Dutch elections: negotiations halted as Omtzigt’s NSC pulls out

• Formation talks between election winner PVV, outgoing PM Rutte’s VVD and newcomers BBB and NSC have stopped as Omtzigt’s NSC pulls out

• Current events likely lead to new delays in the formation process

• NSC pulls out over new, weaker than anticipated government finances data, limiting the scope for policy ambitions. Furthermore according to NSC the information was withheld by Mr. Plasterk, leading the talks.

• As the limited financial room for the incoming coalition was known from the start, the developments were likely the final straw for Omtzigt’s NSC.

• Indeed, tension was building between parties over costly policy ambitions by the PVV and the BBB whereas the VVD and NSC advocate fiscal prudence.

• What now? Minority cabinets or extra-parliamentary cabinets are likely explored next, given the election results which indicated the desire for a coalition over right, centre or centre-left coalitions are not expected to be investigated soon.

• Ultimately new elections could be called but it is way too soon for that.

• Next week Mr. Plasterk will deliver his findings to parliament and a debate over the next steps will be held.

Omtzigt’s NSC pulls out of formation talks

In their eleventh week of negotiations, formation talks for a new coalition government between election winner PVV (far-right), outgoing prime minister Rutte’s VVD (liberal centre-right) and newcomers new farmer movement (BBB) and New Social Contract (NSC, centre right) came to a dramatic end. Last night, political veteran Pieter Omtzigt, former CDA (Christian Democrats) and current leader of new founded NSC pulled back from the negotiations. The reported reason was new information about government finances. More specifically, new information was brought to the negotiating table indicating that there was less budgetary room than anticipated earlier. On top of this, Omtzigt indicated that this information was possibly withheld by Mr. Plasterk who as ‘informateur’ (mediator) is leading the talks. The details of what was shared remain unclear, but as things currently stand this looks likely to be the final straw that made Omtzigt pull out rather than the sole reason. Particularly because the difficult budgetary situation has been clear from the get go (see below).

The ending of the talks came at a surprising moment. Tensions have been building over the last weeks with parties leaking to the press and PVVs party leader Geert Wilders threatening snap elections via social media platform X. See our earlier reports here and here for more information on why this coalition is one out of the ordinary. Nonetheless, Mr. Plasterk was scheduled to present his findings over a possible coalition to parliament next week. It was anticipated that the report would contain new information, but not that NSC singlehandedly would pull out before the presentation of the report, let alone do it via the media and not in official communication via Mr. Plasterk.

Less budgetary room than anticipated proved to be the final straw

The image that arises this morning is that the new information regarding less budgetary room than earlier anticipated and potential withholding of that information by Mr. Plasterk was the final straw rather than the sole reason NSC broke off the talks. Indeed, the fact that the new coalition had to cut back spending (or raise revenue) was known from the moment formation talks began. The influential Budget Committee who advises incoming governments on government finances, already indicated in July 2023 – before the elections – that medium term government finances were set to deteriorate and a new coalition had to rebalance. Moreover, in January, the Dutch Central Bank (DNB) and independent thinktank the Central Planning Bureau (CPB) attended the formation talks and had a similar message. This challenges the statement that NSC was completely caught off-guard by the lack of financial room. Moreover, every formation process sees its (financial) setbacks.

It is therefore likely that Omtzigt’s NSC did not see negotiations would come to a good end given the costly policy ambitions of PVV and BBB. Indeed, rumours that the VVD and NSC, who advocate healthy government finances, opposed the costly plans of the two other parties intensified over the last weeks. Examples of those costly plans are getting rid of the mandatory personal healthcare cost contributions (EUR 6 bn annually), reducing the pension age and free public transport for elderly (roughly 800 mn annually). These are preliminary estimates and might only partly contain behavioural effects, which would make it even more costly.

Door is closed but not yet locked

NSC pulling the plug raises the question: what now? While a lot remains unclear, communication by NSC did offer some options. As the election result pointed towards a win for the right it is clear that all options over right have to be exhausted before other alternatives are explores, as reaffirmed by left-leaning parties.

A traditional majority coalition between PVV, BBB, NSC and VVD is ruled out now by both the VVD and the NSC. This leaves the possibility of a right minority cabinet, for instance with PVV and the BBB, with support from the VVD and NSC. Another option which NSC seems to favour is the extra-parliamentary route, which would be an experiment in Dutch parliamentary history.

Normally, cabinet ministers have clear ties with the coalition parties and act according to a well-defined and agreed upon coalition agreement. Instead, an extra-parliamentary cabinet 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. 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. This comes at the cost of predictability of the government.

Should these options not succeed, a coalition with centre or centre-left parties might be investigated. Ultimately new elections could be called. However, given the election results these two options are currently not expected.

In any case, last night’s events delay the road towards a new government. Mr. Plasterk’s indication in January that the talks will take another 2 to 3 months, seems to have shifted from an expectation to a best case scenario.

Uncertainty for pension fund reforms remains

Yesterday’s developments will also have an effect on the pension fund reforms. Three out of the four parties involved in the negotiations for a new coalition have been calling for amendments to the new pension law (NCS) or have indicated in their election manifestos that the law should be reversed to the current Defined Benefit framework. As the negotiations have halted, the pension fund sector will be kept in uncertainty even longer. Normally, implementing a new law or changing an existing law will take at least 1 year, while the pension sector is now in the middle of the transition with a deadline set at January 2028.

Despite the uncertainties, the sector is preparing for the transition, Almost all pension fund have announced when the actual transition will take place and the majority are planning to make the transition in 2026 (including the second largest Dutch pension fund PFZW). A smaller number has decided that January 2025 will be the date of the transitions, while ABP, the largest Dutch Pension fund, will make the transition in January 2027.