swd (2016) 0087 - Ingen titel

Europaudvalget 2016
SWD (2016) 0087
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EUROPEAN

COMMISSION

Brussels, 26.2.2016

SWD(2016) 87 final

COMMISSION STAFF WORKING DOCUMENT

Country Report The Netherlands 2016

Including an In-Depth Review on the prevention

and correction of macroeconomic imbalances

This document is a European Commission staff working document. It does not

constitute the official position of the Commission, nor does it prejudge any such position.

swd (2016) 0087 - Ingen titel

CONTENTS

Executive summary

Scene setter: Economic situation and outlook

Imbalances, risks, and adjustment issues

2.1.

2.2.

2.3.

2.4.

2.5.

2.6.

The large positive trade surplus

The saving and investment perspective on the current account surplus

Real and financial spillovers

Private sector indebtedness

The housing market

MIP assessment

Additional structural issues

3.1.

3.2.

3.3.

3.4.

Taxation, sustainability of public finances and fiscal framework

Labour market, social policies, skills and education

Drivers of growth

Energy, transport and climate policy

Overview table

MIP Scoreboard indicators

Standard tables

LIST OF TABLES

1.1.

1.2.

2.2.1.

2.6.1.

B.1.

C.1.

C.2.

C.3.

C.4.

C.5.

Net lending/borrowing by sector

Key economic, financial and social indicators

Income statement of non-financial corporations (2014)

MIP assessment matrix (*) - Netherlands

The MIP scoreboard for the Netherlands

Financial market indicators

Labour market and social indicators

Labour market and social indicators (continued)

Structural policy and business environment indicators

Green growth

swd (2016) 0087 - Ingen titel

LIST OF GRAPHS

1.1.

1.2.

1.3.

2.1.1.

2.1.2.

2.1.3.

2.2.1.

2.2.2.

2.2.3.

2.2.4.

2.2.5.

2.2.6.

2.2.7.

2.2.8.

2.2.9.

2.2.10.

2.2.11.

2.2.12.

2.2.13.

2.3.1.

2.3.2.

2.3.3.

Real GDP and contributions

Labour market developments

Natural gas production and revenues

Breakdown of external position (current and capital accounts)

Trade balance in goods per continent

Imports and exports of services (2014)

Net lending/borrowing per sector

NFC saving, investment and net lending

Saving per sector

Use of net saving, NFCs

Net distributed income ratios (2012-2014 average)

Corporate income tax burden for NFCs (2014)

Household saving and investment rates (% of disposable income)

Household balance sheets

Pension fund assets over time

Investment per sector

Gross capital formation by type

Credit conditions

Net international investment position by sector

Exports in value added by destination (2011)

Imports by country of origin (2013)

Consolidated assets of domestic credit institutions: international claims on immediate

borrower basis

2.3.4.

2.4.1.

2.4.2.

2.4.3.

2.4.4.

2.4.5.

2.4.6.

2.4.7.

2.4.8.

2.4.9.

2.5.1.

2.5.2.

2.5.3.

2.5.4.

2.5.5.

2.5.6.

3.1.1.

EU bank claims on the Netherlands, by sector

Private-sector debt in the Netherlands and the EU

Household debt ratios

Average housing equity (main residence) per age cohort

Balance sheet of the non-financial sector

Credit demand and supply, loans to NFCs

Debt/GDP ratio change and contributions for NFCs (consolidated)

Leverage of NFCs

NFC loan interest and implicit yield

Balance sheet repair, Non-financial corporations (non-consolidated)

Evolution of house prices and number of transactions

Overvaluation gap with respect to main supply and demand fundamentals

Housing price index year-on-year growth in %, Q3 2015

User cost of owner-occupied housing and contribution of taxes

Top marginal tax rate for MID

Construction permits issued for rented apartments

Compulsory payment wedge, single person earning the average wage (2014)

swd (2016) 0087 - Ingen titel

3.1.2.

3.2.1.

3.2.2.

3.2.3.

3.2.4.

3.2.5.

3.2.6.

3.2.7.

3.2.8.

3.2.9.

3.2.10.

3.3.1.

3.3.2.

3.3.3.

3.3.4.

Debt profile 2011-2026

Main labour market developments

Unemployment and long-term unemployment

Long-term unemployment (LTU) of specific groups

Inactivity trap for single earner at 50% of average wage

Employment by type, year-on-year changes

OECD indicators on employment protection legislation (2013)

Change in self-employed and self-employment as a share of total employment

Take-home pay and labour costs for employees and the self-employed

Poverty and social inclusion

Education indicators

GDP per hour worked (2014)

Labour hoarding in the early phase of the crisis

Productivity per sector (2014)

R&D expenditure by sector (2014)

LIST OF BOXES

1.1.

1.2.

2.4.1.

2.5.1.

Investment challenges

Contribution of the EU budget to structural change

Consumer insolvency

Mortgage interest deductibility reform in the Netherlands

swd (2016) 0087 - Ingen titel

EXECUTIVE SUMMARY

This country report assesses the economy of the

Netherlands in the light of the European

Commission’s Annual Growth Survey published

on 26 November 2015. The survey recommends

three priorities for the EU’s economic and social

policy in 2016: re-launching investment, pursuing

structural reforms to modernise Member States’

economies, and responsible fiscal policies. At the

same time, the Commission published the Alert

Mechanism Report that launched the fifth annual

round of the macroeconomic imbalance procedure.

The Alert Mechanism Report identified the

Netherlands as warranting a further in-depth

review.

The economy of the Netherlands still bears the

hallmarks of its post-crisis experience.

While the

initial fall in economic output in 2009 was sharp

and driven by a collapse in foreign trade and fixed

investment, a short-lived recovery set in from 2010

onwards that was punctuated by a renewed decline

in GDP in 2012 and 2013. Private consumption

declined alongside fixed investment, aggravated by

the pronounced downturn in the housing market

from 2010 onwards and by rising uncertainty

regarding pension benefits and contribution levels

in the country's large second pillar pension system.

The scars of the recent crisis still remain visible in

households spending and fixed investment levels,

which in the fourth quarter of 2015 remained 3 %

and 5.5 % below their respective pre-crisis peaks.

The economic recovery is firming thanks to

stronger domestic demand growth.

Following

the contraction in real GDP in 2012 and 2013,

positive growth of 1.0 % was recorded in 2014 and

is projected to have accelerated to 2.0 % in 2015;

this growth rate is expected to be maintained in

2016 and 2017. Rising economic confidence, faster

wage growth and a housing market recovery are

expected to boost domestic demand growth via

private consumption and investment. While the

labour market continued to improve in 2015,

inflation remained very low, but is expected to

pick up in the medium term.

The housing market has contributed to a range

macroeconomic

imbalances.

Owner-

occupancy rates have tended to be high in the

Netherlands, and this tenure type has long been

encouraged by the full tax deductibility of

mortgage interest payments. This resulted in a

proliferation of interest-only mortgages in the pre-

crisis years, granted to borrowers at very high

loan-to-value ratios, creating a strong debt bias that

drove up household indebtedness to around 120 %

in 2009; although receding gradually, the debt

legacy persists. The protracted downturn in house

prices also affected household spending and wealth

and amplified macroeconomic volatility during the

crisis. As households resorted to greater

precautionary saving and scaled back residential

investment activity, the household became a

growing source of net saving between 2009 and

2014. In turn, this form of household deleveraging

is the principal reason for the rise in the current

account surplus in recent years.

The outlook for the housing market is positive,

which

may

reduce

macroeconomic

vulnerabilities.

A broad improving trend is visible

in house prices, transaction volumes and housing

investment. Rising house prices may cause

positive wealth effects for household spending and

investment, and will progressively lift affected

households out of negative housing equity

(‘underwater mortgages’), thereby reducing their

financial loss in case of a forced home sale.

Although a housing market recovery is also likely

to be accompanied by rising mortgage lending,

stricter mortgage lending rules are likely to curb

the potential for renewed excesses.

Public

finances

weathered

the

crisis

comparatively well, but face new challenges.

Multi-annual budgetary planning permitted fiscal

policy to take a medium-term view on fiscal

consolidation needs, and ensured a correction of

the previously excessive government deficit by

2013; in the following two years, the government

deficit is estimated to have remained broadly

stable at around -2.25 % of GDP. However, public

investment levels fell by almost 1 pp. of GDP

between 2009 and 2014, and have not arrested

their decline yet. While plans for an ambitious

reform of the Netherlands' tax system have not

been put into action, the gradual economic

recovery prompted the government in 2015 to

adopt measures to boost disposable income from

employment via a EUR 5 billion (0.7 % of GDP)

package of unfinanced tax reductions. The

Netherlands' position as the largest natural gas

producer in the EU has kept foreign energy

dependency low and boosted public finances, but

safety concerns in extraction regions have caused

production to be progressively scaled back in

swd (2016) 0087 - Ingen titel

Executive summary

2015. In combination with currently low energy

prices, this is likely to reduce fiscal revenues from

gas production in the medium term.

Overall, the Netherlands has made limited

progress in addressing the 2015 country-specific

recommendations.

Limited progress has been

made in raising public and private R&D

expenditure, while some progress has been made

in reforming housing market rules. In particular,

some progress has been made in ensuring a more

market-based pricing mechanism in the rental

market, and substantial progress in relating income

to social rent payments in the social housing

sector. By contrast, the gradual phasing out of

mortgage interest deductibility has not been

speeded up. Limited progress has been made on

the recommendation concerning the pension

system, as the government has committed to

reforms and initiated consultations, but has not

presented concrete reform proposals or legislative

plans. Regarding the progress in reaching the

national targets under the Europe 2020 Strategy

(see also Annex A), the Netherlands is performing

well in employment rate, reducing greenhouse gas

emissions, energy efficiency, reducing early school

leaving and tertiary education attainment, while

more effort is needed in R&D investment,

renewable energy, and reducing poverty.

The main findings of the in-depth review in this

country report, and the related policy challenges,

are as follows:



The current account continues to show a

marked surplus.

The Netherlands has a

prominent role as a transit point and re-exporter

and the positive trade balance in goods, which

rose to 12 % of GDP in 2014, accounts for the

entirety of the current account surplus. The

steady rise in the current account surplus since

2009 was mainly driven by the fall in domestic

investment, particularly in construction, and

rising household savings following the

financial crisis. Furthermore, a falling fiscal

deficit also contributed to pushing the current

account surplus to well above its long-term

average in recent years.



Surpluses in the non-financial corporate

sector explain the high level of the current

account surplus, but not its increase.

Rising

saving levels in the corporate sector played

only a minor role in driving up the current

account in recent years, while corporate

investment has not had a significant influence

on the external surplus. High corporate savings

are rooted in low levels of profit distribution,

and are typically channelled into share

buybacks and the acquisition of equity assets.

The low levels of corporate profit distribution

appear linked to the location of many large

multinational enterprises in the Netherlands;

the quantitative impact of the ‘headquarters

effect’ on the current account surplus is likely

to be considerable. The attractiveness of the

Netherlands for corporate head offices stems

not only from favourable structural factors,

such as proximity to large markets, the quality

of the labour force and a supportive business

environment, but also from favourable legal

and taxation frameworks.



Investment declined strongly during the

crisis and has recovered only partially since.

The weakness in economy wide-investment

appears to have a strong cyclical character, and

was driven by a downturn in the housing

market as well as fiscal consolidation choices.

While barriers to investment seem to be minor,

low investment in the construction sector and

in renewable energy appears linked to market

uncertainty and regulatory factors. In spite of

improving credit conditions, risks to credit

creation are heightened in the current financial

environment.



The large second pillar of the pension system

plays a central role in shaping household

finances and the household saving rate.

The

rise in recent years in the household saving rate

was partly due to higher saving in the second

pillar of the pension system (mandatory

supplementary private schemes), to which the

regulatory environment contributed. Overall,

the pension system performs well in terms of

quality and adequacy, but has drawbacks in

terms

intergenerational

fairness,

transparency and flexibility. As second pillar

pension contributions are high but tend to

fluctuate in line with financial market

performance, they may affect households’

spending decisions in a pro-cyclical manner.

swd (2016) 0087 - Ingen titel

Executive summary



Levels of private sector debt remain high.

High household debt levels have been driven

by the build-up of mortgage debt favoured by

tax incentives, but household debt ratios are

showing signs of decline. A large number of

households, especially younger ones, are still in

negative housing equity. High mortgage loan-

to-value and loan-to-income ratios persist, but

are likely to fall gradually due to regulatory

action and the rising share of amortising

mortgages. In addition to a high financial

burden from taxation and mortgage debt,

households face relatively high pension

contributions. Although households’ financial

distress has risen in recent years, it remains

limited and has begun to stabilise. Corporate

debt indicators suggest falling leverage ratios.



The tax treatment of owner-occupied

housing remains generous and encourages

mortgage borrowing.

Although rules on

mortgage interest deductibility have been

revised to make them progressively less

favourable, the reform reduces the effective

subsidy to debt-financed home ownership only

to a limited extent. In conjunction with more

stringent mortgage lending guidelines, the

reforms may nonetheless slow further mortgage

debt build-up as the housing market recovers.



Inefficiencies remain in the social housing

sector.

The social housing sector is relatively

large compared to other EU Member States.

The joint problems of social tenants whose

income exceeds the qualifying threshold

(scheefhuurders) and scarcity of social housing

are causing long waiting lists and are being

tackled only slowly. Moreover, the financial

attractiveness of owner-occupancy and social

housing partly accounts for the underdeveloped

private rental market.



