There is a large difference between what households spend on consumer goods and services and their actual consumption level. The first amount is presented in the National Accounts as 'household final consumption expenditure', also known as private consumption. The second amount is referred to as 'actual individual consumption'. In 2011 actual individual consumption ran to €374 billion, whereas private consumption was only €271 billion. The €103 billion difference (in 2011) referred to goods and services funded by general government and provided to households in the form of 'social transfers in kind'. In the National Accounts this item is referred to as 'individual consumption expenditure by general government'. It mainly consists of government expenditure on medical and welfare services. Table 1 presents the composition and real growth of actual individual consumption.
Dutch households consume over €100 billion more than they spend
|Date||27 September 2012|
For the past 10 years, the growth of private consumption in the Netherlands has lagged substantially behind that in the euro area. However, an alternative international comparison looks at actual individual consumption, which takes into account the government-funded components of household consumption. Thus regarded, Dutch households last year consumed €103 billion more than they spent and it puts the long-term development of Dutch consumption broadly in step with that in other euro area countries.
It can be inferred from Table 1 that 88% of actual health care consumption is funded by government. Of course households do pay indirectly for such government-funded consumption, through taxes and premiums, but there is no connection between payments and consumption at the individual level. That direct connection does exist in the case of households' consumption expenditure. Because people actually pay for goods and services they consume, in shops, restaurants or over the Internet, they will experience such purchases as consumption. However, a visit to the family doctor or the school education of children will feel much less like consumption, if at all. Still, these are also services rendered to individual households and therefore classified as actual individual consumption in the National Accounts. In reality therefore, households consume over €100 billion more than they actually spend.
The table also shows that in real terms, that is, adjusted for inflation, the growth of individual consumption by general government was almost five times higher (30.4%) than that of private consumption expenditures (6.2%). As a result, the difference between people's individual consumer spending and their actual consumption has increased considerably. Within actual individual consumption, expenditures on medical and care services have risen most rapidly (by 43.3%), far outstripping the real growth of other consumer spending components.
In an international perspective, the growth of private consumption in the Netherlands between 2001 and 2011 lagged substantially behind that of other euro area countries (Figure 1, left chart). By contrast, individual consumption expenditure by general government grew far more rapidly over the same period (Figure 2). Thus the total growth of actual individual consumption in the Netherlands over the period considered did not lag behind the euro area average (Figure 1, right chart). However, the Netherlands does differ substantially from other euro area countries where the breakdown of consumption into private consumption and individual consumption by general government is concerned. In the Netherlands, individual government consumption in 2011 stood at €6,181 per head of the population. In other countries, such as Belgium (€5,271), France (€5,080), Austria (€3,963), Germany (€3,916) and Italy (€3,140), this amount was considerably lower. Health care spending is also growing relatively rapidly in those other countries. There, however, compared to the Netherlands, more of the health care costs are directly paid by individual households, whereas government funding is lower. By consequence, the growth of health care spending in those countries is reflected more directly in private consumption than in the Netherlands.
The relatively low growth of private consumption and relatively high growth of individual consumption by general government in the Netherlands cannot be regarded in isolation. On the contrary, the latter development has contributed to the former. To some extent, both items are like communicating vessels. Strong growth of individual government consumption will – all else being equal – lead sooner or later to higher taxes and/or social contributions. Higher taxes and contributions press down the real disposable incomes of households, leaving them with less money to spend on consumer goods and services. Thus regarded, Dutch household purses are made flatter by higher taxes and contributions used to fund consumption by the government on behalf of households in the form of health care, education etc. For a fair international comparison of consumption growth, the government share in actual individual consumption should also be included.