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Energy aid to create a €7.5bn hole in the state budget

The government expects measures to keep energy prices affordable for citizens and businesses will leave a €7.5 billion gap in the budget that must be closed in the spring. Minister for Finance Sigrid Kaag reported this in the autumn memorandum, the final adjustment to this year’s budget.

The price cap for electricity and gas for households will be an estimated €11.2 billion. Supporting large energy-intensive SMEs costs just under €1.7 billion. The government hopes to fund some of this spending by imposing additional taxes on some energy companies. But for the rest I still have to find a solution.

Estimates of the budget gap that the Cabinet plans to seek compensation in a spring memorandum have so far run into tens of billions of euros. The exact amount remains highly uncertain as it is highly dependent on energy price developments. More recently, after reaching a large peak last summer, it has fallen slightly.

At least as troubling is rising interest rates on government bonds. This is a structural cost item, as opposed to temporary energy support. Ultra-low interest rates in recent years have allowed the Netherlands to borrow money for free in the capital market for many years. However, with interest rates rising globally, loans that have matured will need to be refinanced at higher interest rates.

The government estimates that this could result in additional costs of €5.8 billion to €9.2 billion annually. Kaag also hopes to find a solution to this in the spring memorandum. “In this way, finances are manageable and bills are not passed on to future generations.”

The war in Ukraine has so far cost the state coffers around 4.5 billion euros. More than half of the Dutch spent this winter filling up Bergemeer’s gas storage depots to reduce its dependence on Russian natural gas.

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