Demand spillovers to other euro area

Member States are likely to be moderate.

This is primarily due to the small size of the

economy relative to the euro area, which also

limits its contribution to the aggregate euro

area current account surplus to 0.6 pp. of euro

area GDP. However, economic developments

in Germany affect the Netherlands, given their

strong trade ties. External financial exposure

remains relatively large, but has

decreasing substantially since the crisis.

been

Other key economic issues, which point to

particular challenges facing the economy are the

following:



The total tax burden on labour is high, but is

being addressed by policy measures.

A high

tax burden on labour can create disincentives to

work, especially for the low-skilled and second

earners. The authorities have introduced a large

package of tax cuts in 2016 (0.7 % of GDP) to

lower the tax burden on labour; its impact on

growth and employment is expected to be

positive.



Rising long-term unemployment and

potential segmentation of the labour market

are of concern.

Total employment rose

steadily and the unemployment rate continued

to decline in 2015. However, long-term

unemployment was still rising in 2015, and

employment gains were concentrated in

temporary contracts and self-employment. Low

transition rates from temporary to permanent

contracts pose a risk of labour market

segmentation. Self-employed workers are more

often

under-insured

against

disability,

unemployment and old age, which could affect

the sustainability of the social security system

in the long run. Age, skill levels and migration

background are found to be important

determinants of labour market outcomes. In

this context, the labour market integration of

refugees and migrants poses a challenge.



In spite of the strong scientific base,

research and development (R&D) spending

is lower than that of top performers.

The

strong education system and scientific base of

the Netherlands provides a sound basis for

boosting innovation and growth capacity via

education and R&D activities. Private

investment in R&D remains fairly low, while

public investment in R&D is set to decline.

Shifting public expenditure towards growth-

friendly areas such as R&D and improving

conditions to unlock private R&D investment

has the potential to improve the Netherlands’

long-term growth potential.

swd (2016) 0087 - Ingen titel

SCENE SETTER: ECONOMIC SITUATION AND OUTLOOK

situation

and

The

macroeconomic

developments

workers’ (

). This has led to a relatively slow

decline in the unemployment rate.

Graph 1.2:

Labour market developments

The economy is recovering from a prolonged

recessionary episode in the wake of the global

financial crisis.

Following the contraction in real

GDP in 2012 and 2013, the economy returned to

growth of 1.0 % in 2014 and 1.9 % in 2015. The

recovery is almost entirely driven by domestic

demand, fuelled by real wage growth, upbeat

consumer sentiment and rising housing prices.

Investment growth was dynamic throughout 2015

and helped to ensure positive GDP growth, albeit

at moderate rates, in each quarter. The

Commission 2016 winter forecast projects growth

of 2.1 % in 2016 and 2.3 % in 2017.

Graph 1.1:

Real GDP and contributions

9400

9200

9000

8800

8600

1000s of persons

forecast

(annual

average)

8400

8200

8000

7800

7600

pps.

% of pot.

GDP

forecast

Labour force (left axis)

Employment (left axis)

Unemployment rate (right axis)

Source:

European Commission

-1

-2

-3

-4

-3

-5

-6

Output gap (rhs)

Inventories

Gov. consumpt.

Real GDP (y-o-y%)

Source:

European Commission

-2

-4

Net exports

HH consumpt.

GFCF

Long-term unemployment is on the rise.

Its

share in total unemployment increased from just

above 20 % in the fourth quarter of 2009 to more

than 40 % in the third quarter of 2015. Around

40 % of the long-term unemployed are above the

age of 50, compared with 25 % in the EU on

average. There has been a slow adjustment process

after the protracted recession, but there are also

signs that labour market prospects for older

unemployed people are impaired by relatively high

reservation wages, in combination with a lack of

effective

activation

and

reintegration

programmes ( ).

Like other Member States the Netherlands was

confronted with a relatively large inflow of

refugees and migrants.

The Netherlands received

56 900 refugees in 2015, equivalent to 0.3 % of the

total population. At a local level integration may

pose challenges if not managed well, for example

by creating strains on public services. But from a

macroeconomic perspective, in the longer term

(

) Encouraged workers are workers who are now re-entering

the job market since the overall economic situation

improved, encouraging them to start searching for a job

again

(

) De Graaf-Zijl, Van der Horst et al. (2015) ‘Long-term

Unemployment in the Netherlands’

CPB Policy Brief

2015/11,

http://www.cpb.nl/en/publication/long-term-

unemployment-in-the-netherlands.

Although labour market conditions have

improved, the unemployment rate is falling only

slowly.

After three consecutive years of decline,

employment growth turned positive in 2015 and is

estimated to have increased by 0.9 % year-on-year.

Labour supply is increasing due to the continued

rise in participation rates of older people and

women, and because of cyclical developments,

such as the increase in the number of ‘encouraged

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

migration flows could be positive on balance

through their impact on labour supply if they

integrate well in the labour market (

Consumer price inflation is expected to rise

from its currently low rate, although further

exchange rate and oil price volatility is possible.

Inflation as measured by the harmonised index of

consumer prices stood at 0.3 % in 2014 and 0.2 %

in 2015. Upward pressure on inflation is likely to

build during 2016 due to accelerating wage growth

and the closing of the output gap. The tightening of

spare capacity is expected to contribute to inflation

rising to 0.9 % in 2016 and further to 1.5 % in

2017.

The current account surplus of the Netherlands

has been slowly decreasing since 2013 and stood

at 10.3 % of GDP in 2015, based on the

Commission 2016 winter forecast.

Of the euro

area countries, the Netherlands has the largest

current account surplus in terms of GDP. As a

proportion of euro area GDP, the surplus has

fallen, to 0.6 % in 2015, while Germany’s current

account surplus has increased to 2.3 % of euro area

GDP. Structural features of the economy, such as

the port of Rotterdam’s role in transit and re-

exporting and the high number of multinational

enterprises in the country, exert an upward bias on

the Netherlands’s current account. However, the

anticipated firming of domestic demand growth is

expected to dampen the external surplus slightly in

the coming years. The cyclical element of the

current account surplus is estimated to have

declined from 1.6 % of GDP in 2013 to 0.3 % in

2015.

The high current account surplus is the result

of high saving rates of households and the

corporate sector.

Driven by deleveraging

pressures, collective saving in pension schemes

and recovering gross disposable income, the

household saving rate is expected to peak at 4 % of

GDP in 2016. Real disposable household income is

on the rise, thanks to better labour market

conditions, real wage increases and a boost from

fiscal stimulus measures in 2016 (a sizeable tax cut

of around 0.7 % of GDP). With a delay, the

increase in disposable income is likely to feed into

(

) See Box 1.1 A first assessment of the macroeconomic

impact of the refugee influx in

European Economic

Forecast

Autumn 2015. November 2015.

private consumption. This is expected to put

downward pressure on the saving rate of

households. Nevertheless, as a legacy of long-

standing fiscal incentives to debt-finances home

ownership and the credit-driven housing boom that

started in the 1990s, households remain highly

indebted. Deleveraging pressures will therefore

continue to work on the economy, making a rapid

decline in the household saving rate unlikely.

The saving surplus of the corporate sector is

estimated to have been 10.1 % in 2015.

The

corporate sector savings surplus is in part the result

of large retained earnings and dividends received

by multinational enterprises with headquarters in

the Netherlands. Capital flows from overseas

operations push up the net profits of the corporate

sector and — as long as these funds are not

invested in the domestic economy — the saving

surplus as well. Other specific tax structures could

also play a role in explaining relatively high saving

by non-financial corporates (NFCs), such as the

incentives for people who are both directors and

major shareholders to save within the company (

The corporate sector saving rate is expected to

remain high and to decline gradually in 2016 and

2017 in a context of strengthening investment

activity and increasing wage payments.

Table 1.1:

Household

sector

Corporate

sector

Government

sector

Total

net

lending

Net lending/borrowing by sector

2014

3.5

9.5

-2.4

10.7

2.5

10.1

-2.2

10.3

2015

2.6

8.6

-1.8

9.4

2016

1.8

8.5

-1.5

8.9

2017

Source:

European Commission 2016 winter forecast

The headline government deficit is set to

decline, but the structural deficit is likely to

widen.

In 2015 the general government deficit is

estimated to have declined to 2.2 % of GDP. In

2016 and 2017, it is expected to continue to

improve, to 1.8 % and 1.5 % of GDP, respectively.

The improvement in the nominal government

balance stems largely from the recovery of

domestic demand and its positive impact on the tax

base. In 2016, the fiscal cost of the unfinanced tax

(

) See Box 2.2.1 "Balance Sheets of Non-Financial

Corporations" in the 2015 In-Depth Review in the

Commission's

Country Report Netherlands 2015.

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

% of GDP

cut package and lower revenues from natural gas

are expected to limit the improvement in

government finances. The structural deficit is

estimated at 1.2 % of GDP in 2015, and is

expected to deteriorate by 0.5 pp. to 1.7 % in 2016.

The gross government debt ratio is forecast at

66.8 % in 2015, and expected to decrease due to

favourable trends in nominal GDP growth and

relatively low interest expenditure in 2016 and

2017.

Revenues from the sale of natural gas have

declined sharply.

In 2014, gas revenues, including

revenues from corporate taxation, accounted for

EUR 10.5 billion, or 3.5 % of total government

revenue. However, production was cut in 2015 and

following a recent decision by the Council of

State, the highest administrative court, the Minister

of Economic Affairs announced a further large

production cut in 2016 in the Groningen gas field.

This has major budgetary consequences. Gas

revenues are expected to be 0.3 % of GDP lower in

2016 than in the 2016 Draft Budgetary Plan of

October 2015. One third of this decline is due to

the reduction in production volumes, the rest is

driven by lower gas prices. Graph 1.3 shows gas

revenues, expressed as a percentage of GDP, and

total gas production in the Netherlands since 1970.

Revenues from the production of natural gas have

varied considerably in the past. Total production,

on the other hand, appears relatively stable, which

points to gas prices as the more important driver of

revenues. A permanent downward shift in gas

revenues is expected, currently amplified by low

oil prices, which remain an important benchmark

for the price of natural gas.

Graph 1.3:

Natural gas production and revenues

120

3.5

100

2.5

1.5

0.5

Gas revenues (left axis)

Gas production (right axis)

Source:

Statistics Netherlands and CPB

Structural challenges

Overstretched household balance sheets have

worsened the shock-absorbing capacity and

growth performance of the economy.

Section 2

of this report provides an in-depth review of

household debt dynamics, as the Netherlands

stands out as a country with a very high private

debt-to-GDP ratio. This is to a sizeable extent due

to high mortgage debt, which potentially

represents a risk to financial stability, but also has

direct macroeconomic repercussions. High

household debt, in combination with high

compulsory non-tax payments for healthcare and

pensions, may lower households' cash buffers and

increase their vulnerability to income shocks.

Although the economy weathered the initial impact

of the crisis relatively well, the second dip in

growth between 2011 and 2013 was more

pronounced than in many other EU Member

States, as declining house and stock prices gave

rise to negative wealth effects that weighed on

domestic consumption.

The government has implemented important

housing market reforms aimed at reducing

household imbalances, but policy-induced

distortions remain.

In 2013, a set of relevant

housing market measures was introduced,

including a partial and gradual reduction in

mortgage interest deductibility (MID) and its

restriction to fully amortising mortgage loans with

Bln m3

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

a maximum duration of 30 years. Maximum loan-

to-value ratios are being gradually reduced to 100

in 2018 and maximum loan-to-income ratios have

become stricter. Although new buyers are arguably

less vulnerable to shocks, these reforms do not

fully eliminate the substantial tax incentives that

drove up mortgage indebtedness. Furthermore,

mortgage interest deductibility distorts decisions

on whether to buy or rent, potentially creating

allocative inefficiencies. Moreover, given the low

elasticity of housing supply, strong fiscal

incentives to home ownership push up house

prices, thereby fuelling mortgage debt growth and

worsening affordability.

Excess saving in the corporate sector may weigh

on future growth prospects.

The Netherlands is a

large exporter of financial capital to the rest of the

world, as reflected in the large current account

surplus, which is examined in the in-depth review

in section 2 of this report. Compared with gross

corporate savings, corporate investment is low.

Although the activities of multinationals play an

important role, the large savings surplus may also

indicate a lack of investment opportunities in the

domestic economy.

Increasing labour market segmentation may

weigh on the quality of job matching and

productivity growth.

Subsection 3.2 shows that

labour market divisions between permanent and

non-permanent employees, as well as self-

employment, are increasing. In the third quarter of

2015, four out of ten working people held a

temporary contract or worked as self-employed, up

from three out of ten in 2005. The Netherlands is

among the EU Member States with the highest

incidence of flexible work arrangements. Although

flexible labour contracts could increase the

efficiency of the labour market, this may come at

the price of lower overall employment security and

lower incentives to invest in firm-specific human

capital. Transition rates from temporary to

permanent employment have declined, the wage

premium for permanent contracts is large and

long-term unemployment has increased. These are

signs that labour market mobility is stalling, which

could hold back productivity growth.

The Netherlands scores below potential with

regard to some drivers of productivity growth

such as R&D investment.

Subsection 3.3 assesses

structural economic policy settings and analyses

productivity developments. The Netherlands

combines a relatively high level of productivity

with very low post-crisis productivity growth.

