The Netherlands

   

Economic Policies

#4
Key Findings
Buoyed by years of stable growth, 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.

The Dutch economy has grown steadily and robustly in recent years. Unemployment rates are low and falling, although youth unemployment remains somewhat of a concern. Business dynamism is strong, while infrastructure, labor-force skills levels, product-market efficiency and innovation capabilities are all areas for potential improvement.

The labor market has shown an increasingly two-tier nature, with young people often in “flexible” jobs that lack employment protections. Real wages have been flat despite the economic growth. As a consequence, political debate has turned increasingly toward issues of inequality and stagnating middle-class incomes.

The government has posted small budgetary surpluses for a number of years. State debt has declined to less than 50% of GDP. Budgetary risk-assessment procedures have been delayed despite the growing economic risks from Brexit and trade conflicts. Government R&D expenditure is rising.

Economy

#6

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 grew by 2.8% in 2018, the sixth consecutive year of considerable positive economic growth. Overall, conventional indicators of the economic cycle are performing well – indeed, they are the highest among EU member states, according to the World Economic Forum’s Global Competitiveness Report (GCR) 2019. Trust indicators for business and consumers have declined from a peak in early 2018, but (in December 2018) are still quite optimistic.

The economy’s international standing has been steady, with the Netherlands ranking fourth out of 141 countries in the 2019 GCR, only behind Hong Kong, the United States and Singapore. The Netherlands scores highly in the areas of macroeconomic stability, health, infrastructure quality and business dynamism. However, its performance has slightly declined with respect to infrastructure, labor-force skill levels, product-market efficiency (especially the complexity of tariffs) and innovation capability.

In sum, although the Netherlands was caught in a long-term slump, strong economic recovery since 2013 has now led to a booming economy. Nevertheless, in terms of the euro zone, Dutch economic performance is average. Political debate on economic policy has turned strongly toward issues of inequality, and especially the well-documented fact that in spite of the country’s satisfactory macroeconomic performance and well-balanced state budget, Dutch households have yet to experience serious improvements in recent years with regard to consumption spending and quality of life.

Citations:
Sociaal en Cultureel Planbureau (2018). De sociale staat van Nederland 2018.(consulted 31 October 2019)

Schwab, K. (ed.). The Global Competitivenss Report 2017-2018, World Economic Forum, 2019 (consulted 31 October 2019)

Macro Economische Verkenningen (MEV) 2019 (CPB.nl, consulted 10 October 2019)

Verbruggen, J., and Jeus, P. (2018). Nederlandse economie middelmoten in eurotijdperk, Economisch-Statistische Berichten, Blog, 8 February 2018.

Labor Markets

#6

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
8
In July 2019, 3.3% of the working population was unemployed, down from 3.9% the year before. The youth unemployment rate was 8.9% in June 2017, declining to 7.2% in July 2018. Nevertheless, some observers consider youth unemployment to be a serious threat to the country’s long-term prospects. An estimated 138,000 young people are not in education or employment. Youth unemployment rates are twice as high among those without an official qualification and among those with a migration background. A large proportion of those young people lack a basic level of literacy, computer literacy or technical craft skills. Better educational and school-to-work transitional arrangements 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 protection and have little to no job security; and high levels of workplace pressure. Although the proportion of fixed jobs surpassed flexible jobs in 2017, the flexibilization of jobs remains a highly salient trend. As of 2018, the ratio of flexible to fixed jobs was 40% flexible to 60% fixed, while in 2003 it was 25% to 75%. The majority of 15- to 25-year-old employees work flexible jobs, with a ratio of 27:73 in 2018, compared to 45:55 in 2003. In Europe this makes the Netherlands an outlier in terms of work flexibilization. This “dualization” of the labor market between well-protected older workers and less protected younger ones is attributed to government policy; for firms, flexible workers are financially much more attractive (ceteris paribus by as much as 7% in labor costs) than are workers with fixed contracts. An OECD report judges the Dutch labor-market situation as being problematic in the long run, because firms will invest less in the education of their flexible workers, thereby threatening the long-term labor productivity of the economy as a whole. In late 2018, the government established an independent expert commission tasked with designing policies that would align labor law, social security and fiscal policies with a view to redesigning the labor market to benefit all workers in a sustainable national economy.

Citations:
M. Stellinga, Revolutie op de markt voor arbeid, NRC-Handelsblad, 6 July, 2019

CBS, Werkloosheid voor vierde maand op rij 3.9 procent (19 July, 2018)

Nederlands Jeugdinstituut, Cijfers over Jeugdwerkloosheid (nji.nl, consulted 23 October 2018)

OECD, June 2019. OECD Input for the Netherlands Commission for Regulation of Work. (pdf)

Taxes

#11

How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?

