The coronavirus support measures may have been the salvation of the Dutch economy. Economists at RaboResearch are hesitant to say so. But a new research model they developed clearly shows that government support was indispensable during the pandemic.
The measures kept up to 12,500 companies afloat that would otherwise have gone bankrupt. There is a good chance, say the researchers, that many more companies have been saved. This does not only include companies that were already on the verge of bankruptcy before the pandemic. Economists Igor Dzambo and Hugo Erken from RaboResearch (Rabobank’s research team) expect that without this support, healthy companies would also have collapsed.
Destruction of capital
For example, companies in industry, but also in cleaning, catering, the financial sector and the travel sector would have been affected. “This would have led to an unnecessary destruction of capital, knowledge and skills,” they write in an article to be published on the business platform MeJudice on Tuesday.
Researchers also cite rising unemployment, declining confidence in the Dutch economy and a decline in the number of business investments as very likely consequences in a situation without government support.
Dzambo explains: “Especially from the second quarter of 2020 onwards, the pain was palpable in all sectors. Not only in the catering and travel sectors, but also, for example, in industry. Factories had to close. Production came to a complete standstill. This had consequences not only for the affected factories themselves, but also for their suppliers. So you get a kind of waterbed effect.”
Dzambo and Erken draw conclusions about the main effects of government support based on a new calculation model they have developed. They measure the influence of macroeconomic indicators such as inflation, wage increases, business investments and economic growth on the health of companies. But they also examine the effect of the Fixed Cost Subsidy (TVL) and the Emergency Bridging Measure for Employment (NOW).
Fat on the bones
The Rutte cabinet introduced these subsidies to support companies that were unable to pay their fixed costs. Companies in need could apply for a deferral of their tax payments. This tax deferral has been included in Dzambo and Erken’s calculation model. Their calculations show that the TVL and NOW subsidies have had an effect long after their termination and will continue to have an effect in the years to come. This support ensured that companies had enough meat on their bones to continue for some time. This allowed companies to stay afloat long after receiving government support.
The researchers therefore expect that up to 5,000 more companies will have been saved than the current model suggests. On the other hand, however, 1,500 companies will probably not be able to pay off their outstanding tax debts before 2030. They will have to declare bankruptcy during the same period.
Many billions
Despite their praise, the researchers are also critical. They refer to the study by the Central Planning Office (CPB) from June this year. In it, the planning agency claims that the coronavirus support has indeed solved unemployment, but at a very high cost. The tax deferral cost the state almost 48 billion euros. Almost 35 billion euros were spent on subsidies for wage costs. According to the CPB, these costs increased because state support was extended for too long (until the beginning of 2022) and was also poorly targeted.
Dzambo and Erken also see that the coronavirus relief has changed business dynamics. In another recently published study, the two researchers observed a growth in the number of companies with, among other things, high debt, low turnover and little or no profits.
Tight labor market
The fact that these underperforming companies have been kept afloat by corona support puts even more pressure on the already historically tight labour market we are currently facing, says Dzambo. “A company with such poor performance is holding back staff, while there are plenty of innovative companies looking for people.”
It is therefore not without reason that the researchers, in their latest study on the increasing number of bankruptcies, recommend restraint in reintroducing state aid in these “normal” times. In the Netherlands, it is “essential” to get innovation and productivity going again, the researchers write. To achieve this, we must allow poorly performing companies to collapse and make room for productive companies, they argue.
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