GDP per hour worked increased by only 0.2 % on

average between 2008 and 2014. Although trade

integration is high and the business environment is

generally supportive, investment in R&D is

relatively low. Total R&D intensity currently

stands at 2 % of GDP, below the Europe 2020

target and below top performers, which are

countries with a similar level of development. The

Netherlands has a high-quality scientific base and

research infrastructure, and operates at the

‘productivity frontier’ in many sectors. As

productivity improvements at the knowledge

frontier are typically being made through

innovation, boosting investment in R&D has the

potential to pay off in terms of productivity

growth.

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

Box 1.1:

Investment challenges

Macroeconomic perspective

Investment in construction declined relatively sharply in the wake of the housing market crisis.

As in

many other euro area Member States, investment activity in the Netherlands declined in the recession years.

With the collapse of house prices, household investment in dwellings declined particularly sharply.

Corporate investment in equipment was relatively resilient. Public investment peaked in the period 2009-

2011, but declined strongly in the fiscal consolidation phase. Over the course of 2014 and 2015, investment

growth picked up, largely driven by investment in dwellings on the back of improving housing market

conditions. Going forward, according to the European Commission 2016 winter forecast, investment growth

is expected to ease compared to the brisk rates recorded in 2015 as the housing market recovery is expected

to slow down. Relatively healthy growth in exports, increasing corporate value added and the improved

domestic economic environment are expected to continue to fuel investment in equipment, albeit at a slower

pace than in 2015. Above all, the external uncertainties surrounding the investment forecast are large; lower

growth in export markets could lead to the postponement of some domestic investment.

Graph 1:

Investment

4.5

4.3

Public and private investment in % of GDP

Investment by components as % of GDP

4.1

3.9

3.7

3.5

3.3

3.1

2.9

2.7

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

NL private investment (left axis)

EU-28 private investment (left axis)

NL public investment (right axis)

EU-28 public investment (right axis)

2.5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17

NL dwellings

NL equipment

EU-28 dwellings

EU-28 equipment

NL other construction

NL other

EU-28 other construction

EU-28 other

Source:

European Commission (Ameco). Forecasts for 2015-2017 based on a no-policy-change assumption.

Assessment of barriers to investment and ongoing reforms

Overall, the Netherlands faces relatively few regulatory barriers to investment.

Nevertheless, in

particular compared to corporate savings, investment is relatively low. As discussed in section 2.2 retained

earnings and overseas investment by large multinational enterprises explain a substantial part of the savings

surplus.

Private and public investment in R&D is relatively low

[see section 3.3]. Graph 2a shows that R&D

intensity in NL is only around the EU average, well below countries with a comparable level of development

in terms of quality of the labour force or productivity. As R&D expenditure bears a close relationship with

the innovative capacity of a country, investment in R&D has the potential to increase productivity growth, in

particular if it is accompanied with general improvements in framework conditions for productivity growth.

It remains to be seen how effective the ‘top sector’ approach is in increasing private sector R&D efforts. The

announced integration of the Research and Development Allowance (RDA,

R&D aftrek)

into the relevant

law (WBSO,

Wet bevordering speur- en ontwikkelingswerk)

has the potential to improve the policy

(Continued on the next page)

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

Box (continued)

intervention as the RDA becomes more accessible for young innovative companies, and it reduces the dead-

weight loss of the policy instrument.

Some specific sectoral regulation may create obstacles to investment

[see sections 3.3 and 3.4]. The

World Bank, by way of example, points to the lengthy procedure for dealing with building permits in the

construction sector(

) (see Graph 2b, right panel). Also, conditions for mobilising investment from the

private sector in renewable energies, which would reduce the Netherland’s energy dependency, have several

limitations, in particular from a regulatory and policy clarity and planning perspective. The cost of equity

and debt is higher for onshore wind projects than for offshore projects, which might reflect mostly

regulatory, policy and implementation risks as perceived by market participants(

Graph 2:

R&D expenditure and construction procedures

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Graph 2a: R&D expenditure by sector

(2014)

% of GDP

Private non-profit sector

higher education sector

government sector

300

280

260

240

220

200

180

Graph 2b: Days to comply with formalities

to build a warehouse (2015)

160

business enterprise sector 140

120

100

EU-28

Source:

European Commission (Eurostat), World Bank (Doing Business Indicators)

In addition to improving framework conditions, direct policy interventions on corporate financing

and pension fund governance would potentially favour investment activity.

Financing for investment

[section 3.3]. The role of weak credit demand and supply in explaining loan

weakness is still subject to debate. The government has taken a number of specific measures to stimulate

lending, such as the creation of credit guarantee schemes. Box 3.3.1 describes these in detail.

Pension funds

[section 2.2]. Almost 90 % of all employees in the Netherlands save for retirement through

funded second-pillar pension funds. Most pension contracts are ‘defined benefit’. Consequently, pension

funds have an incentive to invest in relatively liquid and low-risk instruments, such as internationally traded

stocks and bonds. As such, pension funds invest largely overseas potentially negatively affecting the

domestic investment base.

(

) According to the World Bank Doing Business indicators it takes 98 days to submit a building permit to the Municipal

Executive;

http://www.doingbusiness.org/data/exploreeconomies/netherlands/#dealing-with-construction-permits.

(

)

Member States investment challenges,

SWD(2015) 400 final/2

(http://ec.europa.eu/europe2020/pdf/2016/ags2016_challenges_ms_investment_environments_en.pdf) .

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

Box 1.2:

Contribution of the EU Budget to structural change

The Netherlands is a beneficiary of the European Structural and Investment Funds (ESIF) and can receive up to EUR

1.7 billion for the period 2014-2020. This is equivalent to 0.9% of the expected national public investment in areas

supported by the ESI funds.

The Netherlands has fulfilled almost all

ex ante

conditionalities (EACs) related to support from the ESIF. In relation

to the thematic EAC on the promotion of cost-effective improvements of energy end use efficiency and cost-effective

investment in energy efficiency an action plan has been agreed with a deadline of end-2016. Where ex-ante

conditionalities are not fulfilled by end 2016, the Commission may suspend interim payment to the priorities of the

programme concerned.

The programming of the Funds includes a focus on priorities and challenges identified in recent years in the context

of the European Semester, notably increased investments in R&D and measures to enhance participation in the labour

market. Regular monitoring of implementation includes reporting in mid-2017 on the contribution of the funds to

Europe 2020 objectives.

Financing under the new European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe

Facility and other directly managed EU funds would be additional to the ESI Funds. Following the first rounds of

calls for projects under the Connecting Europe Facility, the Netherlands has signed agreements for EUR 157 million

for transport project. For more information on the use of ESIF in the Netherlands, see:

https://cohesiondata.ec.europa.eu/countries/NL.

swd (2016) 0087 - Ingen titel

1. Scene setter: Economic situation and outlook

Table 1.2:

Key economic, financial and social indicators

2003-2007

2.3

0.5

3.3

3.1

5.8

5.5

-0.9

1.8

1.6

0.1

0.6

0.4

0.6

0.8

6.7

7.9

0.1

-0.5

-5.7

-76.9

301.4

-1.5

3.9

5.5

11.1

215.0

105.6

109.4

9.4

27.1

-0.9

2.0

5.9

2.0

1.7

2.7

1.5

1.1

-0.9

0.8

0.5

32.2

23.7*

11.3

5.1

1.9

10.5

77.2

16.1

10.1

-0.9

36.3

46.9

2008

1.7

0.9

3.3

4.1

1.8

2.2

2.0

1.7

2.1

-0.3

-0.1

0.4

0.9

0.4

2009

-3.8

-2.1

4.7

-9.2

-8.9

-7.7

-2.8

1.0

-1.9

-0.4

-1.5

0.2

0.5

0.2

2010

1.4

0.0

1.0

-6.5

10.5

9.3

-2.1

0.6

-1.1

1.1

1.5

0.1

0.3

0.2

2011

1.7

0.2

-0.2

5.6

4.4

3.5

-1.1

0.7

1.1

-0.4

0.9

0.1

0.5

0.1

2012

-1.1

-1.2

-1.3

-6.3

3.8

2.7

-2.5

0.4

-2.1

0.0

1.1

0.0

0.3

0.1

2013

-0.5

-1.4

0.1

-4.4

2.1

0.9

-3.1

0.1

-1.4

-0.2

1.1

-0.1

0.1

forecast

2014 2015 2016 2017

1.0

2.0 2.1 2.3

0.0

1.6 2.2 2.2

0.3

0.1 0.9 1.0

3.5

9.1 4.6 4.7

4.0

4.6 4.3 4.7

4.0

5.3 5.7 5.3

-2.6 -1.5 -0.5 0.5

0.5

0.9 1.0 1.2

0.7

-0.1

0.5

0.2

0.1

2.4

-0.4

0.0

0.3

0.4

0.1

1.1

2.1

0.4

-0.5

0.3

0.5

0.2

0.3

2.1

0.1

0.4

0.6

0.3

0.0

Real GDP (y-o-y)

Private consumption (y-o-y)

Public consumption (y-o-y)

Gross fixed capital formation (y-o-y)

Exports of goods and services (y-o-y)

Imports of goods and services (y-o-y)

Output gap

Potential growth (y-o-y)

Contribution to GDP growth:

Domestic demand (y-o-y)

Inventories (y-o-y)

Net exports (y-o-y)

Contribution to potential GDP growth:

Total Labour (hours) (y-o-y)

Capital accumulation (y-o-y)

Total factor productivity (y-o-y)

Current account balance (% of GDP), balance of payments

Trade balance (% of GDP), balance of payments

Terms of trade of goods and services (y-o-y)

Capital account balance (% of GDP)

Net international investment position (% of GDP)

Net marketable external debt (% of GDP)1

Gross marketable external debt (% of GDP)1

Export performance vs. advanced countries (% change over 5 years)

Export market share, goods and services (y-o-y)

Net FDI flows (% of GDP)

Savings rate of households (net saving as percentage of net disposable

income)

Private credit flow (consolidated, % of GDP)

Private sector debt, consolidated (% of GDP)

of which household debt, consolidated (% of GDP)

of which non-financial corporate debt, consolidated (% of GDP)

Corporations, net lending (+) or net borrowing (-) (% of GDP)

Corporations, gross operating surplus (% of GDP)

Households, net lending (+) or net borrowing (-) (% of GDP)

Deflated house price index (y-o-y)

Residential investment (% of GDP)

GDP deflator (y-o-y)

Harmonised index of consumer prices (HICP, y-o-y)

Nominal compensation per employee (y-o-y)

Labour productivity (real, person employed, y-o-y)

Unit labour costs (ULC, whole economy, y-o-y)

Real unit labour costs (y-o-y)

Real effective exchange rate (ULC, y-o-y)

Real effective exchange rate (HICP, y-o-y)

Tax wedge on labour for a single person earning the average wage (%)

Taxe wedge on labour for a single person earning 50% of the average

wage (%)

Total Financial Sector Liabilities, non-consolidated (y-o-y)

Tier 1 ratio (%)2

Return on equity (%)3

Gross non-performing debt (% of total debt instruments and total loans

and advances) (4)

Unemployment rate

Long-term unemployment rate (% of active population)

Youth unemployment rate (% of active population in the same age

group)

Activity rate (15-64 year-olds)

People at-risk poverty or social exclusion (% total population)

Persons living in households with very low work intensity (% of total

population aged below 60)

General government balance (% of GDP)

Tax-to-GDP ratio (%)

Structural budget balance (% of GDP)

General government gross debt (% of GDP)

4.1

5.8

7.4

9.1

10.8

11.0 10.6

8.3

7.5

8.4

8.5

9.6

11.0 11.4

-0.2

0.8

-1.1

-1.5

-0.3

0.6

0.5

-0.1

0.1

-0.5

0.1

-1.4

0.1

-0.1

-8.4

0.9

10.6

19.8

30.9

31.9 60.1

-92.7 -100.3 -109.9 -110.9 -106.8 -104.4 -93.1

328.4 345.2 358.7 372.1 372.8 355.0 368.5

2.4*

4.9

0.6

1.1

-2.6

-2.2 -4.97

-0.8

2.0

-8.0

-3.1

2.1

0.8

8.7

5.5

8.9

4.3

-0.2

5.4

-1.6

3.7

7.1

4.9

2.8

229.4

117.9

111.5

11.3

29.1

1.1

-2.7

4.7

0.8

0.9

0.6

2.1

-1.4

-2.2

-3.4

-3.9

32.8

21.9

7.1

11.8

7.2

2.3

5.0

1.4

11.1

78.2

15.1

8.4

-5.0

36.7

-3.5

59.0

5.8

3.5

228.0

117.5

110.5

11.2

28.7

1.6

-4.0

4.2

0.1

2.5

2.4

0.8

1.3

1.2

0.8

-0.4

31.4

21.4

8.7

11.7

7.3

2.4

5.0

1.7

10.0

78.1

15.7

8.9

-4.3

36.4

-3.6

61.7

6.8

2.2

229.0

117.5

111.5

10.4

29.0

2.7

-8.0

3.5

1.4

2.8

2.5

-0.9

2.9

1.5

-1.1

-1.8

32.1

21.4

5.2

12.1

5.6

2.7

5.8

2.0

11.7

79.0

15.0

8.9

-3.9

36.5

-2.3

66.4

7.3

8.2

9.7

8.5

216.1 231.4

109.6 117.5

106.5 113.9

7.0

27.7

-2.1

0.1

6.2

2.5

2.2

3.7

0.1

3.8

1.3

2.2

0.5

32.5

21.1

2.3

9.6

-12.5

1.9

3.7

1.3

8.6

79.3

14.9

8.2

0.2

36.9

54.5

10.6

27.5

1.0

-3.5

5.6

0.4

1.0

2.8

-2.9

5.6

5.2

2.9

1.9

31.8

21.5

4.3

12.4

-0.4

2.6

4.4

1.1

10.2

79.7

15.1

8.5

-5.4

35.9

56.5

1.3

-1.6

226.6 228.9

114.0 111.7

112.6 117.2

9.8

28.5

3.2

-8.0

3.0

1.4

2.6

1.8

0.4

1.5

0.1

2.2

2.7

31.2

21.5

-0.1

12.5

5.5

2.7

7.3

2.6

13.2

79.4

15.9

9.3

-2.4

37.2

-1.0

67.9

9.5

27.9

3.5

-0.6

3.1

0.8

0.3

2.2

1.2

0.8

0.0

0.1

0.0

31.4

19.7

7.8

15.0

3.6

3.0

7.4

3.0

12.7

79.0

16.5

10.2

-2.4

38.0

-0.6

68.2

10.1 8.6 8.5

29.1 29.3 29.8

2.5 2.6 1.8

0.6

0.2

0.3

-0.8

-1.4

-4.6

-3.0

6.9

11.3

-2.2

37.5

-1.2

66.8

1.2

0.9

2.1

1.0

-0.2

0.3

1.1

6.6

-1.8

37.6

-1.7

66.2

1.6

1.5

2.3

1.0

-0.6

-0.4

6.4

-1.5

37.2

-1.8

65.1

(1) Sum of portfolio debt instruments, other investment and reserve assets; (2, 3) Domestic banking groups and stand-alone

banks; (4) Domestic banking groups and stand-alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU

and non-EU) controlled branches; (*) Indicates BPM5 and/or ESA95

Source:

