The money market: widergap between
Dutch and German interest rates.
settlements have contributed, and the Govern
ment's positive attitude towards the business
sector. Evidence of the latter is to be found in the
lowering of the rate of corporation tax from 48%
to 42%, the introduction of a capital allowance
and the part played by investment grants in
stimulating industrial investment. Accordingly,
in our view, the present grant scheme (W1R), or
another which provides a similar stimulus, must
be maintained until such time as investment
reaches the level necessary for the growth of
employment.
A third example of imbalance in the Dutch
economy is to be found in the large Budget
deficit. But in this area, too, the present
administration can look back on the last four
years with a certain amount of pride. The deficit
looking ahead to the longer term, it must not be
allowed to lead to a shortage of funds for
investment in the private sector. We therefore
fully support the objective announced by the
committee of economic experts of the Socio-
Economic Council in
December, namely the
reduction of the deficit to
5.5% of the national
income by 1990,
although we are moved
to wonder whether this
figure is not too high for
the nineties. If the
Government, in pursuing
this objective, should be
faced with the choice
between increasing the
burden of taxation and 1980 i985
making further cuts in public expenditure, it will
in our view be obliged to opt for the latter.
Otherwise the improvement in the investment
climate, of which the 40% increase in the
number of new businesses in 1985 provided
striking proof, will soon be reversed.
fell from 10% of the national income in 1982 to
7.3% in the year under review, and the burden of
taxation and social security has also declined. It
will not be easy to reduce the deficit further in
the next few years, lor on the revenue side there
are disappointments ahead (in particular the
yield from natural gas is expected to decline),
while on the expenditure side there is growing
opposition to further public spending cuts. Yet
the deficit must be brought down, if only
because of the growing pressure which interest
charges impose on the Budget. Moreover,
As usual, the situation in the Dutch money
market was governed almost entirely by the
position of the guilder on the foreign exchanges,
its value against the Deutschmark being
decisive. The increase in the discount rate
CENTRAL GOVERNMENT
INTEREST CHARGES IN
BILLIONS OF GUILDERS
(SOURCE: BUDGET MEMORANDUM)
Slight increase in private consumption.
