show what type of decision-making will then take place.

Success of fiscal consolidation

This article provided a ‘thick’ description of the fiscal consolidation and partial explanations. However interesting that may be from a scientific point of view, practitioners, politicians and policy-makers always ask the inevitable question: did it work? In other words, was it effective and successful? This question is methodologically very tricky. What are the desired (fiscal and economic) effects? What are the ‘causal’ relationships between consolidation measures and economic effects? What are the criteria for success or failure? In order to avoid these methodological pitfalls one might directly measure the effects and success of the consolidation in terms of decision-making: did the decision-making result in swift, large and drastic measures, or were they only small, slow and gradual deviations from the ‘status quo ante’. Were the cutbacks targeted and selective, or just across-the-board and cheese-slicing? Were the cutback decisions based on fundamental political priority-setting leading to coherent, systematic and sustainable solutions, or were they rather the outcome of incremental, pragmatic political compromising leading to incoherent patchworks of short-term quick fixes?

Such an evaluation of the Dutch government’s decision-making probably yields a negative conclusion. For fundamental political priority-setting has been the exception rather than the rule. Examples of politically sensitive decisions to make targeted cuts could be found in some areas of social security, such as the pension system and unemployment benefits. These examples of breakthrough in the political stalemate, which by implication are fundamental political decisions, were, however, implemented in a cautious compromise manner, involving a multi-year gradual path of small annual adjustments of the existing pension age or unemployment benefit period. Should a fundamental political decision which is incrementally implemented be assessed as a success or failure?

Seemingly unsuccessful, incremental and compromising decision-making in consensual democracies with multi-party coalition governments sometimes do reveal some characteristics that could be called a success. On the other hand, the decision-making in majoritarian democracies with single-party governments, such as France, Spain and Britain, did not more clearly lead to successful outcomes. And neither did the prime example of majoritarian democracy, the United States, succeed in swift and drastic fiscal consolidation.

Basic dilemma

Although some optimistic politicians are starting to believe that the hard times of cutbacks and retrenchments are over, that the early signs of economic recovery can be trusted to indicate the end of the crisis, it can sincerely be doubted whether the fiscal crisis is over. In the unfortunate, but not improbable, case that the fiscal crisis lasts longer than hoped and expected, government will again face future cutback rounds. Which leads to a basic dilemma. The low-hanging fruit of apparent inefficiencies has been cut in the early consolidation rounds. In later consolidation rounds sooner or later there will be no major inefficiencies left to cut. So, sooner or later across-the-board and incremental cutback decisions will become insufficient to turn the fiscal tide. Sooner or later the muddling-through of successive rounds of small, slow and gradual cuts, which apparently is what most European governments are best at doing, will have to make way for fundamental political priority-setting which is necessary to arrive at far-reaching and drastic spending cuts to really solve the fiscal crisis.

The basic dilemma is between the seeming incapability of governments to take drastic and targeted measures, and the ultimate inevitability of such decisions. Apparently it is not enough for economists to derive from their theories and models what measures ought to be taken. It is also about political decision-making capabilities of governments.

Sources

Besides analysis of official documents from cabinets, ministries, the Central Planning Bureau, National Bank, National Audit Office, parliament, etc., and the coverage of the fiscal crisis in Dutch journals and newspapers, interviews were carried out with top officials from various ministries and institutes, to whom complete anonymity was promised.

Note on the COCOPS WP7 research

This article is based on the seventh work package ‘the global financial crisis in the public sector’ of the EU Seventh Framework Programme subsidized research project ‘Coordination for Cohesion in the Public Sector of the Future’ (COCOPS), which was coordinated by the author and Tiina Randma-Liiv of Tallinn University of Technology. In this research project our partner researchers from the contributing universities have carried out 10 short country reports and 11 academic country case studies.