European Commission winter forecast 2016; ECB

swd (2016) 0087 - Ingen titel

IMBALANCES, RISKS, AND ADJUSTMENT ISSUES

This section provides the in-depth review required under the macroeconomic imbalance procedure

(MIP) (

). It focuses on the risks and vulnerabilities flagged in the Alert Mechanism Report 2016. The

section analyses the reasons behind the relatively high current account surplus, both from a trade

perspective as well as a saving and investment view. Potential spillovers between the economy of the

Netherlands and the rest of the world via trade linkages and financial market exposures are investigated.

Moreover, the high private-sector indebtedness is examined, which is linked to taxation incentives. In

the context of high household indebtedness, recent developments and structural aspects of the housing

market are reviewed. The section concludes with the MIP assessment matrix, which summarises the

main findings.

2.1. THE LARGE POSITIVE TRADE SURPLUS

The current account surplus is still hovering

around 10 % of GDP.

According to the

macroeconomic imbalance procedure (MIP)

scoreboard, the current account surplus fell

marginally to 10.6 % of GDP in 2014 from 11 %

in 2013. The three-year average of the current

account balance for 2012-2014 was 10.9 % of

GDP. The contribution to the euro area current

account surplus decreased slightly to 0.6 pp. of

euro area GDP in the third quarter of 2015 (by way

of comparison, the German contribution increased

to 2.3 % of euro area GDP). The long-term

average of the current account surplus has been

around 6 % of GDP for the past three decades.

Based on Commission calculations, the surplus has

been substantially above the estimated benchmark

for the Netherlands for the past six years (

). This

gap increased between 2009 and 2013, but

narrowed slightly in 2014. According to

Commission calculations, one third of the increase

in the current account balance between 2008 and

2014 can be explained by deleveraging in the

private sector, the increasing net international

investment position and the cyclical position of the

economy. The results are broadly in line with the

IMF External Balance Assessment, which expects

the current account surplus to decline in the

medium term, supported by a recovery in domestic

demand (

(

) According to Article 5 of Regulation (EU) No 1176/2011.

(

) The benchmark is derived from reduced-form regressions

capturing the main determinants of the saving/investment

balance, including fundamental determinants (e.g.

demography, resources), policy factors and global financial

conditions. The methodology is akin to the External

Balance Assessment (EBA) approach developed by the

IMF:

https://www.imf.org/external/np/res/eba.

(

) 2015

IMF

External

Sector

Assessments:

https://www.imf.org/external/np/pp/eng/2015/062615a.pdf.

Graph 2.1.1:

Breakdown of external position (current and

capital accounts)

% of GDP

-5

-10

98' 99' 00' 01' 02' 03' 04 05 06 07 08 09 10 11 12 13 14

Capital account (KA)

Secondary income balance

Primary income balance

Trade balance - services

Trade balance - goods

Trade balance

Current account balance (CA)

Net lending/borrowing (CA+KA)

(‘) indicates BPM5/ESA95

Source:

European Commission (Eurostat), merged data

(BPM5/ESA95)

The trade perspective on the current account

In net terms the goods trade surplus accounts

for the entirety of the current account surplus.

In recent years, it has been increasing to 12 % of

GDP in 2014 (see Graph 2.1.1). The positive

goods trade balance is mainly due to positive net

exports of food and chemical products (see Graph

2.1.2). Since 2000, net exports in food and

chemicals have doubled in value. Despite a

generally negative and deteriorating energy trade

balance, net exports of gas continued to be positive

in 2014. Since May 2015, however, the

Netherlands has been importing more gas than it

exports, which is likely to have lowered the total

gas trade balance in 2015. As Graph 2.1.2

illustrates, the positive trade balance in goods with

swd (2016) 0087 - Ingen titel

2.1. The large positive trade surplus

the rest of the world is mainly due to net goods

exports to European destinations. Conversely,

large net imports are recorded with Asia and

America, especially for machinery and transport

equipment.

The Netherlands’ main trading partners are EU

Member States, but non-EU trading partners

are gaining in importance as the country

continues to integrate internationally.

Between

2004 and 2014, non-EU exports increased from

22 % to 27 % of total exports. Non-EU imports

have increased as well, from 43 % to 49 % of total

imports. This internationalisation is mainly driven

by exports of products from the Netherlands and,

to a much lesser extent, by re-exports.

Graph 2.1.2:

Trade balance in goods per continent

110

9 Commodities not classified

elsewhere

8 Miscellaneous manufactured

articles

7 Machinery and transport equipment

6 Manufactured goods classified by

mat.

5 Chemicals & related products,

n.e.s.

4 Animal & vegetable oils, fats &

waxes

3 Mineral fuels, lubricants, relat. mat

2 Crude materials, inedible ex. fuels

1 Beverages and tobacco

0 Food and live animals

includes products in the high-tech spectrum,

highlighting the importance of R&D for the

competitiveness of exports.

Trade in services

100

The trade balance in services is small and

remains negative.

The largest items of trade in

services are intellectual property and other

business services (which include consulting, trade-

related services and R&D services) (see Graph

2.1.3). These two largest items strongly reflect the

presence of multinational enterprises and tax

optimisation strategies, since the Netherlands does

not levy taxes on income from royalties and

licence fees (included in the category of

intellectual property). For those two service

categories, trade with other headquarters locations

such as Ireland and Luxembourg is typically large

(see Graph 2.3.2). The third- and fourth-largest

items by volume are transport and travel, which

relate to the trade flow of goods (including re-

exports) through the Netherlands.

Graph 2.1.3:

Imports and exports of services (2014)

in EUR bn

-10

Exports

Imports

Balance

-10

-20

-30

-50

00 05 10 14 00 05 10 14 00 05 10 14 00 05 10 14

World

Total Europe Total America

Total Asia

For the years 2010 and 2014, some values are not available

Source:

Statistics Netherlands

in EUR billions

-40

Over the period 2008-2014, the Netherlands

gained market share in intra-EU trade but lost

export market share overall.

The loss in overall

export market share is mainly due to the fact that

the weight of the EU economy in world markets

declined. The export performance of the

Netherlands was also held back by a further fall in

the share of exports in the fastest-growing export

markets, notably China. When product groups are

assessed, a relatively large loss in market share of

‘other sectors’ stands out, which is mainly driven

by agricultural products — animal products,

vegetable products and foodstuffs. On the other

hand, mineral products, chemicals and allied

industries gained market share. This grouping

-20

-30

-40

Source:

DNB (Balance of Payments)

Re-exports

Major re-exporting activity is a prominent

feature of the economy.

According to the

Statistics Netherlands definition, re-exports are

‘goods

transported via the Netherlands which are

temporarily in ownership of a Dutch resident,

without being significantly changed in any way.’

swd (2016) 0087 - Ingen titel

2.1. The large positive trade surplus

The large, modern port of Rotterdam represents a

key transit point in European and global trade

flows, making it a natural locus for re-exporting.

The Netherlands’ re-exports are the highest in

Europe as a share of total exports, accounting for

45 % of the Netherlands’ total exports of goods.

This ratio that has remained broadly stable over the

past ten years in spite of export activity having

risen by around 70 % over the same period. In

2014, 81 % of re-exports went to the rest of the

EU, considerably above the 67 % of domestically

produced exports that go to other EU countries.

For some trading partners, e.g. the Czech Republic

and Slovakia, trade relations with the Netherlands

are strongly biased towards re-exports, rather than

domestically produced goods.

Re-exports are estimated to make a sizeable

contribution to the current account surplus.

Although re-exported goods are not significantly

processed or changed while in the Netherlands, a

recent study from the statistical offie (

) estimated

that the domestic value added of re-exports is

about 10 cents per exported euro; the remainder of

the export value is accounted for by previous

imports. The net impact of re-exports on the goods

trade balance is therefore approximately 10 % of

the total value of re-exports, which in 2014

equated to 2.9 % of GDP. Although some of the

domestic value added generated by re-exports may

leak out via second-round imports, these estimates

suggest that the direct impact of re-exporting may

account for up to one quarter of the current

account surplus.

(

) Lemmers, Exel and Ouwehand (2015). ‘Naar welke EU-

landen exporteren kleine exporteurs hun goederen?’

Centraal Bureau voor de Statistiek,

Den Haag/Heerlen.

swd (2016) 0087 - Ingen titel

2.2. THE SAVING AND INVESTMENT PERSPECTIVE ON THE

CURRENT ACCOUNT SURPLUS

The economy continues to be a net lender to the

rest of the world.

As in the previous year, in 2014

net lending stood at 10.7 % of GDP, of which the

largest share was from non-financial corporations

(NFCs) (see Graph 2.2.1). These have accounted

for the largest share of net lending (roughly two

thirds) since 2000. In international comparison, the

NFC sector currently shows the second-highest net

lending position relative to GDP after Lithuania,

setting it apart from structurally similar neighbours

such as Germany and Belgium. However, the

increase in net lending between 2009 and 2014

was driven by the large increase in household

saving and the reduction in the government’s

deficit. For the government sector, higher saving

drove the lower net borrowing.

Graph 2.2.1:

Net lending/borrowing per sector

Graph 2.2.2:

NFC saving, investment and net lending

% of GDP

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Net lending

Investment

Saving

Source:

European Commission (Eurostat)

Saving

% of GDP

-2

-4

-6

-8

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15*16*17*

Households and NPISH

Corporations

General government

Total economy

Source:

European Commission (Eurostat)

The biggest saver in the Netherlands is the

corporate

sector,

mainly

non-financial

corporations (NFCs)

(see Graph 2.2.3). NFC

saving has moderated in recent years from 20.7 %

of GDP in 2012 to 17.3 % of GDP in 2014 (see

Graph 2.2.3), but remains well above the euro area

average of 11.5 % of GDP. This reduction in NFC

saving slightly mitigated the impact of rising

household saving, which is the second biggest

source. The decline in NFCs’ net lending balance

between 2012 and 2014, primarily driven by a

reduction in gross saving, represents a correction

of the very high level reached in 2012. Based on

preliminary figures, this correction is expected to

have continued in 2015.

The high surplus from NFCs stems from the

size of the sector, which hosts many

multinational enterprises.

The NFC sector is the

second largest of all EU Member States relative to

GDP, closely behind Luxembourg. Multinational

enterprises feature prominently in the corporate

landscape. While only about 1 per cent of all

companies active in the Netherlands are foreign

multinationals and another 1 per cent are

multinationals with subsidiaries abroad, together

they account for 40 % of private-sector

employment and around two thirds of private-

The high net lending position reflects high

savings not absorbed domestically.

The rise in

household net lending since 2009 was driven in

broadly equal parts by falling investment and

higher saving. Non-financial corporations saw

their net lending fall by 1.5 pps. between 2012 and

2014. This was mainly on account of lower saving,

although they maintained a broadly steady

investment ratio (see Graph 2.2.2).

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

sector turnover (

). Factors explaining the

preponderance of multinational enterprises in the

economy are examined further below.

Graph 2.2.3:

Saving per sector

Table 2.2.1:

Income statement of non-financial

corporations (2014)

-5

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Household saving

Financial corp. saving

Non-financial corp. saving

Government saving

Source:

European Commission (Eurostat)

An important explanation of high NFC saving is

the relatively low level of profit distribution.

companies with a ‘director-major shareholder’ (a

person who holds a significant position in a

company and owns a large part of the shares) have

substantial tax incentives to retain earnings (

Table 2.2.1 shows sources of the net lending

position of non-financial corporations in the

Netherlands in 2014 compared with Germany, a

structurally similar counterpart. The Netherlands’

starting position in terms of corporate gross value

added in relation to GDP (59.1 %) places it above

the euro area average (51 % of GDP), similarly to

Germany. However, marked differences between

the two economies emerge further down the

income statement, once distributed income

(principally dividend payments) is factored into the

calculation of net disposable income and saving. In

net terms, the relatively larger corporate sector

distributes over 6 pps. of GDP less than that of

Germany. This more than accounts for the

difference between the final net lending balances.

