The Dutch government spent nearly €11 billion more than it received in the first nine months of 2025, representing a €9 billion increase compared to the same period in 2024. On an annualised basis, that would mean a total deficit of €19 billion for 2025, or 1.6% of GDP, according to Statistics Netherlands (CBS).
Dramatic spending increase
In the first three quarters of 2025, government spending was almost €22 billion higher than the same period last year. This increase was visible across nearly all categories, from public sector salaries to social benefits and payments to external parties.
The increase was driven primarily by higher public sector wages, larger social benefits, and greater contributions to the European Union and aid for Ukraine. Increased investments, as well as higher spending on defence and international commitments, added to the overall rise in government expenditures.
The scale of spending growth is striking: Annualised government spending, calculated as the sum of the last four quarters, exceeded €500 billion for the first time. Since the start of the coronavirus pandemic, annual government spending has increased by about a half, from nearly €350 billion in 2019 to €521 billion this year.
Debt grows but ratio improves
Public debt stood at €494 billion at the end of the third quarter of 2025. This means that government debt increased by €3 billion between the start of 2025 and the end of September.
Interestingly, the increase in debt is significantly less than the €11 billion deficit. This is partly because the deficit was financed using financial assets. For example, government deposits decreased by €4 billion, and accrued assets decreased by €9 billion. By contrast, government net lending was €5 billion higher in 2025, much of this as a result of loans to state-owned Tennet in order to upgrade the Netherlands' electricity network.
Despite the debt increase in absolute terms, the debt ratio (government debt as a percentage of GDP) fell to 42.4 percent. This was because the size of the Dutch economy grew by more than government debt grew. The Netherlands maintains one of the lowest debt-to-GDP ratios in Europe, with only 2007 seeing a lower level in the past 45 years.
How this compares
The 2025 deficit represents the third-worst fiscal performance in the past decade. Only the pandemic years saw larger deficits as the government spent heavily on emergency support programs. The €11 billion shortfall in just nine months already exceeds the full-year 2024 deficit of €10.9 billion (0.9% of GDP).
The Ministry of Finance's 2025 autumn budget statement had assumed a full-year deficit of €21.9 billion, or 1.8% of GDP. The current trajectory suggests the final figure may come in slightly below that estimate at around €19 billion.
Photo Credits: Jakub Zerdzicki/Pexels
European context
The European Union's fiscal rules permit a maximum deficit of 3% of GDP in a given year and a maximum debt level of 60% of GDP. The Netherlands currently comfortably meets both criteria, though projections suggest challenges ahead.
The Dutch Central Bank (DNB) projects the budget deficit will rise to 2.8% of GDP in 2025. More concerning, DNB expects the 3% deficit limit will be breached in 2026 when military pensions are converted to a new system at a one-off cost of €8.5 billion. The deficit is projected at 3.5% of GDP in 2026 and 2.7% in 2027.
Longer-term fiscal pressures
Beyond the immediate deficit, DNB warns of mounting structural fiscal pressures. Government spending as a percentage of GDP has grown from 42.1% in 2019 to 44.7% currently, a 2.6 percentage point increase that reflects permanently higher spending commitments.
Several factors will continue pushing spending higher:
Healthcare costs: Rising due to aging population and medical advances
Social security: Pension and benefit costs increasing with demographics
Defense: Pressure to meet NATO's 2% GDP target and potentially exceed it
Interest payments: Expected to rise from 0.8% of GDP in 2025 to 1.9% by 2040
DNB analysis suggests annual economic growth may remain well below 1% for the next few decades due to aging workforce and stagnant labor productivity, making these spending increases harder to sustain.
Political challenges
The deteriorating fiscal picture complicates current coalition formation talks. The parties negotiating to form the next government face difficult choices between competing priorities: housing investment, education spending, defence increases, healthcare improvements, and climate commitments, all while keeping the deficit under control.
The caretaker government's 2026 budget memorandum projects a deficit of €25 billion, or 2.1% of GDP. However, critics argue the budget focuses heavily on immediate concerns like tax cuts rather than long-term investments in education and innovation crucial for future economic growth.
The Netherlands has traditionally followed "trend-based fiscal policy," where spending is fixed at the beginning of a government term while tax revenues move with the economy. This approach requires building sufficient reserves to remain below European deficit and debt thresholds even during downturns, a buffer that is shrinking.
What this means
While the Netherlands retains a strong fiscal position compared to most European neighbours, the trend is concerning. The government is spending more rapidly than revenue is growing, driven by both cyclical factors (higher wages, increased benefits) and structural commitments (EU contributions, Ukraine support, defense modernisation).
The €11 billion nine-month deficit represents the fastest deterioration in the fiscal position since the pandemic, raising questions about whether current spending levels are sustainable without either raising taxes significantly or cutting other programs to make room for growing obligations in healthcare, defence, and debt service.
