The Netherlands

   

Economic Policies

#4
Key Findings
With recession finally well behind it, the Netherlands falls into the top ranks internationally (rank 4) for its economic policies. Its score on this measure has gained 0.7 points relative to 2014.

After a long-term slump, the Dutch economy is now booming, with all conventional economic indicators above their long-term averages. Short-term challenges include the potential impact of Brexit, inadequate transport infrastructure and an emerging labor shortage.

Unemployment rates are low. Labor-market weaknesses include low employment rates among migrants and a growing dual labor market separating secure from precarious jobs. The progressive income-tax system balances equity and competitiveness well, though some inequality is masked by women working longer hours to fill in household incomes.

Budget deficits have declined to very low levels, while public debt is decreasing slightly from moderately high levels. Public debate has shifted away from austerity and toward investments in infrastructure and knowledge. The R&D sector is strong.

Economy

#3

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
9
The Dutch economy is booming. All conventional indicators of the economic cycle are performing better than their long-term averages. Prognoses by the government, major banks, and the Dutch Center for Economic Policy Analysis are continuously corrected upward.

The international situation of the economy improved, with the Netherlands ranked 4 out of 138 countries in the Global Competitiveness Index 2016-2017, overtaking Germany. The Netherlands scores highly for higher education and training, world-class infrastructure, health and primary education, goods-market efficiency, and technological readiness. The World Economic Forum praises the country for its new Work and Security Act, which attempts to improve the position of flexible workers and simplifying dismissal procedures. However, there is still fierce political and policy debate about the success or failure of this new act.

In sum, although the Netherlands was caught in a long-term slump, strong recovery has now led to a booming economy. Short-term economic challenges concern the potential impacts of Brexit, inadequate transport infrastructure (commuting, rail and truck transport), and an emerging labor shortage and wage stagnation for a considerable proportion of the working population due to strong job flexibility. A very different interpretation of long-term economic development suggests that traditional cycles of economic growth and recovery are no longer to be expected. Therefore, the Scientific Council for Government Policy (WRR) has urged the government to rethink the Netherlands’ long-term economic structure by investing in future earning capacity so as to expedite innovation and make the economy more resilient in terms of labor productivity and transnational value chains.

Citations:
CBS (2017), Macro-economie (www.cbs.nl, accessed 22September 2017).

Schwab, K. (ed.). Insight Report. The Global Competitivenss Report 2016-2017, Full Data Edition, World Economic Forum, 2014

WRR (2013), Naar een lerende economie. Investeren in het verdienvermogen van Nederland, Amsterdam University Press

Macro Economische Verkenningen (MEV) 2017 (consulted 20 September 2017)

Labor Markets

#2

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
9
In July 2017, 4.9% of the working population was unemployed. The youth unemployment rate in June 2017 was 8.9%, the lowest level in five years. Yet, some consider youth unemployment a serious threat to long-term prospects. An estimated 138,000 young people are not in education or employment. A large proportion of young people lack a basic level of literacy, computer illiteracy or technical craft skills. Better education and better arrangements for transitions between school and employment are crucial. Other labor market weaknesses include: relatively low labor market participation rates among migrants, especially young migrants; an increasingly two-tiered labor market that separates (typically older) “insiders” with significant job security and (old and young) “outsiders,” who are often “independent workers,” lack employment protect and have little to no job security; and high workplace pressure. In terms of labor market governance, political conflicts between the conservative and progressive liberal parties (VVD, D66, CDA) and the labor-affiliated parties (PvdA, SP, Green Left) have prevented the passage of any genuinely breakthrough labor market policies. The new Work and Security Act phased in since 1 January 2015 aims to strengthen the position of temporary workers, ease dismissal procedures, and shorten the duration of maximum unemployment benefits from 38 to 24 months. At the time of writing, with negotiations over the formation of a new cabinet between four political parties (VVD, D66, CDA, CU) still pending, the jury is still out on whether or not this law will be maintained or repealed. Given the economic boom, many Dutch employees are expecting a wage increase, on top of a (largely invisible) increase in purchasing power (+4.9% in 2016, the largest increase in 15 years) due to zero-inflation and considerable tax reduction measures.