(

) http://www.cbs.nl/en-GB/menu/themas/internationale-

handel/publicaties/artikelen/archief/2015/multinationals-

prominent-in-nederlandse-economie.htm.

( ) See also the 2015 Country Report on the Netherlands.

in % of GDP

Gross value added

Compensation of employees (-)

Indirect taxes and subsidies (-)

Consumption of fixed capital (-)

= Net operating surplus

Net interest (-)

Distributed income (received) (+)

Property income (+)

= Net pre-tax profits

Distributed income (paid) (-)

Property income (paid) (-)

Current taxes on inc. & wealth (-)

Net current transfers (-)

= Net disposable income

Adjusted for HH pension equity (+)

= Net saving

Net capita transfers (+)

Net capital formation (-)

Net acquisition NFNPA (-)

= Net lending

Memo: net distributed income

Source:

European Commission

59.1

34.9

-0.1

8.9

15.4

0.1

3.6

0.6

19.5

6.9

2.0

1.7

0.4

8.4

0.0

8.4

0.2

1.0

0.1

7.5

3.3

56.8

33.8

-0.4

9.9

13.6

-0.3

1.6

1.0

16.6

11.1

0.2

2.1

0.3

2.9

-0.2

2.7

0.9

0.6

-0.1

3.0

9.5

% of GDP

High net saving by corporations is typically

channelled into share buybacks and the

acquisition of equity assets.

Combining

information on financial and non-financial

transactions by NFC, Graph 2.2.4 shows that the

principal use of high net saving is to buy more

equity-type assets. Since 2006, the rise in net

equity assets stems in part from buybacks of equity

liabilities, but also from the acquisition of equity

assets, including foreign direct investment. In

2014, NFCs bought back EUR 11 billion

(equivalent to 1.7 % of GDP) in equity liabilities.

Compared to other EU Member States, the

Netherlands shows a stable pattern in the size of

corporate self-financing (i.e. net saving) and the

principal use of internal funds; to the extent that

there is no strong cyclical pattern observable, this

may be considered a quasi-structural aspect of the

corporate sector.

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

Graph 2.2.4:

Use of net saving, NFCs

Graph 2.2.5:

Net distributed income ratios (2012-2014

average)

100

As % of net operating

surplus (left axis)

As % of GDP (right axis)

% of GDP

% of net operating surplus

-5

-10

-15

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Capital transfers

Net other fin liab./residual

Increase in net equity liab.

Increase in net debt

Self-financing/net saving

Net investment

NL EE ES CY AT SK LV FI SI FR BE PT LT DE IT

Source:

European Commission (Eurostat)

Source:

European Commission (Eurostat)

The low profit distribution of the corporate

sector is confirmed by a euro area-wide

comparison.

Compared to other euro area

Member States, the Netherlands stands out as the

country with the lowest level of net profit

distribution in 2012-2014 (see Graph 2.2.5). Based

on Commission staff calculations, corporate net

lending would be 4.2 pps. of GDP lower if

corporations distributed net income at the

unweighted euro area average rate of 40 % of net

operating surplus (

). A recent study by the CPB

(2015) suggests that corporate net lending may be

inflated by around 2 pps. of GDP due to unpaid

dividends; however, the study suggests that this

effect is more than offset by an increase in net

saving by the household sector when correcting for

withheld dividends (

). A study by the Central

Bank of the Netherlands suggests that if the profits

of all publically traded companies were fully

distributed as dividends, the current account

surplus would be 3 pps. of GDP lower (

(

) Although part of this profit distribution would have flowed

to other residents (notably households) and would therefore

have been neutral with regard to the current account, the

latter effect is unlikely to be very large in view of the large

foreign ownership of NFCs.

(

) Rojas-Romagosa and Van der Horst (2015): 'Oorzaken en

beleidsgevolgen van het overschot op de Nederlandse

lopende rekening',

CPB Policy Brief

2015/05.

(

) DNB (2014): ‘Het Nationale Spaaroverschot ontleed’,

DNB

Occasional Studies,

Vol.12, No 6.

Headquarters location decisions are driven by

tax incentives and the generally positive

business environment.

A large body of research

has examined the factors determining corporate

residence decisions, with geographical location,

quality of the local workforce and public

institutions, and the business environment standing

out as significant determinants (

). In the case of

the Netherlands, an attractive international legal

and tax framework, as well as corporate laws

allowing considerable latitude in corporate

governance matters, such as compensation and in

audit policies, are seen as additional arguments

speaking in favour of headquarters in the

Netherlands. The Netherlands grants a generous

participation exemption for dividends received

from equity, and a capital gains tax exemption

when equity is sold. While the statutory corporate

income tax rate of 25 % is slightly below the euro

area average, the implicit corporate income tax rate

is considerably lower; as Graph 2.2.6 shows, the

Netherlands has an implicit corporate income tax

burden of around 7 % of gross operating surplus.

Section

examines

corporate

taxation

arrangements in further detail.

(

) Antràs and Yeaple (2014): ‘Multinational Firms and the

Structure of International Trade.’ Handbook of

International Economics, 4:55-130, 4, 55-130.

% of GDP

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

Graph 2.2.6:

Corporate income tax burden for NFCs (2014)

Graph 2.2.7:

Household saving and investment rates (% of

disposable income)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

EA19

Saving EA (19)

Investment EA (19)

Saving NL

Investment NL

Implicit tax rate

Top statutory tax rate (incl. surcharges)

Source:

European Commission (Eurostat)

Implicit tax rate calculated using national accounts data

(ESA2010) on taxes paid on corporate income (D.51)

divided by gross operating surplus of NFCs (B2A3G);

statutory tax rates taken from European Commission (2015):

Taxation trends in the European Union, 2015 edition

Source:

European Commission (Eurostat)

Rising household saving in view of deleveraging

needs played a major role in increasing the

surplus during the financial crisis and then

maintaining it

(see Graph 2.2.3). With the

downturn in the housing market, household saving

has risen steadily (Graph 2.2.7), and was the

second highest in the euro area (EA) in 2014,

having risen by 3.3 pps. from 2010 to 7 % of gross

disposable household income. Two thirds of the

increase was accounted for by a rise in individual

saving, according to data provided by the CPB,

while the rest was due to collective pension saving

arrangements,

particularly

supplementary

collective pensions. Probably the most important

driver of the latter was the mandated adjustments

to contribution rates to ensure a steady pension

coverage ratio in the context of a secular decline in

interest (and discount) rates. Individual pension

pay-outs were also adjusted downwards in recent

years. Given the large asset portfolio and stock of

pension entitlements, pension funds remain

vulnerable to asset price volatility in a low interest

rate environment.

Pension funds hold the largest share of

household savings, but invest mainly in

securities and mostly abroad.

Within a period of

10 years, total household pension assets increased

by more than 50 % to 212 % of GDP in 2014 (see

Graph 2.2.8). From the perspective of the wealth

portfolio of households, pension assets have

increased massively over the last decade, while

housing equity and other wealth holdings

decreased. The allocation of pension fund assets

may be suboptimal both from the perspective of

households and, more generally, from a

macroeconomic perspective. The main investments

(83 %) of total pension fund assets in recent years

have been shares, other equity and securities other

than shares; real estate assets represented less than

2 % of total assets in 2014 (see Graph 2.2.9). By

far the largest share of assets is invested abroad. In

2014, only 17 % of total pension fund assets were

invested in the Netherlands, 27 % in other euro

area countries and 46 % outside the euro area.

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

Graph 2.2.8:

Household balance sheets

Graph 2.2.9:

Pension fund assets over time

1500

600

% of

GDP

400

200

400

600

GDP

179

212

2014

379

96 17

1250

in EUR billion

223

137

2005

358

84 24

1000

Other non-financial assets

Reinsured technical provisions

Deposits and other liquid assets

Loans

Financial derivatives

Securities other than shares

Shares and other equity

Real estate

750

40 137 112

1995

295

40 25

500

Pensions

Real-estate

Other wealth

Net wealth

Mortgages

Other debts

250

Source:

DNB in the government’s Miljoenennota 2016

15Q3

The very large fully funded pension system has

difficulties coping with stock market volatility

and the low long-term interest rates; policy

initiatives are addressing the transparency and

actuarial fairness of the system.

The pension

system is based on strong institutions, providing

wide coverage and delivering good results in terms

of pension adequacy and fiscal sustainability.

Nevertheless, stock market volatility and the

current low long-term interest environment have

led to expensive and increasingly uncertain

defined-benefit pension entitlements. Low

solvability has generally led to large reductions in

indexation and increases in contributions, and

sometimes even to nominal reductions in pension

income for retirees. In combination with relatively

low transparency and a disconnect between

contributions and future earnings, this has reduced

the popularity of the current system, in particular

among younger generations who feel that they bear

an undue financial burden on account of the

doorsneesystematiek

(

). Acknowledging these

dilemmas, the government has set out a plan to

reform the pension system starting in 2020.

(

) Freely translated as ‘average premium system’, which

states that every participant receives an equal share in the

total entitlements for every euro of contribution. This

financing system is not actuarially fair, as a young person’s

contribution has a longer investment horizon and higher

future value.

The data are based on pension funds’ balance sheets

including DNB ‘look through’ data on pension funds’

investments.

Source:

DNB

Investment

activity

non-financial

corporations and households is recovering

slowly from a construction-led drop

(see Graph

2.2.10). In the wake of the economic crisis and the

housing market slump, construction investment fell

by 30 % between 2008 to and 2013 (see Graph

2.2.11). Reinvigorated by the recovery in the

housing market, construction investment increased

slightly in 2014 and more strongly in 2015, and is

expected to rise further. Other major items of

investment including equipment are unchanged

relative to GDP.

Household investment is strongly influenced by

taxation incentives.

Households invest mainly in

housing, because of strong long-standing fiscal

incentives (mortgage income deductibility) —

which are being slowly and partially phased out —

and as a result of financial innovation (see section

2.5 on the housing market). At the height of the

housing boom, household investment reached

close to 8 % of GDP (see Graph 2.2.10). Since

then it has almost halved, which widened the gap

of excess household saving over investment. With

the recovery in the housing market, households’

investment increased slightly in 2014 and rose

further in 2015.

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

Graph 2.2.10:

Investment per sector

% of GDP

credit conditions for corporate borrowers

compared to households, particularly for larger

corporations and multinational enterprises, which

in the Netherlands make up a large part of the NFC

sector (Graph 2.2.12). Furthermore, and in contrast

to households, there is evidence to suggest that

large corporations in particular have commanded

ample sources of internal financing since the crisis,

thereby enabling corporate investment to be partly

funded without recourse to bank loans.

In spite of improving credit conditions, risks to

credit creation are heightened in the current

financial environment.

Recent signals from the

Central Bank's quarterly credit standards survey

suggest that lending standards are easing only for

large corporate borrowers (see Graph 2.2.12).

Overall, credit provision to the non-financial

corporate sector continued to remain negative

during 2015. By squeezing lending margins and

bank profitability, the interest rate environment

and financial market uncertainty may reduce the

room for raising bank equity, with potential

implications for the growth outlook. Moreover, the

relatively pronounced reliance of the banking

sector on wholesale funding may increase its

sensitivity to interest and asset price movements.

In line with the European Economic Recovery

Plan, public investment peaked in 2009, but has

remained in decline since.

With the outbreak of

the financial crisis, European governments

responded with a large fiscal stimulus. In the

Netherlands, the stimulus was provided via

enforced automatic stabilization and a targeted

discretionary investment package of around

EUR 3 billion in both 2009 and 2010, leading to a

discretionary impulse of 1 % of GDP over both

years. Around EUR 2 billion (0.35 % of GDP)

from the budget of a public investment fund (the

so-called

Fonds

Economische

Structuurversterking)

was frontloaded to the years

2009 to 2010. In the subsequent fiscal

consolidation period public investment has

declined from 4.3% of GDP in 2009 to 3.5 % of

GDP in 2014. In 2014, public investment relative

to GDP was relatively high in the Netherlands

compared to the euro area average of 2.7 % of

GDP and to neighbouring countries such as

Belgium (2.4 %) and Germany (2.2 %), but lower

than France (3.7 %). However, public investment

in the Netherlands was still below its long-term

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Government investment

Non-financial corp. investment

Financial corp. investment

Household investment

Source:

European Commission

Graph 2.2.11:

Gross capital formation by type

% GDP

-5

02 03 04 05 06 07 08 09 10 11 12 13 14*15*16*17*

Construction

Other investment

Equipment

Inventories and Valuables

Source:

AMECO

By contrast, corporate investment has been

relatively unchanged, hovering around 10 % of

GDP for more than a decade.

Given that the

Netherlands experienced a protracted double-dip

recession between 2009 and 2013, the stability of

corporate investment in relation to GDP underlines

that much of the decline in economy-wide

investment activity during the recession was

accounted for by the large drop in residential

investment by the household sector. The resilience

of corporate investment in recent years may be

partly explained by somewhat more favourable

swd (2016) 0087 - Ingen titel

2.2. The saving and investment perspective on the current account surplus

average of 3.9 % and is set to continue its decline

until 2017 judging by current plans.

Graph 2.2.12:

Credit conditions

100

Net % of banks reporting tightening (4 quarter av.)

