According to Roel Beetsma et al we should be pleased with the independent Netherlands Bureau for Economic Policy Analysis (CPB). And Dutch budget policy has a number of other strengths that could be of benefit to other countries as well.
It may not seem that way right now, but research into Dutch budget policy between 1958 and 2008 shows that The Netherlands is doing a rather good job. What are the reasons for this? In a joint study, researchers at the University of Amsterdam and De Nederlandsche Bank (the Netherlands central bank) took a closer look at 50 years of budget planning and implementation. Their first conclusion was that the CPB, the Netherlands Bureau for Economic Policy Analysis, which is the official and independent institution entrusted with this task, plays an important role in providing reliable growth forecasts. It is this reliable benchmark that compels the government not to deviate significantly (for example for political reasons) from these forecasts. In the period studied, The Netherlands had three different successive fiscal regimes. The current approach was introduced in 1994. It is the so-called ‘trend-based budgeting policy’ based on cautious macroeconomic projections. It appeared to work even better than the researchers had predicted. Professor Roel Beetsma: "The growth forecasts are in no way biased; systematically they are not overly positive or overly negative. And the final results from this period appeared on average even better than the original budgets.”
Other countries, particularly in Southern Europe, could learn a great deal from Dutch practices. An independent institution like the CPB makes a valuable contribution with sound macro-economic forecasts. It is the trend-based budgeting policy that was effective: the right framework for realistic expenditures, including a cautious margin of half a percentage point applied to the growth forecasts (this buffer is no longer used) and the division between revenues and expenditures which meant that surplus revenue went into reducing the deficit. Furthermore, this framework was in place for the entire cabinet term, improving predictability and reliability.
According to Beetsma this research is quite unique: “We systematically studied the differences between the various forecasts and the outcomes. This method of research is relatively new and highly original, especially since the research covered such a long period and multiple budgetary regimes. There was an enormous amount of data extracted from the budget memorandums – this included data that was difficult to process, in part because of changes in definition. Empirically speaking this is very difficult to carry out and it was very time consuming. And yes, with regard to the conclusions it seems to be a bit of north versus south. It’s the countries in Southern Europe that are often too optimistic in their budgets. In contrast, the budgets in The Netherlands between 1994 and 2008 were almost too conservative, too pessimistic.” Beetsma hopes that policy makers in other countries will use the conclusions from this research in the design of their national fiscal arrangements.