Rapid purchasing power measure: ‘One time 2000 euros could help’

Rising prices and energy costs mean declining purchasing power. Many people are at risk of getting into serious financial trouble. And so the group chairmen of the coalition parties (VVD, D66 and ChritenUnie) spoke today in The Hague about possible measures. There are plenty of options, but every solution comes with snags.

There are two large knobs that the cabinet can turn on. Chief Economist of the Central Statistical Office Peter Hein van Mulligen explains.

โ€œOn the one hand, that is doing something with prices, for example, setting a maximum on energy prices or lowering taxes on all kinds of things. On the other hand, you can provide income support.

There is an immediate disadvantage to this measure. โ€œIt is difficult to work with an income limit, very laborious. You need the tax authorities and that takes much longer. This may mean that compensation comes too late for many people. Nice if you get money back in a year and a half, but if you have to pay now, that wont be of much use to you. Quick relief requires a simple measure.โ€

2000 euro

The economist sees income support measures in other countries. โ€œA simple measure that we still know from the 90s, the Salmon Snip: every household received 100 guilders a year.โ€ A measure that the cabinet can now also consider? โ€œThe most important thing now is the acute emergency. If a final bill for energy comes within six months, people get high amounts for their choosing. 2000 euros to everyone, could help. That would cost the cabinet 16 billion euros.โ€

There

is also a disadvantage to this proposal. Because not only expensive, but also very generic, from which households without financial problems also benefit. โ€œ2000 euros is more burden-reducing for a lower income than for a high income, so you do help lower incomes with it. And whatever you do, its going to cost the cabinet a lot of money, they wont get out of that. Another disadvantage may be that you use it to pump another 16 billion into the economy and that can drive inflation further.โ€

Incidentally, this is not the first time that inflation in the Netherlands has been so high. In the 1970s, it was just under 10 percent. But according to chief economist of the Central Statistical Office Peter Hein van Mulligen, there is a big difference. โ€œIn those years, inflation was slowly increasing. Now its suddenly. Wages also rose much faster in those years. So it was far less disastrous for purchasing power.โ€

Wages in the Netherlands rise 2 percent on an annual basis and the labor market is running well because many people work. But, says van Mulligen, โ€œno wage increase is up to 10 percent inflation. The impact was really much less significant in the 1970s.โ€

Incentive

For the lowest incomes, a new support measure has already been announced: they will receive another 500 euros in addition to the 800 euro energy surcharge to compensate for the high prices. Previously, the energy tax and fuel excise duties were temporarily reduced.

โ€œA reduction in the VAT on energy does help something, but it is not the case that energy prices are back to the old level after that. In a while, you will want to levy that VAT again and then the prices will skyrocket again. And if you give a discount amount, another disadvantage is that you remove the incentive to use less energy. Something that the cabinet is also promoting.โ€

In other European countries, a maximum has been set on energy prices. โ€œThat goes into a lot of public money and you keep away the incentive to use less fossil fuels. Practically also difficult to implement. The Netherlands has many energy providers, so how do you maintain that maximum price? In France, for example, the role of the State is much stronger and they use a lot of nuclear energy. Our market is much more fragmented. So its harder to do something because its not a government facility.โ€

Van Mulligen mentions another risk. โ€œThe energy companies do have the high purchase prices, so they may fall over at a maximum price for consumers. Are they going to make it at a loss? Thats just the question. Youre moving the problem to the energy companies.โ€

Act fast

The problems in the Netherlands are also so great because we use a lot of gas. A case of bad luck, the economist now calls it. โ€œWe once decided to mainly use gas through Groningen. And when the price of oil rose, we were lucky. But now we are being hit harder. France is fortunate to have invested heavily on nuclear energy.โ€

Despite all the snags, waiting for the best measure in current social concerns is not wise, says Van Mulligen. โ€œThere is no magic formula. It is also not up to the CBS to determine this. But people do see a major disaster coming in itself. It is really an urgent problem. We have seen that if necessary, we can act quickly. Just look at thearrangements during the corona crisis, which have also cost billions. So its possible.โ€