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 still addresses the trade-off between equity and competitiveness reasonably well. Looking at average income, pre-taxes in the Netherlands have a Gini coefficient of 0.563 (in 2015), after-taxes (and other redistributive measures) it is only 0.295 (in 2015). However, including wealth, the Gini index jumps to 0.92. 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. Lower-income groups are affected most significantly by indirect taxes and local taxes. Yet, tax pressure for every income group, from low to high, is allegedly 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.

It appears that the general political mood definitively switched 2018 – 2019 from a focus on austerity and budget balancing to one on reducing inequality and unsustainability. The Council of State calculated that collective tax burdens on citizens and firms had increased by 2.7% to 39.6% of GDP since 2015, despite the government’s plans to reduce taxes. All political parties expressed concerns about the stagnation of middle-class incomes, the high rates of taxes on labor, the excessive size of CEO salaries, tax evasion by multinational corporations, and the lack of fiscal incentives for housing, innovation and sustainable (economic) projects.

Corporate income tax for foreign companies – an aspect of the trade-off between horizontal equity and competitiveness – has also come under more intense political scrutiny. An extensive treaty network that encompasses 90 tax treaties aims at protecting foreign companies from paying too much tax, effectively makes the Netherlands a tax haven, a view that even the OECD and the European Parliament have expressed.

Citations:
WRR, Economic inequality in the Netherlands in 8 figures, 2014 (Rijksoverheid, consulted 23 October 2018)

CBS, Parade van Pen: de vermogensverdeling in 2015, 8 July, 2017 (consulted 23 October 2018)

NRC-Handelsblad, 22 June 2019. Wie verliest dit: de VVD, Rutte, de grote bedrijven of de grootverdieners?

NRC-Handelsblad, 15 April 2019. Raad van State: stijgende lastendruk zorgwekkend

Budgets

#3

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
Although budgetary policy has considerably improved over the last few years due to strong economic growth, worries remain over its long-term sustainability. In both 2019 and 2020, there is/will be a projected budget surplus (respectively of 1.2% and 0.3% GDP). Overall government debt is expected to fall to 47.7% of GDP, well under the EU norm of 60%. The long-term structural budget, which showed a surplus of 0.3% GDP in 2019, was projected to shift to a deficit of 0.4% of GDP in 2020 – just inside the maximum allowable deficit of 0.5% of GDP. The government has chosen to change its own rules of budgetary policy by stretching its expense ceiling and income framework due to additional financial burdens deriving from policy successes, including the pension agreement, the climate agreement and the push for more housing and investment. Both the Council of State and the Center for Economic Policy Analysis have criticized the government for its expansive budgetary policy due to the of lack state income from gas sales, and because the government’s extra spending on defense, security, care and education violates the prudential budgetary rule (which states that windfalls may not be used to finance new structural policies). The government, however, views its budgetary policy as an investment in future economic growth. Promised risk-assessment procedures for budget policy have been delayed, despite the serious risk factors in the global economy (Brexit, trade conflicts) and the high probability of a new recession in the near future. The national budgetary system has also been criticized because national budget cuts are proportionally allocated to local-government budgets even though national policy has in recent years burdened local governments with new tasks (e.g., youth and elderly care) without structural budget compensations. Ad hoc nationwide increases have not diminished the volatility of local-government budgets. Overall, local-government budgets will decline despite the lasting period economic prosperity.

From the perspective of democratic and public accountability, the General Accountability Office (Algemene Rekenkamer) has warned since 2016 that an ever-larger share of nationally collected taxes (fully two-thirds in 2019) is actually spent without any parliamentary budgetary oversight. Provincial and local governments, independent public organizations like schools and universities, the police, the executive agency for employee insurances (UWV), the Social Insurance Bank (SVB), other social funds, and the EU all spend tax money under much restricted or fragmented accountability arrangements.

Citations:
Raad van State, 13 September, 2019. Septemberrapportage begrotingstoezicht 2019

VNG, VNG-reactie op de Rijksbegroting 2020. Bijzondere ledenbrief, 24 September 2019

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

Algemene Rekenkamer, 13 July 2016. Inzicht in publiek. geld. Uitnodiging tot bezinning op de publieke verantwoording. (rekenkamer.nl, accessed 8 November 2019)

Research, Innovation and Infrastructure

#10

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 2019, the European Innovation Scoreboard has the Netherlands as an innovation leader, ranked fourth after Sweden, Finland and Denmark. The country was additionally ranked fourth out of 141 countries in the World Economic Forum’s Global Competitiveness Report 2019, and was the most competitive in Europe.

