The story of poverty, growing debt, and billions of dollars in aid

The story of poverty, growing debt, and billions of dollars in aid

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  • Andre Minima

    Economy Reporter

  • Andre Minima

    Economy Reporter

Inflation is rising significantly and remains very high at the moment, despite the European Central Bank raising interest rates. In October inflation was 16.8 percent, in September it was 17.1 percent, turned on Monday. Slight reduction in life that is still expensive.

More and more families are experiencing financial hardship due to high inflation and are falling into poverty. An estimated 640,000 families are currently experiencing debt problems. This is 20,000 more than a year ago. According to economists at ABN Amro, another 30,000 households will be added by 2023.

These families reduce their daily shopping and no longer pay energy and health insurance bills. Special support measures such as energy surcharges, a discount on the energy bill, an increase in state pension and benefits and a minimum wage of ten percent help these families just a little bit.

The bulk of these 640,000 families suffer from problematic debts and tax arrears related to the Corona crisis and the non-payment of tax authorities. Tens of thousands of families added in the last year are at the forefront of inflation, who often have large payment arrears.

problematic debts

This is clear from the numbers from collection agencies. In the first nine months of 2022, more than 320,000 arrears were transferred from health insurance companies to collection agencies, an increase of 17 percent over the previous year. “Debt problems often start with health insurers’ arrears, because those debts seem more abstract and more significant than, say, rent arrears,” says economist Pete Reitman of ABN Amro.

“Because we do not expect to pay off the tax debts as a result of the corona quickly, while the number of debts with the health insurance company is increasing, the number of bad debts will be about 10 to 15 percent above the 2021 level at the beginning. Next year.”

Inflation is making families poorer, especially with the current hyperinflation. For the euro, you get less, your purchasing power decreases, and it becomes more and more difficult to get the family book right. For families who live around the social minimum, which is the minimum required for subsistence, so with an advantage, only AOW or low and irregular incomes, high inflation is more difficult.

Energy bills generally represent a much larger share of the disposable income of low-income and social minimums than for high-income families. In the lowest income category, the energy bill 14 percent of the budget, for middle- and high-income earners it’s only 5 to 8 percent.

“We also don’t really know who ends up in debt and how, but it usually is: the lower the income, the higher the debt,” Reitman says. “By the way, not all low-income people get into trouble and there are also middle-income people who do.” According to Reitman, the problem is mainly structurally low income. “A lot of families have too little fat on the bones and can’t stand adversity.”

cold feet

Meanwhile, Klaas Knott, the head of the International Monetary Fund and the DNB, warned of too much non-meaningful and public support. Their reasoning is that a large amount of aid money encourages spending and buying, and increases price demand. Reitman calls this fear of cold: “Family income has only a small effect on inflation, and for low-income people this is less important. Inflation has little to do with purchasing power and income.”

He points to the debate about the danger of a wage and rising wage spiral that leads to higher prices. “In Belgium, they have known automatic price compensation for years, and wages that increase regularly in line with inflation, but this has never led to a frightening price spiral.”

The support package should restore purchasing power from 2023, albeit by only a percentage point, which is thin ice for vulnerable households. And the significant drop in purchasing power this year, expected to be 7 percent, will not be reversed or fixed; Families are poor and still in decline.

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