Large corporations

SMEs

Households (mortgage loans)

-20

-40

-60

the value of foreign currency-denominated assets

rose in euro terms, external liabilities, mainly

denominated in euros, were less affected by

currency movements. In a long-term perspective,

valuation gains have not produced a significant

shift in the NIIP. To the extent that the euro’s

nominal effective exchange rate is likely to

eventually appreciate from its current, still

relatively low level, recent positive valuation gains

in the NIIP should not be considered permanent.

Graph 2.2.13:

Net international investment position by

sector

General Government

Private sector

MFI (excl central bank)

Central Bank (incl reserves)

Net int'l investment position (NIIP)

200

150

100

-50

Source:

DNB

Net international investment position

The high net international investment position

(NIIP) is mainly driven by the private sector.

Graph 2.2.13 shows the NIIP with a breakdown by

institutional sector, which reveals a number of

important trends. Most striking is the steady rise in

the NIIP from approximately zero in the second

quarter of 2010 to 65.2 % of GDP in the second

quarter of 2015; roughly half of this increase is due

to valuation effects in 2014-2015. This rise was

principally accounted for by an improvement in

the net foreign asset position of the private sector,

and — to a lesser extent — by a reduction in the

net foreign debt of monetary financial institutions

(MFIs). In contrast, the increasing net asset

position of the private sector reflects the net saving

of non-financial corporations but also the

increasing asset base of pension funds (which are

classed in this sector in external statistics).

Valuation effects from the euro depreciation

increased the NIIP in 2014.

Net financial

transactions linked to trade activity typically

explain much of the annual change in the NIIP up

to 2014. However, with the steady depreciation of

the euro in the course of 2014, which accelerated

in the first half of 2015, valuation gains made an

important positive contribution to the NIIP: while

% of GDP

-100

-150

08Q3

09Q3

10Q3

12Q3

13Q3

Source:

European Commission

07Q3'

14Q3

11Q3

swd (2016) 0087 - Ingen titel

2.3. REAL AND FINANCIAL SPILLOVERS

Trade spillovers

Risks of spillovers through trade from exposure

to EU trading partners are no more than

moderate.

Within the EU, the main trading

partners in 2014 were Germany, Belgium, the UK

and France, accounting for roughly the same share

(70 %) of both imports to the EU and exports from

the EU. The Netherlands’ trade with the rest of the

euro area has fallen slightly in the past 10 years

from 80 % in 2004 to 75 % (imports) and 77 %

(exports) in 2014. As can be seen in Graph 2.3.1,

by far the highest exported value added goes to

Germany. Total goods exports to Germany are

expected to have decreased by 5 % in 2015;

however, half of this drop is due to lower re-

exports. The pronounced trade exposure to the

German market may pose a risk if German

absorption of imports from the Netherlands is in

any way affected, for example if German exports

(and the German economy) were affected by

weaker demand from emerging market economies.

Graph 2.3.1:

Exports in value added by destination (2011)

figures did not fall to the same extent. Imports

from China have fallen slightly more than world

imports, mainly due to lower imports of machinery

and transport equipment. Yet exports to China

increased far more strongly than world exports.

This was driven by higher exports of food and live

animals, crude materials and chemicals and related

products. Given that the trade figures for world

export and imports have been fairly stable for the

Netherlands, the spillover risks from China or

Russia to the Netherlands seem to be limited.

The impact of potential spillovers from the

Netherlands to its trading partners through

trade channels is not pronounced, except in the

case of neighbouring Belgium.

The value added

of imports from Belgium to the Netherlands

represents 2.4 % of Belgian GDP, while the other

listed countries’ imports represent a value added of

below 1 % of their GDP (see Graph 2.3.2). The

close trade relations with Belgium imply that an

economic shock to the economy could potentially

spill over to Belgium, but would leave other

Member States largely unscathed.

Graph 2.3.2:

Imports by country of origin (2013)

% of trading partner GDP

% of NL GDP

Goods

Services

ROW*

CHN

RUS

USA

JPN

AUS

Luxembourg

Germany

Lithuania

Hungary

Slovakia

* Rest of the World

Source:

WIOD database, IMF European Commission

calculations based on the methodology of Koopman,

Wang and Wei (AER, 2014)

The Netherlands’ trade ties with countries

outside the EU are relatively diverse.

Trade

figures for 2015 indicate that the slowdown of the

Chinese economy and the recession in Russia have

had limited spillovers to trade figures. While trade

with Russia suffered strongly from the downturn,

importers and exporters seem to have found

alternative markets for their products, as total trade

The data includes all imports, including goods and services

that are imported for re-export.

Source:

Financial market spillovers

The international exposure of the financial

market was reduced in the immediate

Czech_Rep

Denmark

Sweden

Belgium

Finland

Ireland

Latvia

Malta

Cyprus

swd (2016) 0087 - Ingen titel

2.3. Real and financial spillovers

aftermath of the financial crisis.

The financial

market is relatively large in relation to domestic

GDP, with total bank assets worth 386.3 % of

GDP in 2014 (the average size of the financial

sector of other euro area Member States is 308 %

of GDP). The international exposure of banks has

roughly stayed constant over the past five years at

around EUR 500 billion (75 % of GDP in 2014)

and is mainly exposure to other European

countries (see Graph 2.3.3). In the run-up to the

financial crisis (2004-2007), a strong build-up of

European and US exposure was observed, which

peaked at over EUR 900 billion. In the following

three years, with the decline of the interbank

market, exposure was sharply reduced to previous

levels, also reducing potential spillover effects

from other European countries and the US.

Graph 2.3.3:

Consolidated assets of domestic credit

institutions: international claims on immediate

borrower basis

1,000

900

800

700

turbulences in the Chinese market would be

expected to have only limited spillovers to credit

institutions.

Foreign bank claims on the Netherlands are

mostly held by its main trading partners:

Belgium, France, the UK and Germany.

This is

reflected in high non-bank private-sector claims,

especially those of Belgium (see Graph 2.3.4).

Portugal has a surprisingly high share of claims on

the Netherlands, mainly on the non-bank private

sector too, owing to the activity of non-financial

corporations. The largest share of claims on banks

is held by French, British and German banks on

which banks registered in the Netherlands also

hold claims, suggesting strong interlinkages

between their banking sectors

Graph 2.3.4:

EU bank claims on the Netherlands, by sector

4.5

% of counterpart GDP

3.5

in EUR billion

600

500

400

300

2.5

1.5

200

0.5

100

04Q4

05Q2

05Q4

06Q2

06Q4

07Q2

07Q4

08Q2

08Q4

09Q2

09Q4

10Q2

10Q4

11Q2

11Q4

12Q2

12Q4

13Q2

13Q4

14Q2

14Q4

15Q2

Banks

Official sector

Non-bank private sector

All sectors

America

Germany

Switzerland

Asia

France

Rest of Europe

Belgium

United Kingdom

Rest of World

Source:

DNB

Based on an EU sample of 12 countries; sum of sectors may

not add up to total due to unallocated claims

Source:

BIS consolidated banking statistics (ultimate risk

basis 2015 Q2), IMF, European Commission

Financial market exposure is relatively diverse.

Exposure to UK and French banks was sharply

reduced during the course of the crisis, further

diversifying total exposure. Exposure to Greece,

Italy, Ireland, Portugal and Spain has been brought

down from 17 % of total exposure at the end of

2008 to 6 % (Q2-2015). For the rest of the world,

domestic credit institutions' largest claims are in

the US (6 % of total exposure in Q2-2015) and

China & Hong Kong (6 %). Exposure to China &

Hong Kong is non-negligible, but given the greater

diversification than in the past, potential

The government bond portfolio of the four

largest banks focuses on countries with strong

ratings.

The four largest internationally active

banks (ING, RABO Bank, ABN AMRO and SNS)

account for 80 % of the total banking sector.

According to data from the European Banking

Authority, their total sovereign exposure accounted

for 8 % of total assets at the end of 2013 and was

mainly to the European Economic Area (85 % of

total sovereign

exposure,

including the

Netherlands). Those four banks held government

bonds mainly issued by the Netherlands (33 % of

swd (2016) 0087 - Ingen titel

2.3. Real and financial spillovers

total sovereign exposure), followed by German

(17 %), Belgian (11 %) and French (10 %). After

the crisis broke out, the four banks increased their

exposure to their home sovereign and to Germany,

reaching 45 % and 21 % of total exposure

respectively in 2012. Holdings of Greek, Irish,

Italian, Portuguese and Spanish bonds have been

strongly reduced, from 17 % in 2009 to 3 % in

2013. Considering the four banks’ strategy of

diversifying into government bonds of countries

with higher credit ratings, the potential spillovers

of sovereign risk are limited.

Potential demand spillovers

entire euro area would be reduced by 0.01-0.02

percentage point of GDP.

Weak domestic investment levels warrant a

detailed analysis of the impact of raising

investment spending — both on the domestic

economy and fellow euro area Member States.

Following Commission calculations, a positive

boost to public investment of 1 % of GDP has a

sizable effect on the economy of the

Netherlands (

). A shock of this size would ensure

a partial reversal of the downward trend in public

investment and would bring it back in line with the

2000-2011 average. The investment boost would

have an immediate positive impact on the level of

GDP, increasing it by 0.5 % in the first year to

1.1 % after 10 years. The shock’s positive impact

on GDP and the fact that investment goods are

partly imported would reduce the current account

surplus by -0.1 % of GDP in the first year to -

0.45 % of GDP after 10 years.

Given the relatively small size of the economy,

demand spillovers to other euro area member

states are modest.

Model simulations by the

Commission suggest that a potential increase in

public investment by 1 % of GDP would only

cause GDP in the rest of the euro area to increase

by 0.05 % after one year, with the impact hardly

rising over time. The impact of the simulated

investment shock on the euro area current account

balance is smaller still, with the current account

balance of the rest of the euro area increasing by

between 0.02 and 0.03 percentage point of GDP.

Overall, and including the negative impact on the

current account surplus, the current account of the

(

) The simulation is based on a version of the Commission’s

QUEST model calibrated to the economy of the

Netherlands. The modelled spillovers include a trade

impact of domestic demand and, to a lesser extent, an

exchange rate effect.

swd (2016) 0087 - Ingen titel

2.4. PRIVATE SECTOR INDEBTEDNESS

Private debt continues to remain high in the

Netherlands.

Standing at 228.9 % of GDP in

2014, roughly half of private debt can be attributed

to households and the other half to non-financial

corporations (NFC). Both have been similarly high

for the past 10 years and well above the EU

average (see Graph 2.4.1).

Graph 2.4.1:

Private-sector debt in the Netherlands and

the EU

250

financial vulnerability of households can be

garnered from a comparison of household debt to

financial assets held in the form of bank savings

and securities, as those financial assets tend to be

relatively liquid. In contrast to wealth held in

illiquid pension savings or dwellings, bank savings

and securities can easily be tapped in case of

financial distress. While the ratio of debt to

financial assets rose strongly until 2009, mostly

due to increasing debt, households actually

increased their buffers in savings accounts from

2006 to 2014 by on average 3 % per year,

lessening the financial risk of high household debt.

Graph 2.4.2:

Household debt ratios

200

% of GDP

150

260

240

220

200

100

180

160

140

in %

NL HH and NPISH

EU NFC

EU HH and NPISH

NL NFC

120

100

2006 2007 2008 2009 2010 2011 2012 2013 2014

Debt/GDP

Source:

European Commission (Eurostat)

Household debt

Mortgage debt (residence)/GDP

Debt/financial assets

Debt /disposable income

The high household debt is largely mortgage

debt that has built up in the past, fuelled by tax

incentives

(see section 2.5 on the housing market).

As can be seen in Graph 2.4.2, total household

debt was 112 % of GDP in 2014 and mortgage

debt on the primary residence accounted for

roughly 90 % of total household debt. The

remaining debt mainly consisted of consumer

loans, financing of shares, mortgages on other real

estate and student loans.

Household deleveraging seems to be mostly the

result of GDP growth.

The deleveraging

indicated in Graph 2.4.2 — in the ratios of both

total debt and mortgage debt to GDP — is partly

passive, i.e. driven by rising GDP. In nominal

terms, household debt increased throughout the

crisis, reaching a peak of EUR 758 billion at the

end of 2012. After that, it initially decreased by

3 pps. to mid-2014, but has recently been

increasing slightly again. An indication of the

Source:

Statistics Netherlands, European Commission

(Eurostat)

The number of households with negative equity

(‘underwater mortgages’) has started to

decrease.

Homeowners have ‘negative equity’

when the mortgage value of their home exceeds its

value. Negative equity rose sharply in 2009, when

house prices started plummeting, and was

estimated to affect 1.5 million households (30 %)

in 2014, but has since fallen slightly (

). Those

most affected are people up to 35 years old. This

group consists mainly of first-time buyers who

bought their homes in the years immediately

preceding the housing market crisis. It is also the

group most exposed to changes in market prices.

(

) Based on Statistics Netherlands data. Taking savings

accounts linked to the outstanding mortgages into

consideration, the number was much lower (around 1.1

million) according to DNB data, and was falling further in

2015.

swd (2016) 0087 - Ingen titel

2.4. Private sector indebtedness

in EUR 1000

The 30-35 age cohort had negative housing equity

of EUR 34 000 on average in 2014 (see Graph

2.4.3). According to a recent DNB study (

), the

proportion of households with negative equity

could fall to 5 % in 2023 with regular amortisation

and house price increases of 3 % per year. If house

prices were to remain at their 2015 level, the figure

would only fall to 20 % in 2023 with regular

amortisation.

