Dutch budget cuts assured by Government deal

Dutch Prime Minister Mark Rutte and Finance Minister Jan Kees de Jager struck a deal yesterday with the opposition and got a majority backing on an austerity package to meet the 3 per cent budget deficit target in 2013.

Earlier seven weeks of talks with Geert Wilders's Freedom Party failed and led to the collapse of the minority Government.

The package increases the value-added tax to 21 per cent from 19 per cent, doubles the bank tax to €600 million ($974 million) and changes the financing of mortgages, de Jager said in a letter to Parliament.

The Liberal Party of Rutte had the support of the Green Left, the Christian Union and the D66 Democrats. The five parties, including de Jager's Christian Democrats, hold 77 seats out of 150 in the Lower House.

"This is an unbelievable achievement," Rutte said in Parliament.

"Sticking to the 3 per cent rule is not because that has been decided in Brussels but because we think it's important as we can't pass the bill on to future generations."

The Dutch need to submit a package to the European Commission by April 30.

Rutte submitted his Cabinet's resignation on April 23 after the Freedom Party withdrew its support for spending cuts and tax increases worth about €14 billion.

Rutte said cuts were needed to ensure the Netherlands avoids the debt crisis. Rutte faces a 2013 budget shortfall forecast of 4.6 per cent of gross domestic product.

The Labour Party, the Socialist Party and the Freedom Party of Geert Wilders didn't back the agreement.

"This is a bad package and the people with a state pension will pay the bill," Wilders said.

The Dutch economy, the fifth largest in the euro area, entered its second recession in three years during the latter half of last year. Unemployment has jumped to almost 6 per cent from 5 per cent in 12 months and house prices have fallen more than 10 per cent since 2008.

A reduction in development aid was annulled, the salaries of some civil servants remain frozen, while the reduced transaction tax to 2 per cent from 6 per cent on the purchase of houses has been made permanent.

From January 2013, people buying a house enjoy tax rebates only if mortgages will be paid off within 30 years. That measure will save €5.4 billion, according to De Jager's letter.

- Bloomberg