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Purchasing power figures do not say whether your purchasing power goes up or down

09/14/2020

Tomorrow, on Prinsjesdag, the annual purchasing power figures will also be published. Which groups will be given purchasing power? Which groups are going to lose it? But every year these figures say very little about what you can expect. And now that we are in the midst of the corona crisis, that is especially true. “The uncertainties in these figures are much greater this year than in other years’, warns Minister Koolmees of Social Affairs.

The purchasing power figures for next year are calculated by the CPB, the Netherlands Bureau for Economic Policy Analysis. This is done on the basis of three variables: wage trends, inflation and government measures. The CPB then looks at how these three influence the income of various groups in society. “But“, says the Minister, “the uncertainties that exist, about the course of the economy and the labour market, you do not see in these figures“

Of those three variables, the Cabinet measures are the only ones under the government’s control. When it comes to wage increases, the Cabinet has a little bit of influence, because the government itself is also a major employer. But if wages rise much less than predicted and prices rise much more than predicted, your purchasing power will be much worse. What’s more, these predictions take no account at all of changes in your life.

This purchasing power forecast is therefore also referred to as static purchasing power. So the CPB actually acts as if everyone’s life is static, so it remains the same. Everybody keeps the same job, nobody gets fired, goes to work less or more.

Some of the purchasing power estimates were already leaking out last week:

CPB only takes the average of municipal charges, such as property tax and parking charges, into account in its calculation of purchasing power. Nevertheless, it is likely that there are considerable differences between them

Because there is a good chance that local taxes will rise precisely because many municipalities are in financial difficulties. This means that inhabitants of a municipality where the burden is rising considerably will be less likely to recognise themselves in the purchasing power figures.

The same applies to rent increases and pension rebates, of which only averages are taken into account. The difference could easily be tens of euros a month.

Intended for policymakers

It is precisely during a crisis, such as this corona crisis, that a lot can change for large groups of people. But CPB does not predict what such developments will do to purchasing power. The purchasing power figures are actually mainly intended for politicians. “Are the income distributions in the Netherlands a bit in balance“, explains Koolmees. “Working people, pensioners, or people on benefits: what is the relationship between them? It is a good indicator of that” And politics can always make adjustments on that basis.

But don’t start cheering when you see that the group to which you belong, for example, has improved by 1% in purchasing power. Because that only applies if you keep your job, don’t work more or less hours and your collective wage and prices rise exactly as predicted.

Netherlands purchasing power country

The first time very global purchasing power figures were used was in 1952. At that time, a UN report mentioned an average figure for the Netherlands. It was not until 1969 that structural attention was paid to purchasing power: because the CPB published annual purchasing power summaries. Since then, the figure has played a role in the political debate.

The ‘purchasing power fixation’ in the Netherlands is unique. Outside the Netherlands, only Sweden has similar figures, but they play a far less important role in the debate there. According to Minister Koolmees, the fixation in the Netherlands should be allowed to go down a notch. “The political debate too often deals with the dot-comma‘s in next year’s purchasing power figures. But it is still an estimate, and indeed it does not come true for many people at the end of the day

So the Minister advises: ‘Look through your eyeballs at these figures, put them into perspective a little bit, but see that it is important that income differences are monitored in this way’


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Categories ๐Ÿ—ณ๏ธ Politics Tags Account, Figure, Figures, Groups, Income, Influence, Koolmees, Netherlands, Predicted, Prices, Purchasing, Static
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