Direct government expenditure on R&D is increasing, but lags behind the projected rise in gross domestic product. Direct government expenditure on R&D rose from €5.0 billion in 2017 to €5.6 billion in 2018, and is forecast to remain at around €5.5 billion over the medium term. Despite this increase, it is expected to fall after 2018, from 0.67% of GDP in 2017 to 0.65% in 2023. This is because budgeted government spending on R&D is not growing as fast as the economy. Between 2014 and 2017, government, the business enterprise sector and other investors together spent a total of 2.0% of GDP on R&D. Direct government R&D expenditure is in line with the average for the EU-28 (the entire EU), but lower than a number of reference countries such as Germany, Switzerland and the Scandinavian countries. To achieve the target of 2.5% of GDP by 2020, both the public and the business enterprise sectors will have to invest more. For the first time since 2010, research-specific program funding for applied research organizations has increased, thanks to investments provided for under the coalition agreement. TNO’s program funding has shown the sharpest increase. Other policy-driven research expenditure is also increasing, mainly owing to additional funding from the Ministry of Economic Affairs and Climate Policy. However, the size of the expenditure (€875 million in 2019) is nowhere near the €1.1 billion spent in 2010. Compared with other OECD countries, a large proportion of government support for R&D consists of tax-based measures (0.17% of GDP). In addition to the national government, the European Union plays an important role in funding R&D and innovation. Researchers affiliated with Dutch institutions have so far received more than €3 billion in funding from the EU’s Horizon 2020 Framework Program, in the range of €600 million to €700 million per year.
All in all, it is unclear whether the Netherland’s R&D performance is due to government policies (coordinated by the Ministry of Economic Affairs and Climate). The country’s policymakers aim to ensure that the Netherlands is 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). Total expenditure on R&D as a percentage of GDP is stuck at 2%, lower than the EU target of 3%.

Citations:
Rathenau Instituut, Voorpublicatie Totale Investeringen in Wetenschap en Innovatie (TWIN) 2017-2023, (rathenau.nl, accessed 1 November, 2019)

European Commission, Innovation Union Scoreboard 2019 (ec.europa.eu, accessed 1 November 2019)

World Economic Forum,The Global Competitiveness Report 2018 (reports.weforum.org, accessed 24 October 2018)

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

#16

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 System
7
The Netherlands is slowly but surely losing its position in the important bodies that together shape the global financial architecture. In EU policymaking in the past, the Dutch tended to agree with the UK position in principle, but follow the German position in practice. After all, as a small but internationally significant export economy, the Dutch have a substantial interest in a sound international financial and legal architecture. However, given the wave of political skepticism toward international affairs, as exemplified by no-votes in the EU constitution and the 2016 Ukraine referendums, the Dutch have until recently been regarded more as reluctant followers than as proactive initiators or agenda setters. However, threatened now by inegalitarian American-style capitalism and Chinese post-totalitarian state capitalism, the EU has become increasingly important to its member states’ political self-defense. In 2019, Dutch policymakers too rather suddenly adopted this stance, although its translation into policy initiatives has remained slow and somewhat hesitant. Nevertheless, after a decade or so, they finally seem ready to support a stronger Europe.
Recent statements by Prime Minister Rutte (Conservative Liberal, VVD) regarding Macron’s plans for revitalizing the EU project clearly signal increased rapprochement with the French. Minister of Development and Trade Sigrid Kaag (Liberal Democrat, D66) has openly called for a stronger, more unified EU. The center-right Dutch government openly supported Frans Timmermans’ (Labor Party) failed bid to succeed Jean-Claude Juncker as chair of the European Commission. And even Finance Minister Wopke Hoekstra (Christian Democrat, CDA) has publically advocates for stronger EU, although one under German leadership. Nevertheless, even now that the European Court has ruled that the Netherlands ought to reduce opportunities for international tax evasion, Hoekstra has been reluctant to deal with gross inequalities in the fiscal treatment of foreign and domestic capital. In addition, he has ignored an advisory report by the Scientific Council of Government Policy (WRR) opining that the Dutch government did not intervene strongly enough after the financial crisis of 2008, and that it should now create a public savings bank and foster more competitiveness in the sector overall.

Citations:
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.

Financieel Dagblad, 9 September 2019., Minister Kaag: “Dit is het moment waarop de EU haar vleugels moet uitslaan”

NRC-Handelsblad, 24 May 2019., Was het de PvdA of was het Frans Timmermans?

NPO, 7 May 2019, Hoekstra wil leidende rol voor Duitsland in gemoderniseerde EU.

NPO, 17 January 2019, ‘Evenwicht geldstelsel verstoord, vrees voor zeepbellen en nieuwe crisis’
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