Public finances

When the euro was introduced in 1999, participating Member States made agreements on keeping their public finances in order. One of these agreements was that the budget deficit (the shortfall that occurs when the government spends more money than it takes in) should not exceed 3% of gross domestic product (GDP). GDP is the total value of all goods and services a country produces in a year. It was also agreed that public debt should not exceed 60% of GDP. These European fiscal rules are crucial for financial and economic stability in the Netherlands and in the euro area. They help keep inflation and budget deficits under control.

In 2024, the Dutch budget deficit was -0.9% of GDP. Public debt stood at 43% of GDP, the second-lowest level in 45 years (it was only lower in 2007). The Netherlands has a solid financial position, both compared to the past and to other countries.

...but the budget deficit is ticking upwards

Twice a year, DNB publishes projections for the Dutch economy. According to our 2025 Autumn Projections, the budget deficit will increase by 1 percentage point from 2024 to 1.9% of GDP. The deficit is rising less sharply than anticipated in the 2025 Spring Projections, in which we projected a deficit of 2.8% of GDP. This is mainly due to greater revenues from taxation and contributions as a result of higher economic growth. 

In 2026 and 2027, the deficit is projected to increase further due to rising spending on healthcare, social security, interest and defence. The sharp increase in 2026 is also partly due to the reform of the military pension system, which will cost the government a one-off amount of €8.5 billion (0.7% of GDP) in that year.

Although the budget deficit will remain below the norm of 3% of GDP in the coming years, it will still be too high given the state of the economy. Current fiscal policy contributes to the excess demand in the economy and thus to the relatively high inflation rate in the Netherlands. Read more about the effect of fiscal policy on inflation in this background article (in Dutch).

An ageing population increases the cost of state pension and health care. Interest expenditure is also set to increase, from 0.8% of GDP in 2025 to 1.9% of GDP in 2040. About two-thirds of this will be related to new debt and one-third to refinancing at higher interest rates. This would be exacerbated by ambitions to increase defence spending above the current 2% of GDP. As a result, Dutch government debt will rise above 60% in the longer term (Figure 2). The grey range shows the margin of uncertainty.

European institutions have also seen their debts rise sharply in recent years, reaching around €875 billion in 2024. Formally, this is EU debt, which does not weigh on the Dutch national accounts. However, EU Member States share responsibility for this debt. In this background article, we show that if this EU debt were allocated to Member States on the basis of their gross national income, the Netherlands’ share would be €17.6 billion. If this is factored into Dutch national debt, the debt-to-GDP ratio would rise from 43.7% to 45.3% in 2024.

Economic growth remarkably higher

GDP growth can be explained predominantly by public spending and world trade. Both are growing more than expected. Uncertainty in international trade policy is high, but trade agreements, for instance between the EU and the United States, have had a tempering effect. Geopolitical tension also creates uncertainties. Despite this, the Dutch economy grew by 1.7% of GDP in 2025. Uncertainty may have a delayed effect on the economy. Presumably, therefore, some of the negative effects will only manifest themselves in the coming years.

In addition, structural economic growth is expected to decline in the decades ahead. This is because the labour force is hardly growing due to the ageing population, and higher labour productivity will not compensate for this low growth for the time being. A recent DNB analysis shows that the expected annual economic growth rate would be only 0.6% at a labour productivity growth of 0.5% per year (equal to the growth rate of the past 15 years).

As the economy is now doing well, the government should seize the opportunity to build up buffers. Doing so when the economy is strong and tapping into these reserves in times of economic malaise prevents the government from further fuelling an overheated economy with high spending, or from damaging a weak economy with austerity measures. This is called trend-based fiscal policy.

Under this policy, spending is fixed at the beginning of a government term, while tax revenues are allowed to move with the economy. In a sluggish economy, the budget deficit grows because of lower tax revenues in combination with a lack of austerity measures. And when the economy is doing well, the extra income is not immediately used for additional spending. As a result, the budget deficit falls. This keeps the government’s fiscal policy stable and predictable. 

This is only possible if the country builds up sufficient reserves, which will ensure that the Netherlands remains below European deficit and debt thresholds even while pursuing this trend-based fiscal policy. This is all the more important in today’s uncertain economic environment.

To prevent public finances from deteriorating, the Working Group on Fiscal Space – of which DNB is a member – advises the current government to reduce the deficit to around 2% of GDP and to stabilise debt below 60% of GDP in the longer term. This will put the Netherlands at a sufficient distance from the 3% threshold. The government will thus not be compelled to make immediate cuts in case of setbacks and pass on bills to future generations.

Instead, it should decrease spending or increase taxes. Nevertheless, investments that strengthen the economy, such as in education or infrastructure, remain necessary. Politicians will have to make tough choices with the limited fiscal space they have to free up enough money for such investments. In a recent position paper, we identify various options for doing so.