Third corona support package will be more austere

As Covid-19 cases continue to grow, so does the negative impact of the crisis on business. As a result, the Dutch government has implemented a series of economic measures to protect jobs and the economy through its first and second support packages, the Temporary Emergency Bridging Measure to Preserve Employment (Tijdelijke Noodmaatregel Overbrugging voor Werkbehoud, NOW). Since its inception, NOW has provided short-term financial support to employers, while in turn helping millions of employees retain their jobs and earnings. However, the third support package, which will come into effect after the second package ends, will be less generous than the previous two, sparking controversy.

While the Cabinet has been trying for months to reassure the Dutch people, especially in advance of this upcoming third support package, Minister of Economic Affairs Eric Wiebes warns that the government will not be able to solve every problem faced by businesses due to the Covid-19 pandemic.

Through the first and second support schemes, the government allowed companies to apply for aid in paying their labour costs, in addition to providing support for independent contractors as part of its economic alleviation measures. Moreover, rules with respect to the payment of taxes were relaxed, as part of a wider compensation scheme for impacted sectors of the economy.

This summer alone, the NOW scheme has ensured that up to 2.6 million employees across the Netherlands are still clinging to their jobs. This began with over 148,000 companies registering for the first aid package, that cost the Dutch government approximately 8 billion euros. Fewer companies applied for the second, ongoing support package, which will expire on 1 October, partly because many saw improvements in their situation since the relaxation of the most stringent corona measures.

Contrary to the first and second short-term support packages, the third package will run for a longer period, potentially until the summer of 2021, by which time, hopefully, the crisis will be subsiding with the discovery of a corona virus vaccine. The length of this third package will ensure that, for better or for worse, companies know where they stand for the next six months at least. The upcoming scheme, however, will be stricter and less generous than previous ones, with an adjusted eligibility criterion that favourably targets companies that need help the most.

Economics Professor Sylvester Eijffinger from Tilburg University argues that financial support should be targeted at disadvantaged companies with a sound and viable revenue model, which can adjust to the economic crisis by looking for alternate means to complement their revenue. A prime example of successful adaptation to the crisis includes restaurants compensating for their loss of revenue from sit-in customers by making home deliveries, as shown by the growth in the number of take-outs since the start of the pandemic.

According to Eijffinger, those companies who do not make such strategic moves, and whose revenue models do not appear to be viable upon scrutiny, should not quality for the same benefits as the other companies. Eijffinger believes government support was very generous at the start of the crisis, which, according to him, means that some companies will not be forced to look at their earnings model but instead remain largely dependent on the government support.

Not everyone agrees with this perspective. Employers’ organizations in the Netherlands express fears that if more restrictions are applied and the new package becomes stricter, many companies will end up failing, meaning previous financial support they have received will ultimately be in vain. This would be tantamount to money being flushed down the drain.

ING’s Chief Economist Marieke Blom points out that the corona virus crisis still appears to be a temporary one, and that if there is a vaccine or a better way of containing the outbreak is discovered soon, the Dutch economy can still bounce back. However, Blom warns, it is very difficult to predict which companies will survive. According to her, it is only when the dust settles after the Covid-19-induced crisis that we will see which economic sectors really have a problem.

Continuing the support will be expensive, Blom says, but it would mean that employers will be more likely to make investments, which will pay off economically in the long term. The support would also guarantee greater spending in the economy if employees’ wages remain interrupted in spite of the crisis.

Written by Seringe S.T. Touray