The grip of inflation on the Dutch economy remains strong. Recent figures showed that, despite inflation rates falling from 3.8% in 2023 to 3.3% in 2024, the Netherlands is lagging behind the wider Eurozone in terms of lowering inflation.
Statistics Netherlands, the government agency that tracks and compiles statistical and economic information for the country, released its annual inflation report on 14 January. The report highlighted how the Netherlands had the fourth highest inflation rise in the Eurozone for 2024, with only Estonia, Croatia and Belgium faring worse.
Two of the main contributors to the continued inflationary troubles were housing and tobacco. In 2023, the increase in rental pricing was 2.5%, last year that figure jumped to 3.7%. The increase in prices for tobacco was sharp and swift, with the price for a 50 g pouch rising a lung-busting 29% in 2024. This was mainly due to a new excise duty introduced by the government last April, which saw the cost for a 50 g pack of tobacco jump from €10.83 to €17.35, and a 20-pack of cigarettes from €5.87 to €7.81.
The real-terms growth in wages for 2024 was slightly above inflation at 3.5%, and on 1 January the minimum wage for workers 21 years or older rose by 2.7% from €13.68 to €14.06. While such increases will be welcomed by workers, the difference between inflation and wage rises is marginal, and as such will most likely not create a noticeable increase in consumer spending power.
However, unionized sectors of the economy saw the largest increase in their wages for 40 years in 2024. The huge wave of strikes that took place in September 2024, organised by the major unions FNV, CNV and VCP and involving over 20 industries, led to an overall wage increase of 6.6% compared to 2023, the largest year-on-year rise since 1982.
The fight for higher wages by workers through collective labour agreements has inevitably led to tensions between unions and business leaders. The time-old argument from businesses and conservative economists is that the Netherlands is heading for a wage-price spiral. This is where increases in wages are continually forcing businesses to raise prices in an ever-increasing escalation, which is sometimes referred to as a “doom loop”. However, analysis in March 2024 from De Nederlandse Bank suggested the possibility of a wage-price spiral is considered low. And prominent UK economist Grace Blakely argued that the ‘much of the increase in prices is, in other words, being driven by rising profits, not rising wages’.
How the government responds to the current economic difficulties has the potential to be a defining moment for the new Cabinet. This month Geert Wilders stated that ‘it is set to be a tense spring’. The next budget is due in the Spring and there are several issues that need to be resolved before it is presented to the Dutch legislature. If these issues are not resolved, the likelihood of the government collapsing is potentially high.
Eelco Heinen, the current finance minister, a member of the VVD, seems determined to reduce government spending. At a recent parliamentary questions session, Heinen stated that reducing inflation ‘starts with spending less’. However, the VVD appears unwilling to reverse the agreed plans that have earmarked funding for support to Ukraine and climate policy. This directly clashes with Wilders’ manifesto commitments to end military aid to Ukraine, while also accusing Ukrainian refugees as coming to the Netherlands not to escape the war but for ‘free housing, free healthcare and our jobs’.
Wilders has threatened multiple times to collapse the current government if his legislative demands are not implemented. In relation to the budget, he declared ‘[if government spending] becomes a political problem, then that is it.’ He refused to give up more of his aims: ‘We have already made a lot of concessions,’ he said. ‘We have accepted cuts in healthcare spending and the compromise on the education budget. We are digging in our heels, and it is up to the others to be reasonable.’
Written by James Turrell