Citations:
CBS, De Nederlandse Economie, Den Haag, 2016

Arbeidsfit%20-%20Platform%20Overheid.webarchive (consulted 27 September 2017)

“Waarom werkgevers u een loongolf gunnen,” NRC-Handelblad, 26 September 2017

“Het is een verlengde proeftijd geworden,” NRC-Handelsblad, 3 October 2017

Taxes

#7

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
7
Taxation policy in the Netherlands addresses the trade-off between equity and competitiveness reasonably well. Pre-taxes the Netherlands have a Gini coefficient of 0.563 (in 2015), after-taxes (and other redistributive measures) it is only 0.295 (in 2015). The Netherlands has a progressive system of income taxation which contributes to vertical equity. In general, income tax rates range between 30% for lower and 52% for higher income levels. There is a separate tax for wealth. Indirect taxes and local taxes hit lower income groups most. Yet, tax pressure for every income group, from low to high, allegedly is approximately 37%. Yet, partly as a result of ad hoc measures to alleviate crisis impacts, the tax system loses credibility because of its increasingly unequal treatment of different groups. For example, between self-employed and employed workers, between entrepreneurs operating as sole traders or private limited companies, between single-parent families and families where both parents earn a living, and between small savers and the very wealthy. There is more inequality than meets the eye. In particular, middle-income families only manage to make ends meet because women are working more; increasing the number of hours worked per household and the female labor participation rate.

The Dutch state is taking a number of measures designed to ease budget pressures, including a gradual decrease in allowable mortgage-interest deductions, a decrease in health care and housing-rent subsidies, and a gradual increase of the pension-eligibility age to 67. Under strong pressure from opposition parties, the Rutte II cabinet intended to further simplify the tax system. However, this plan was postponed until after the 2017 elections. Due to the considerable increase in local governments’ implementation responsibilities, a possible shift from national to local taxes has been added to the tax-reform agenda.

Corporate income tax for foreign companies – an aspect of the trade-off between horizontal equity and competitiveness – has also come under political scrutiny. An extensive treaty network that encompasses 90 tax treaties aims at protecting foreign companies from paying too much tax, effectively making the Netherlands a tax haven. After tax scandals involving Google and Starbucks, and increasing pressure from the OECD and the European Commission to reduce treaty shopping and transfer pricing, the Dutch government will gradually have to change these corporate-tax laws for foreign companies.

Citations:
CBS, Nederland in 2016. Een economisch overzicht, Den Haag/Heerlen, 2015, pp.31ff

“Meer belasting gemeenten kan en helpt de democratie, in NRC-Handelsblad, 9 April 2015

NRC- Handelsblad, ‘We hebben een geloofwaardig stelsel nodig’
Date: 17 September 2016

NRC-Handelsblad, “Multinational betaalt fors lagere winsttaks,” 7 July 2017

“Is Nederland immuun voor het Piketty-scenario? Wat gelijker lijkt blijkt schijn te zijn” De Groen Amsterdammer, 27 September 2017

NRC-Handelsblad, “Fiscaal genieten? ~Kom naar Nederland, July 11, 2017.

Budgets

#9

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
9
Budgetary policy was sound prior to 2008. The economic crisis, however, has put severe pressures on the government budget. In 2012 the government came €0.10 short on every €1 of expenditure. The national balance switched from a surplus in 2008 to a deficit of 4.1% of GDP in 2012, 0.3% higher than expected. Between 2008 and 2014, the Dutch government followed neoliberal austerity policies to the letter, carrying out several series of tax increases followed by expenditure cutbacks. From 2015 to 2017, the Dutch budget deficit decreased from 2.2% to 0.5% of GDP. During the same period, government debt decreased slightly to 66.2% in 2012 to 62% in 2016.

All in all, the sustainability of state finances has improved over the last few years. Although state income from gas exploitation decreased even more, higher tax and premium income compensated for this loss. For the first time in years, no further austerity measures were announced in September 2014. In 2017, the government allocated €1.5 billion to improve purchasing power for all (whether employed, unemployed, in education or training, or retired), and another €1.5. billion on security, education and care. Public debate is no longer focused on new austerity measures and the reduction of state debt, but on how to balance fiscal sustainability with new investments in infrastructure and knowledge, for example, through a dedicated invest fund.

Citations:
Miljoenennota 2017 (rijksoverheid.nl, accessed 27 September 2017)

NRC-Handelsblad, “10 miljard om Nederland te verbeteren,” 16 August 2017

D. van Wensveen, “De noodzaak van een fonds voor infrastructuur en kennis,” Me Judice, 18 April 2017

R. Gradus and R. Beetsma, “Houdbaarheidssaldo uitstekend kompas voor begrotingsbeleid,” Me Judice, 5 September 2017

Research and Innovation

#8

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
9
In 2017, the European Innovation Scoreboard had the Netherlands as an innovation leader, ranked fourth among the top-six countries (jointly with Switzerland, Denmark, Germany, Finland and Sweden). The Netherlands ranked 4 out of 138 economics in the World Economic Forum’s Global Competitiveness Report 2016 – 2017 and was the second most competitive economy in Europe. Since 2010, Dutch innovation capacity has increased by 10.4% compared to the EU average. On the specific issue of sustainable competitiveness, in 2015 the Netherlands was given sixth place. The Netherlands scores above average in terms of open, excellent and attractive research systems, as well as in scientific-publication output, finances and support. Its weakness is in financial market development (with low scores for perceived efficiency, and confidence and trust in the financial sector), sales and intellectual assets.

