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 2025, the budget deficit stood at 1.6% of GDP, meaning that the government spent €19 billion more than it received. In that same year, public debt was 44.4% of GDP, which is almost the lowest level in the past 45 years. Despite the deficit, the Netherlands has a solid financial position, both compared to the past and to other countries.

But the budget deficit will rise this year

Twice a year, DNB publishes projections for the Dutch economy. According to the Spring 2026 projections, the public deficit is set to rise further to 3.3% of GDP in 2026, temporarily exceeding the European 3% limit. This is partly due to the reform of the military pension system, which will cost the government a considerable one-off amount of €8.5 billion.

However, structural public expenditure is also rising, for example on healthcare, social security and staff costs. In the years following 2026, the budget deficit will also remain close to the European limit of 3%.

The Spring 2026 projections take into account the Jetten government’s coalition agreement and the recent energy support package. Given that the government does not have. e a majority, it is less certain whether all the plans will be implemented. We have factored all plans into the projections, unless they encounter opposition in Parliament

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. 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 2024 debt-to-GDP ratio of 1.6% would be higher.

Particularly in times of geopolitical uncertainty, it is important for the government to have financial buffers to absorb shocks. Accumulating buffers 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 limits even while pursuing this trend-based fiscal policy. As the budget deficit is set to remain close to the European limit of 3% in the coming years, such reserves will be restricted.

To prevent public finances from deteriorating, the Working Group on Fiscal Space, comprising various ministries, planning agencies and DNB, advises the current government to reduce the deficit to around 2% of GDP and to stabilise debt below 60% of GDP. This will put the Netherlands at a sufficient distance from the 3% limit. 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.