Proposal for a New Dutch Fiscal Anchor

Executive Summary

Current fiscal anchors drive instability and procyclicality. Dutch fiscal policy is strongly shaped during cabinet formations, yet past anchors — such as the CPB’s “sustainability balance” or the EU’s 3% deficit rule — have encouraged zigzag policymaking and amplified the cycle. Cuts under the governments Rutte I–II were later reversed under Rutte III–IV, destabilising the public sector. Moreover, procyclical fiscal choices often lengthened recessions, worsening unemployment and shrinking output. The sustainability balance lacked transparency and long-term relevance, while the 3% norm serves only as a European safeguard, not a guide to sound policy.

A long-term debt anchor offers stability and transparency. The authors propose steering fiscal policy by targeting a debt-to-GDP ratio projected 50 years ahead (t+50). This anchor translates into a structural deficit target, guiding the scale of consolidation or expansion required during cabinet formation. Unlike current rules, it incorporates long-term drivers such as ageing, climate investments, and can deal with temporary policy costs. Simulations show this framework produces more stable and a-cyclical fiscal policy, with a lower probability of excessive debt, compared to European deficit rules or short-term balance targets.

Political choices remain central, but within a stronger framework. Deciding the “desirable” long-term debt level is inherently political, balancing growth opportunities, intergenerational fairness, and fiscal risks. Yet embedding this choice in a transparent and forward-looking framework avoids abrupt shifts at each government formation and strengthens the credibility of Dutch fiscal policy. It also aligns better with the principles of trend-based budgeting, where automatic stabilizers — not discretionary swings — manage the cycle.

Policy recommendations

1. Adopt a debt-to-GDP anchor projected 50 years ahead (t+50) as the central fiscal rule in cabinet formations.
2. Translate the chosen long-term debt level into a clear structural deficit path, guiding necessary adjustments.
3. Integrate future costs of ageing, climate policy, and other long-term pressures systematically into fiscal planning.
4. Bind fiscal policy to gradual, predictable adjustments that avoid zigzag and procyclical dynamics.
5. Preserve political choice over the debt target, but within a transparent, evidence-based framework for sustainable public finances.