It is unclear whether his national R&D performance is due to government policies (coordinated by the Ministry of Economic Affairs). The country’s policymakers aim to secure the Netherlands a place as one of the top five global knowledge economies, and to increase public and non-public R&D investments to 2.5% of GDP (€650 billion). The most recent figures, compiled by the Rathenau Institute, forecast a stop to the decrease in total government R&D expenditures. However, to achieve the aim of 2.5% GDP annual public-private investment in R&D by 2020 a structural increase of €5.5 billion is necessary.

Dutch policies used to focus on the reduction of coordination costs in creating public/private partnerships. In addition, there were substantial amounts of money in innovation credits for start-up companies and R&D-intensive SMEs – four to five times as much as for larger companies. SMEs struggle with obtaining access to bank credits and navigating their way through a maze of regulatory details in obtaining state funds for innovation. Since 2011, national R&D has focused on nine economic sectors identified as a top priority. A special innovation fund for SMEs remains in place.

Citations:
Rathenau Instituut, Voorpublicatie Totale Investeringen in Wetenschap en Innovatie (TWIN) 2015-2021, rathenau.nl, accessed 27 september 2017

European Commission, Innovation Union Scoreboard 2017 (ec.europa.eu, accessed 27 September 2017)

World Economic Forum,The Global Competitiveness Report 2016 (reports.weforum.org, accessed 1 November 20916)

D. Lanser en H. van der Wiel (2011), Innovatiebeleid in Nederland: de (on)mogelijkheden van effectmeting, CPB Achtergronddocument (www.cpb.nl/sites/default/files/publicaties/download/cpb-achtergronddocumenten)

Global Financial System

#14

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
7
The Intervention Bill, which came into effect in June 2012, includes new powers for the Netherlands’ central bank and minister of finance. The bill grants the former the power to oversee the transferal of a bank or life-insurance company experiencing serious financial difficulty to a third party and it grants the latter the authority to intervene in the affairs of financial institutions in order to maintain systemic stability. As a result, the capital ratio of the four largest Dutch banks has gradually moved toward compliance with the new European capitalization requirements.

Following a parliamentary inquiry into the country’s handling of the banking crisis, the Center for Economic Policy Analysis now annually produces a risk report on financial markets. In 2017, although the government considers increased policy uncertainties in the international political environment a threat, it also observes that it does not (yet) affect the stability of (Dutch) financial markets.

The Netherlands is slowly but surely losing its position in the important bodies that together shape the global financial architecture. In the European Union, the Netherlands is skeptical about stronger financial governance authority in the sphere of financial support (emergency fund) and bank oversight. On the other hand, as a small but internationally significant export economy, the Dutch have a substantial interest in a sound international financial architecture. However, given the new wave of political skepticism toward international affairs, as exemplified by a no-vote in the 2016 Ukraine referendum, the Dutch should be regarded more as reluctant followers than as proactive initiators or agenda setters. Recent statements by Prime Minister Rutte regarding Macron’s plans for the EU project have confirmed this. In addition, the government has been hesitating to deal with gross inequalities in the fiscal treatment of foreign and domestic capital. This may indicate a return to a financial policy agenda driven more by national interests than by broader concern with global financial safety. After all, Amsterdam is joining the race for luring international financial organizations from London to the European continent.

Citations:
CPB Risicorapportage Financiële Markten 2017. Uitgevoerd op verzoek van de Tweede Kamer. CPB Notitie 6 June 2017

Nederlands Instituut voor Internationale Betrekkingen Clingendael, Conferentie “Veranderingen in het multilaterale bestel voor international economisch en financieel beleid. Uitdagingen voor Nederland en Belgie,” 22 oktober 2012, Den Haag.

H. Vollaard et al. (eds.), 2015. “Van aanvallen! naar verdedigen? De opstelling van Nederland ten aanzien van de Europese integratie, 1945-2015, Boom.

Ministerie van Financiën, Beantwoording Kamervragen Nederlandse rol in internationale structuren, 24 August, 2017

NRC.nl, “Macron gaat Rutte net iets te snel,” 26 September 2017
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