OVERVIEW OF FISCAL DECENTRALISATION
The Netherlands is a constitutional monarchy and unitary state with a three-tier government structure: central government, 12 provinces, and municipalities. The constitution, as amended in 2002, defines the country as decentralised, but it is not a federation. The Netherlands has seen a trend towards decentralisation in the past 30 years. The most important local government level is the municipalities, which in the last 60 years have seen a consolidation in their numbers from 1,000 to 355 for reasons of efficiency.
The figures in this factsheet consider the sub-national government level as including both provinces and municipalities.
Legal acts governing fiscal decentralisation
Article 124 of the Constitution states the main principles of decentralisation. It states that the provinces and municipalities have the competence to regulate and administrate their internal affairs. Nevertheless, the central government can legally change the powers conferred to provinces and municipalities. Article 132 covers the organisation of the provinces and municipalities, and also determines the taxes that may be levied by provinces and municipalities.
Qualifying fiscal decentralisation:
In 2018, roughly two-thirds of total public expenditures were at the central government level, with the remaining one-third at the sub-national level.
Government functions are mostly centralised and the ability of municipalities and provinces to raise own resources is very limited. Local governments' finances are almost entirely dependent on central government transfers. General transfers to municipalities and provinces are managed by a centrally governed fund, the amount of the transfers is calculated using a formula that weights many different factors (population, earning capacity, real estate values, demographic variables, etc.). The total amount of general transfers is also indexed to total central government expenditures, creating a pro-cyclical correlation between local and central spending. Sub-national authorities are assigned a certain degree of flexibility in spending the resources of the general grants, but these grants must be used to perform the assigned delegated responsibilities.
Earmarked grants also account for a large share of sub-national government revenues, but these resources are tied to the performance of specific activities by local authorities. Sub-national governments' own revenues represent a small share of local revenues, as these come only from a share of the national car registration tax (in the form of a surcharge) and other minor local taxes.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
LEVEL OF FISCAL DECENTRALISATION
Revenue autonomy (own revenue relative to total resources available) at the local level (provinces and municipalities) is lower than the EU average (28% versus 53% in 2018), which entails a dependency on central government transfers that is above the EU average (72% versus 48%). Local own revenues represented 9% of total government revenues in 2018, a value that was lower than the EU average (13%).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
The composite ratio, which captures aspects of fiscal decentralisation of both revenue and expenditure, suggests that the governmental structure in the Netherlands is characterised by a degree of fiscal decentralisation (12% in 2018) that is slightly below the EU average (16% in 2018). As noted earlier, sub-national governments extract a very limited amount of resources from taxation. Despite this, they have quite a large degree of autonomy over local taxation, fully controlling 66% of total local tax revenues.
Source: authors’ elaboration on OECD data. For further details, see methodology.
Fiscal rules and borrowing capacity
Sub-national governments in the Netherlands are allowed to borrow on the credit markets and to issue bonds without any formal authorisation by the central government. No ceiling for local government borrowing is formally in place and, as a general rule, local authorities can borrow until they are able to serve their debt-servicing expenditures. Nevertheless, in order to comply with the medium-term budgetary framework that imposes a “golden rule”, borrowing is used only to finance investments.
Deficit and debt at sub-national levels
In 2018, the consolidated gross debt of the Dutch local government sector amounted to 7.3% of GDP. After having dropped from 2000 to 2007, it began rising, reaching a peak in 2012. Since 2012 the debt level has been steadily decreasing.
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
EXPENDITURE BY GOVERNMENT LEVEL AND BY POLICY AREA
Expenditures of provinces and municipalities represent a significant part of total general government expenditures in the fields of environmental protection (94% in 2017), housing and community amenities (87% in 2017), education (80% in 2017) and recreation, culture and religion (72% in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
Province and municipal spending is particularly concentrated, and more so than the EU average, in the fields of education (31% of the total budget of both entities in 2017), economic affairs (13% in 2017) environmental protection (10% in 2017).
Source: authors’ elaboration on EUROSTAT data. For further details, see methodology.
