Dutch elections - negotiations continue under increased tension

Entering a new phase?

Election winner PVV, outgoing prime minister Rutte’s VVD and newcomers BBB and NSC are entering their ninth week of formation talks. The talks between the far right (PVV) and more centre right parties (NSC, BBB, VVD) seemed to have entered a new phase last week with the invitation of economics experts, such as Dutch Central Bank President Klaas Knot and Pieter Hasekamp, director of the Governments main think tank (CPB), to the formation talks. Former PvdA minister Plasterk is assigned by parliament as ‘informateur’ (mediator) and is heading the coalition talks. Mr. Plasterk indicated in December that given the PVV’s unconstitutional party programme a first round of talks between the parties should focus on the rule of law. Even though Mr. Plasterk denied moving into a new phase of talks, the presence of economic experts alongside occasional leaks on policy ambitions suggests that a new phase in formation talks is at the very least close. Mr. Plasterk will give an update to parliament about the proceedings of the talks in the beginning of February.

New government still a long way to go

This increases the chances of a coalition between the PVV, VVD, BBB and NSC. Mr. Plasterk indicated that this second phase is expected to take another two to three months. This raises the possibility of a new government being installed somewhere in the second quarter of 2024, which is in line with our earlier expectations that 2024 will be well underway before the new government starts.

No ordinary coalition (talks)

Despite talks proceeding into a new phase, the last weeks also clearly showed the eyed coalition will be out of the ordinary and potentially unstable. Firstly because of the lack of governing experience at current parties. The VVD has indicated early on that they would only support the new coalition from parliament and not take seat in the government and leaving the initiative to the PVV and political newcomers BBB and NSC. Especially the latter two have yet to define concrete policy ambitions on a lot of topics. This creates uncertainty between the partners and may lengthen the formation talks. The fact that NSC, the BBB and the PVV refused to let the independent CPB analyse the economic and budgetary impact of their election programmes does not help in the formation talks either. Secondly, election winner Geert Wilders (PVV) has indicated he is willing to make concessions on some far-right unconstitutional party points to preserve the rule of law. This was a clear requirement of his potential coalition partners. However, taking into account Geert Wilders’ statements in the media, it remains unclear how solid these concessions in practice are. The other three parties are closely watching these developments. Where the BBB, the VVD and the NSC draw the line is another source of uncertainty. Finally, frail confidence among parties can quickly lead to instability when startled. Last week, the VVD in the Senate voted in favour of a refugee accommodation law (‘spreidingswet’), a law the PVV heavily opposes. This immediately put the coalition talks under pressure with Geert Wilders declaring the opposing views between the PVV and the VVD concerning this law as ‘a serious problem’. This ‘problem’ has yet to be resolved. Considering the above, it remains to be seen whether a stable and reliable coalition can be born out of the current instability.

Extra-parliamentary the way to go?

Political commentators indicate that given the difficulties described above and the ambition of all parties to have more transparency between cabinet and parliament, the preferred new cabinet could be extra-parliamentary. Normally, cabinet ministers have clear ties with the coalition parties and act according to a well-defined and agreed upon coalition agreement. An extra-parliamentary cabinet instead has less clear ties with the coalition parties in parliament. Their actions are based upon high-over general policy ambitions agreed upon by the coalition parties. How these ambitions are reached and executed is to be decided by the cabinet. This way a lot of the bumps and issues that currently trouble the coalition talks (described above) can be solved. Such a solution could enhance coalition stability, because the four potential political parties have more distance to the cabinet and therefore have more freedom over which policies they provide support to and which they oppose. Predictability of the government on the other hand decreases as policy uncertainty increases; as the coalition agreement is more on headlines and goals it is unclear at the outset how the government will act and reach the goals.

Uncertainty about future pension legislation remains after debate in parliament

One area in which the potential coalition wants to leave its mark is the recent agreed upon pension reforms. The new pension law, that took effect as of the first of July last year was a result of negotiations between the Unions, employers and the government that lasted more than ten years. The result of this lengthy process was that the Dutch pension sector will move from a Defined Benefit pension framework to a Defined Contribution framework before 2028.

At the time of the vote for the new law in the ‘Eerste Kamer’ (the Senate), a majority was in favour of the transition. However, the parties that voted against the law have a majority in Parliament since the elections of November last year. The PVV and the BBB have mentioned in their election manifesto that they want to reverse the law so that the current Defined Benefit framework will stay in place. On top of this, these parties have also the ambition to increase the discount rate used to calculate the liabilities of pension funds, in order to make indexations of the pensions and pension claims to inflation more likely compared to the current rules. The NSC is also sceptical with regards to the new law, but this party only wants to amend the law instead of reversing it. The most important amendment the NSC wants to accomplish is that every pension fund that has indicated to change to a Defined Contribution scheme will be obliged to hold a referendum among the (former) plan participants whether they want to change or not.

On Wednesday 17 January, a debate about the pension fund reforms took place in Parliament at the initiative of NSC. In the run-up to his debate, many pension fund managers and experts made themselves heard in the media. In general, pension funds have expressed their concerns about the proposals of both PVV and BBB and those of NSC. Not only will an amendment of the law, in their view, result in a delay of the transition, the outcome of a ‘No’ of a pension fund referendum will be negative for (former) plan participants as calculations have shown that in almost all market scenarios the pension payments will improve under the new framework.

During the debate, all eyes were focussed on VVD as this is the only party participating in the negotiations for a new cabinet that is against amendments to the new pension law. The VVD made it clear during the debate that it ‘was and still is’ in favour of the new pension system, as it will solve problems from the old pension system while the strengths of the system are retained. Changing the rules, a couple of months after these were implemented, will cause uncertainty and delay which will benefit on one, according to the pension expert of VVD.

Although the VVD’s attitude during the debate gives hope to the proponents of the new law, the party indicated that changes to the law are not a taboo during the coalition negotiations. But changes to the law usually take a lot of time, and given that pension funds are preparing for the transition, this time is not available. As long as there is no clarity about what government policy for the pension sector will be, the uncertainty will remain and the pension funds will continue to prepare for the transition.