CPB Director Pieter Hasekamp: “The purchasing power package provides temporary relief in particular for households with the lowest incomes. They are also most affected by high energy prices. At the same time, our stress test shows that not everyone will be helped, particularly if the gas price turns out to be even higher. Households with high energy consumption and incomes just above the social minimum risk getting into financial difficulties.”

The war in Ukraine and the resulting energy crisis are causing a shift in the economic picture. Inflation is eroding household spending, markedly slowing the rate of economic growth after a strong recovery from the coronavirus crisis. The government policy softens this effect, with the result that consumption growth is more favourable than previously anticipated. Businesses will benefit from the support for demand, leading to output growth in 2023. The lower end of the income distribution will benefit most from the policy. Whereas a further rise in the number of people in poverty was previously projected, the number falls to 4.9% of the population after the policy is included. The policy is largely temporary, however, so if energy prices remain high after 2023 and policy remains unchanged, poverty will rise again and purchasing power will fall. In order to emphasise the uncertainty, variants with lower and higher gas prices have also been calculated. In an unfavourable scenario, purchasing power in 2022 and 2023 will be cumulatively more than four percentage points worse.

Stress test

At the request of the House of Representatives, CPB has conducted a new “cost of living” stress test. The stress test shows that, compared to the picture in the cMEV, the policy in the Budget Memorandum will almost halve the number of households at risk of payment difficulties in 2023, to 540,000. This assumes unchanged energy usage and gas prices at the same level as in the baseline projections. In a variant with a higher gas price, the number rises to 860,000 households. The temporary policy increases the incomes of the lowest income households, reducing their vulnerability. On the other hand, households with high energy bills are more vulnerable as a result of the high prices, even above 120% of the social minimum. This also implies that any supplementary policy to reduce vulnerability should ideally target energy bills: through accelerated sustainability or targeted compensation on energy bills.

BTW  The policy in the Budget Memorandum has been included in these projections. The underlying economic picture has not been updated; it is the same as in the draft Macro Economic Outlook (cMEV) of August, which included economic data up to the end of July. Differences between the cMEV and the MEV therefore result from the policy in the Budget Memorandum. The policy measures that were submitted up to 7 September are incorporated in the MEV. The additional additional measures announced by the government on Budget Day have not been included in these projections.