Only a fraction of households with negative

housing equity are covered by the mortgage

loan insurance scheme.

The public mortgage loan

insurance scheme (Nationale

Hypotheek Garantie,

NHG) is aimed at protecting borrowers from any

residual debt after foreclosure or sale of the house.

However, the scheme is not compulsory and not all

borrowers can sign up to it voluntarily, as only

lower-valued houses are eligible. Without NHG

coverage, borrowers are more financially

vulnerable, as they are not insured against losses if

they have to sell their house. A subsample of the

DNB loan level data (

) indicates that roughly half

of the borrowers with negative housing equity are

not covered by the NHG.

Average loan-to-value (LTV) ratios are falling

gradually, but slowly.

The average LTV ratio for

the 30-35 age cohort increased from 89 % in 2008

to 121 % in 2013, but is expected to have fallen to

112 % in 2015. The lower LTV ratios result partly

from the ongoing housing market recovery and

partly from a cap on the maximum LTV ratio

introduced in 2012. With the recovery of the

housing market, the value of homes is expected to

continue rising, and therefore to reduce

outstanding LTV ratios (see section 2.5 on the

housing market). The gradual lowering of the

maximum LTV at the time of house purchase to

100 % by 2018 (from 103 % in 2015) is one of the

housing market measures introduced in 2012.

While this is still higher than other EU Member

States, it is expected to slowly bring down average

LTV ratios, gradually reducing the risk of negative

equity as well.

(

) Mastrogiacomo and van der Molen (2015). ‘Dutch

mortgages in the DNB loan level data’.

Occasional Studies

Vol. 13 – 4, DNB.

(

) Idem.

Graph 2.4.3:

Average housing equity (main residence) per

age cohort

250

200

150

100

up to 25 y

-50

-100

2006

2009

2012

2013

2014

Source:

Statistics Netherlands

The loan-to-income ratio has remained high

throughout the past decade, especially for

younger generations.

The mortgage debt of the

30-35 age group was on average 5.7 times higher

than their disposable income in 2014, having

improved slightly from a ratio of 6.1 in 2012,

according to Statistics Netherlands.

Households’ financial distress has risen in the

past decade.

The increasingly high level of debt

has led to more households finding it difficult to

repay their loans. The number of households with

mortgage payment arrears of more than four

months has increased, from around 35 000 in

October 2008 to 112 000 households in October

2015, according to the credit bureau BKR (

). The

number of applications for consumer insolvency

remains low. This is most likely due to features of

the consumer insolvency procedure that make it

unattractive to households with negative housing

equity, as they are not guaranteed a debt discharge

at the end of the insolvency procedure (see Box

2.4.1).

(

) BKR Hypotheekbarometer: http://perskamer.bkr.nl.

75 y and above

70 - 75 y

25 - 30 y

30 - 35 y

35 - 40 y

40 - 45 y

45 - 50 y

50 - 55 y

55 - 60 y

60 - 65 y

65 - 70 y

swd (2016) 0087 - Ingen titel

2.4. Private sector indebtedness

Box 2.4.1:

Consumer insolvency

Given the high stock of household debt in the Netherlands, one would expect more households to apply for

consumer bankruptcy. However, debt rescheduling applications and debt discharge remain low. In 2014,

17 619 people applied for debt restructuring under the law covering natural persons (Wet

schuldsanering

natuurlijke personen

(Wsnp), introduced in 1998). Of these, 70 % were admitted to the procedure (see Table

below). This compares to 777 000 persons that had difficulties meeting their payment obligations on non-

housing loans (not including payments to tax authorities, housing corporations, health insurance companies

or study loans), according to the credit bureau BKR, and 112 000 households with mortgage payment arrears

of more than four months in mid-2015. According to Statistics Netherlands, 1.5 million households held

negative housing equity in 2014. Despite this still high number, the consumer insolvency procedure is not so

attractive for holders of negative housing equity, because debt discharge may not be granted.

Table 1:

Debt restructuring and bankruptcy

Source:

Statistics Netherlands and Bureau WSNP

Consumer bankruptcy procedures are generally more creditor-oriented in the Netherlands, meaning that

secured creditors are often not affected by debt rescheduling or bankruptcy procedures, as their claims

remain valid. Full recourse loans (including mortgages) make it difficult for debtors to dispose of their debt

and get a fresh start. An important feature of the consumer insolvency procedure is that the outcome of a

debt restructuring or bankruptcy does not necessarily entail a debt discharge.

The Wsnp establishes an elaborate settlement procedure. Applications are only admissible if previous out-

of-court negotiations have failed. When Wsnp debt restructuring is launched, a period of good conduct is

imposed, generally three years, but possibly up to five years. During this period the debtor has to work and

is granted an income comparable to the minimum wage by the rescheduling administrator. Other earnings

and any income from foreclosed property flow into debt repayment. The administrator directly receives and

checks all of the debtor’s mail during the first 13 months of the period of good conduct. At the end of this

period, it is decided whether the debtor has fulfilled all the criteria and may be considered for debt

discharge. If discharge is refused, the debtor may be declared bankrupt, which would lead to the

appointment of a curator who evaluates whether more property can be sold. If the bankruptcy procedure

does not yield sufficient income, the outstanding claims are not written off, but creditors may pursue the

recovery of their claims again. In 2014, only 80 % of all debtors undergoing debt restructuring obtained a

fresh start (debt discharge). 18 % were declared bankrupt or the restructuring was terminated as no other

property could be used for redistribution to creditors. For those 18 %, the residual debt claims remain valid,

meaning that creditors can continue to enforce their claims.

The procedure has no clear-cut rules on the treatment of housing property. In 2012, the national advisory

body Recofa recommended that any property above value should be sold, while undervalued housing should

be treated on a case-by-case basis. Hence, debtors with negative housing equity may have their house

excluded from foreclosure. This means that even after three years of good conduct, the remaining debt may

not be eligible for discharge, so creditors’ outstanding claims remain valid and can be enforced. Hence, the

debtor’s situation may potentially be worse after debt rescheduling, as the residual housing debt remains,

despite the period of good conduct. This feature of the Wsnp makes the consumer bankruptcy procedure

very unattractive to those with negative housing equity.

swd (2016) 0087 - Ingen titel

2.4. Private sector indebtedness

Non-financial corporate sector debt

Graph 2.4.5:

Credit demand and supply, loans to NFCs

120

Supported by high savings flows, non-financial

corporations have continued to strengthen their

balance sheets.

In relation to GDP, the sector’s

total financial liabilities have remained broadly

stable since the global financial crisis (Graph

2.4.4). Debt-type instruments (debt securities and

loans) rose from 112 % of GDP in 2010 to 117 %

in 2014 on a consolidated basis, while equity

liabilities rose from 112 % of GDP to 116 % in

2014. However, given the large financial surplus

of NFCs, this has allowed corporations to increase

their gross asset position commensurately, leading

to a rapid — and virtually unbroken — rate of

improvement in the sector’s net financial asset

position. Since the crisis, financial interlinkages

between parent companies and their subsidiaries

have risen, as measured by the gap between

consolidated and non-consolidated liabilities; this

gap is accounted for by both (intra-company) loan

and equity instruments.

Graph 2.4.4:

Balance sheet of the non-financial sector

net weighted percentages (4q av.)

100

-20

-40

-60

-80

Credit terms

Credit standards

Loan demand

-100

Bank lending survey results; positive readings indicate

tightening credit standards, more expensive loan terms or

rising loan demand

Source:

DNB, European Commission

350

250

150

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

-50

-150

Debt securities

Other liabilities

Equity

Loans

Total liabilities (non-consolidated)

Total liabilities (consolidated)

Net financial assets (consolidated)

-250

Source:

European Commission (Eurostat)

Debt flows turned negative in 2014, but are

consistent with an incipient turn in the credit

cycle

towards

corporate

re-leveraging.

Following three consecutive years of positive debt

liability flows in the non-financial corporate

sector, 2014 saw debt flows turn moderately

negative. This credit contraction was underpinned

by slightly negative flows for both corporate loans

liabilities and debt securities. While this may seem

at odds with the expected credit cycle in an

economic upswing, the extent of credit contraction

is comparatively small and may partly reflect the

substitution of external for internal funding.

Furthermore,

quarterly

(non-consolidated)

transaction data for the first two quarters of 2015

show positive liability flows for both loans and

debt securities, suggesting that the active

deleveraging seen in 2014 did not persist in 2015.

Finally, the DNB bank lending survey results show

an increase in loan demand in 2015, particularly in

the second half of 2015, while also suggesting that

credit conditions eased slightly in 2015 due to

competitive pressure and falling risk perceptions

(see Graph 2.4.5).

Corporate debt sustainability is being

supported by the return to real economic

growth.

The Netherlands’ positive GDP growth of

1.0 % in 2014 helped to stabilise the corporate

debt/GDP ratio (Graphs 2.4.6 and 2.4.7). Although

% of GDP

swd (2016) 0087 - Ingen titel

2.4. Private sector indebtedness

Ratios of debt to equity, GDP and total financial

assets (%)

weaker than in previous years, inflation remained

positive in 2014, with the GDP deflator rising by

0.9 % in 2014 so reducing any fall in the debt/GDP

ratio. A large stock-flow adjustment contributed

around 7 pps. to the rise in the corporate debt/GDP

ratio (Graph 2.4.6). This is mainly explained by

changes in methodology that caused a structural

break in the underlying data series. Taking these

developments into account, overall corporate

indebtedness remains broadly stable and balance

sheet risks are declining. Graph 2.4.7 plots the

debt/GDP ratio with alternative measures of

financial leverage, most of which show a slightly

declining and unbroken trend in 2014.

Graph 2.4.6:

Debt/GDP ratio change and contributions for

NFCs (consolidated)

Graph 2.4.7:

Leverage of NFCs

140

120

100

15*

Debt / GDP

Debt / equity

Debt / financial assets

Debt / financial assets, consolidated

Source:

European Commission

y-o-y change

-2

-4

-6

-8

-10

Credit flow

Other changes

Real growth

D/GDP, change

Inflation

Source:

European Commission (Eurostat)

Declining interest rates are not yet visible in the

corporate interest payment burden, while the

risk profile of corporate debt is largely

unchanged.

Given the environment of historically

low interest rates, implicit yields on the liabilities

of non-financial corporations remained at low

levels, but did not decrease much further in recent

years, in contrast to the average yields of euro area

NFCs (see Graph 2.4.8). This might be partly

explained by the relatively long-term structure of

corporate debt (Graph 2.4.9), which has seen little

change in recent years. While risk factors in the

NFC debt stock suggest no major change, low

interest rates — also supported by the ECB’s fully-

fledged asset purchase programme in March 2015

— should be expected to slowly improve debt

sustainability as maturing corporate debt is

refinanced at (significantly) lower interest rates.

swd (2016) 0087 - Ingen titel

2.4. Private sector indebtedness

Graph 2.4.8:

NFC loan interest and implicit yield

NL impl. yield (nat acc)

EA19 impl. yield (nat acc)

NL loan int. (outstanding)

EA19 loan int. (outstanding)

Source:

European Commission (Eurostat), ECB

Graph 2.4.9:

Balance sheet repair, Non-financial

corporations (non-consolidated)

% of total financial assets and debt

98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 1415*

Volatile assets / total assets, Non-financial corporations

Long-term debt / total debt, Non-financial corporations

Source:

European Commission (Eurostat)

swd (2016) 0087 - Ingen titel

2.5. THE HOUSING MARKET

Market developments

The recovery of the housing market has gained

further momentum in the past two years.

The

purchase price index for existing homes has been

increasing steadily to reach 90 % of the 2010

prices, after having hit an historic low in June 2013

(see Graph 2.5.1). Housing market transactions

have also recovered from the slump, to more than

21 000 in December 2015 — almost twice as many

as in December 2013. Over the last 10 years, the

housing market has adjusted sharply in response to

its previous overvaluation. Based on Commission

calculations, house prices are currently valued at

their equilibrium level (see Graph 2.5.2), as the

difference between actual prices and their filtered

trend is close to zero.

Graph 2.5.1:

Evolution of house prices and number of

transactions

Index price,

2010 = 100

Transactions

large cities of Amsterdam and Utrecht are located.

These high growth rates also suggest that there is a

mismatch between supply and demand in housing

in these cities. Lower supply than demand,

together with a distorted rental market will

necessarily lead to high price growth.

Graph 2.5.2:

Overvaluation gap with respect to main

supply and demand fundamentals

-2

110

105

100

23,000

20,000

-4

17,000

14,000

11,000

8,000

5,000

The methodology is described in: European Commission

(2012): ‘Focus: Assessing the dynamics of house prices in

the euro area’, Quarterly report on the euro area, Volume

11, Issue 4. December 2012.

Source:

European Commission

Index purchase price (left axis)

Number of dwellings sold (right axis)

Source:

Statistics Netherlands

The pace of the housing market recovery varies

across the different regions of the Netherlands

(see Graph 2.5.3). Since the end of 2013, the four

largest cities (Amsterdam, The Hague, Rotterdam

and Utrecht) have been experiencing substantially

higher growth rates in housing prices than the rest

of the Netherlands. Amsterdam is even close to

reaching the pre-crisis levels of 2008 again, while

provinces like Overijssel in the north-east and

Zeeland in the south-west are still almost at 2013

levels (which marked the trough of the fall in

housing price). The highest growth rates between

January and September 2015 were recorded in the

provinces of North Holland and Utrecht, where the

The recovery of the housing market is expected

to continue.

Consumer sentiment is positive; the

housing market sentiment indicator

Eigen Huis

Marktindicator

reached an all-time high in October

2015 (

). The number of construction permits

issued rose sharply in 2014, after a steep downturn

in residential construction in 2007-2013. The year-

on-year growth rate of building permits issued

peaked at 45 % in the first quarter of 2015 and

remains positive for the other quarters in 2015.

The provinces with the largest share of newly

issued building permits — North Brabant,

Gelderland, South Holland and North Holland —

also have the strongest urban population growth. In

the long run, this could reduce the supply and

demand mismatch. The trend in growth rates of

building permits issued is positive, but volatile, for

(

) The

Eigen Huis Marktindicator

is available at

www.eigenhuis.nl/woningmarkt/marktindicator.

The

indicator was launched in 2004.

Jan-09

Jun-09

Nov-09

Apr-10

Sep-10

Feb-11

Jul-11

Dec-11

May-12

Oct-12

Mar-13

Aug-13

Jan-14

Jun-14

Nov-14

Apr-15

Sep-15

swd (2016) 0087 - Ingen titel

2.5. The housing market

all provinces, indicating a country-wide recovery

of the building sector.

Graph 2.5.3:

Housing price index year-on-year growth in

%, Q3 2015

segment represents roughly 10 % and social

housing 30 %.

Graph 2.5.4:

User cost of owner-occupied housing and

contribution of taxes

2.5

2.0

1.5

percentage points

1.0

0.5

-0.5

-1.0

-1.5

NL IE FI AT DK SE DE PT LU UK IT ES BE FR EL

-1

-2

0.0

(Current) tax on imputed rent

Mortgage tax relief

Transfer tax

Capital gains tax

Recurrent tax

Tax-adjusted cost (right axis)

Source:

Statistics Netherlands

Tax-adjusted user cost expressed in percentage of an

additional euro of house value (right scale). The bars (left

scale) depict the contribution of taxes. No data available

for Cyprus. The tax rules used were applicable in May 2015

to the purchase of an existing dwelling. For the underlying

assumptions and methodology, see Tax Reforms in EU

Member States 2014.

Source:

European Commission

Looking at the value of construction permits,

the recovery in the residential construction

sector is strongly driven by institutional

investors.

For January-September 2015, the value

of their investments is above 2014 levels. In the

same period, private buyers obtained residential

construction permits worth EUR 1 453 million,

twice as much as those obtained by government

and social housing corporations. This data

underscores the positive trend in the recovery of

the residential sector, especially for private and

institutional investors.

Structural aspects and policy

The housing market in the Netherlands is

divided into a large owner-occupied segment, a

small private rental market and one of the

largest social housing sectors in the EU.

Roughly 60 % of households live in a home that

they own (they are owner-occupiers). This is in

line with the EU average, but the percentage of

owners with outstanding mortgages is much larger

(NL: around 53 %; EU: 27 %). The private

High home ownership rates are due to strong

tax incentives.

The taxation system allows full

deduction of mortgage interest payments on an

individual’s main residence from taxable income.

These arrangements contrast with those of other

EU Member States, where mortgage interest

payments are typically not (or only partly) tax-

deductible, with Sweden and Denmark being

prominent exceptions as Member States where

deductions are relatively generous. From a

taxpayer’s

perspective,

mortgage

interest

deductibility (MID) lowers the user cost of owner-

occupied housing, which recent research by the

Commission shows is the lowest in the

Netherlands among all EU Member States, not

least due to the very large (negative) contribution

from mortgage interest tax relief (see Graph

2.5.4) (

). MID represents a significant fiscal cost

to the government through lost revenue, while

(

) European Commission (2015): ‘Tax reforms in EU

Member States’,

Institutional Papers,

No 008.

swd (2016) 0087 - Ingen titel

2.5. The housing market

various studies stress the regressive nature of the

incentive (

Although still generous, both the tax treatment

of mortgage interest and general mortgage

lending rules have been progressively tightened

in the Netherlands since 2013.

The measures

adopted in 2012 — with effect from

1 January 2013 — limited mortgage interest to

fully amortising loans, at a gradually diminishing

top marginal tax rate. Whereas the previous system

allowed mortgage interest to be deducted at the

highest applicable marginal tax rate (typically

52 %), the new rules are intended to cut this by

0.5 pp. per year to a maximum rate of 38 % by

2041 (Graph 2.5.5). The benchmark yield for

imputed rental income for owner-occupied

housing, which is added to total taxable income

before MID, was also raised in steps, to 0.75 % of

a property’s cadastral value (WOZ

waarde)

2015, and remains unchanged in 2016. Box 2.5.1

discusses the financial impact of the reduction in

MID.

While the measures introduced in 2012/2013

limit the risks of household over-indebtedness

stemming from adverse housing market

developments, their effectiveness cannot be fully

assessed yet, as the reforms stretch over a long

period.

So far, limited change has been seen in the

strong bias towards housing debt and general

household indebtedness. Regarding the reduction

in MID, most recent DNB data suggest that newly-

issued interest-only loans remain high: from 2013

to 2015, they accounted for roughly one third of

newly issued loans. However, most of these loans

were re-negotiated and therefore relate to longer-

standing mortgages, which still qualify for the

MID.

(

) For an overview see European Commission (2015):

‘Housing Taxation: From micro design to macro impact’,

Quarterly Report on the Euro Area,

Vol. 14, No1.

Graph 2.5.5:

Top marginal tax rate for MID

60%

Top marginal rate of interest deductibility

50%

40%

Pre-reform

Post-reform

30%

20%

10%

2012 2016 2020 2024 2028 2032 2036 2040 2044

Source:

European Commission

Some steps have been taken to reform the social

housing sector.

The social housing sector in the

Netherlands is the largest in the EU, representing

roughly 30 % of the country’s housing market.

Some 80 % of the 2.9 million rental homes are

owned by housing corporations (

). Waiting lists

are long and many flats are rented out to tenants

above the income threshold. In July 2015, a new

housing act (Woningwet) entered into force. Its aim

is to ensure that housing corporations focus on

their core task: to provide affordable housing to

low-income earners. One important feature of this

act is that at least 90 % of all social housing should

be provided to low-income earners, i.e. only 10 %

can be allocated freely. This criterion, however,

applies only to newly rented flats; it does not have

implications for current tenants. Furthermore, the

House of Representatives adopted the Rental

Market Mobility Act (Wet

Doorstroming

Huurmarkt 2015)

in February 2016 and sent it to

the Senate for approval. This act includes the

introduction of the 'rental sum approach'

(huursombenadering) in January 2017, which aims

at improving mobility in the housing market by

allowing for an extended system of income-related

rent increases. Until its introduction, the current

system of income-related rent increases,

introduced in 2013 stays in place.

(

) Housing Europe (2015). ‘The State of Housing in the EU

2015’,

Housing Europe Review.

swd (2016) 0087 - Ingen titel

2.5. The housing market

Box 2.5.1:

Mortgage interest deductibility reform in the Netherlands

This box assesses the financial impact of the reduction in the MID tax rate on debt servicing costs and house

prices, as well as providing indicative simulations of further housing taxation reform.

While the homeownership rate in the Netherlands is in line with the euro area average, the uncapped

deductibility of interest payments explains the high gross revenue costs of over 2 % of GDP per year due to

MID, which are only partly compensated for by taxation of imputed rent. This implies that further MID

reform can have a potentially sizeable financial impact on households’ and the state’s finances.

The following simulations of the impact of tapering down the applicable MID tax rate to 38 % over a

28-year horizon, which corresponds to the current MID reform, are based on a simplified loan scenario (4 %

interest fixed for a 30-year annuity mortgage, starting in 2016). The representative taxpayer in this exercise

is assumed to be in the highest tax bracket (52 % income tax). Within these simulation parameters, the

following results (in percentage terms) are valid across all loan sizes. Graph 1a shows debt service costs

under the above assumptions, both under the post-reform rules (tapered MID rate) and the previous regime

(52 % standard deduction rate). Using the debt service costs of an unsubsidised annuity mortgage as a

benchmark, the new rules ensure a faster decline in the implicit discount on debt service costs (before

imputed rent taxation) than the old rules. This difference increases in the first years of the mortgage due to

the rising differential in the applicable MID tax rate (see Graph 2.5.5), peaking in the middle years of the

loan period. Thereafter, the convexity of the interest payment schedule reduces the impact of a declining tax

rate on debt service costs. In cash terms, the MID rate reduction would reduce the subsidy to a homeowner

with a newly and fully debt-financed property at the national average value by around EUR 520 in the

middle years of the mortgage. Expressed in net present value terms (assuming a uniform discount rate of

1 %) the reform has reduced the implicit debt service cost discount from 33 % to 29 % of the debt service

costs of a non-deductible mortgage, i.e. by slightly more than one tenth (independent of loan size).

Graph 1:

Impact of MID rate taper and further reform options

Graph 1a : Impact of MID rate taper (before imputed

rent)

Graph 1b: Further reform options (after imputed

rent)

Debt service discount due to MID (in pps)

-5%

Impact on debt service costs

due to reform

Gross discount (after reform)

Gross discount (before

reform)

Debt service discount due to MID (in pps)

-5%

-10%

-15%

-20%

-10%

Baseline

-15%

Faster MID taper

higher imputed rental

yield

Combination of

reforms

-25%

-30%

-35%

-20%

-40%

2016 2020 2024 2028 2032 2036 2040 2044

-25%

2016 2020 2024 2028 2032 2036 2040 2044

Source:

European Commission

Notwithstanding the less generous MID rules applicable from 2013 onwards, the implicit subsidy to owner-

occupied housing remains substantial. Estimates by the Commission suggest that even under the new rules,

house prices are likely to be inflated by around 20 % compared to a ‘no-MID’ scenario. This estimate is

based on the assumption that households seek to keep debt service payments at the same level as in an MID

(Continued on the next page)

swd (2016) 0087 - Ingen titel

2.5. The housing market

Box (continued)

scenario by reducing their willingness to pay for a given property. This estimate broadly corresponds to

earlier estimates found in the literature (

The above simulations have so far ignored the role of imputed rent taxation. When accounting for this, the

debt service discount relative to an unsubsidised mortgage is smaller and the effective subsidy falls to zero

sooner in the lifetime of a mortgage (

). Graph 1b depicts as a baseline scenario the net discount — after

imputed rent taxation — corresponding to the gross discount (after reform, before imputed rent taxation)

shown in Graph 1a. Three further reform options are simulated relative to the baseline: A faster reduction in

the top deductibility rate on mortgage interest from the current 0.5 pp. per year to 1.0 pp. per year from 2017

onwards until 2041 (‘faster MID taper’); an annual increase of 0.05 pp. in the imputed rental yield from

0.75 % in 2016 to 1.25 % in 2026 (‘higher imputed rental yield’); and the joint implementation of both. While

the simulated impact depends on the calibration of the reform variables, the illustrated reform scenarios

should not be considered overly ambitious (

). Faster tapering of the MID rate has a comparatively smaller

impact on reducing the implicit subsidy to debt service than raising imputed rental yield, with the net present

value of the subsidy falling by 29 % relative to the baseline scenario in the former and 15 % in the latter; the

combination scenario results in a 43 % reduction in the discount. Given the aforementioned fiscal costs and

macroeconomic distortions created by MID, these results could provide grounds for a faster phasing-out of

the implicit subsidy to owner-occupied housing.

(

) Ewijk, C.

et al.

(2010): ‘Welfare effects of fiscal subsidies on home ownership in the Netherlands’, manuscript; ter

Rele, H. and G. van Steen (2001): ‘Housing subsidisation in the Netherlands’,

CPB Discussion Paper,

No 002.

(

) Cadastral property value (WOZ

waarde)

assumed to be 95 % of the purchase value; mortgage loan at 100 % LTV

(loan to value ratio). .

(

) The increase in the MID taper is of the same size as in the initial reform, and the increase of the imputed rental yield

merely continues the stepwise rise that took place between 2013 and 2015. .

Despite the measures taken, substantial

inefficiencies in the social housing sector

remain, particularly in relation to dealing with

those in need and long waiting lists.

The

problems of

scheefhuurders

and long waiting lists

have not been solved.

Scheefhuurders

(literally

translated ‘skew tenants’) are those tenants who

earn above the income threshold for social

housing, but occupy social housing because they

were once eligible for it. According to an update of

the WoON 2012 survey (

), 418 000 households

are estimated to be

scheefhuurders

in 2015, as they

earn above EUR 38 000 but live in regulated social

housing, which corresponds to 15 % of all social

housing tenants. Of those 418 000 households,

only 36-38 % indicated that they were interested in

moving to a different place.

Scheefhuurders

tend to

stay in social housing longer than the average

tenants (15-17 years for

scheefhuurders;

13 years

on average). While the total percentage of

scheefhuurders

in social housing has decreased,

from 18 % in 2002 to an estimated 15 % in 2015,

the number is still high. In 2013, a measure was

introduced to address the problem of

( ) ABF Research (2015): ‘Passend wonen’.

scheefhuurders

by allowing housing corporations

to apply higher rent increases to

scheefhuurders.

So far, the effect appears to be very small, as the

problems of

scheefhuurders

and consequently long

waiting lists remain.

Some efforts have been made to consolidate the

social housing sector.

The number of housing

corporations fell from 389 in 2011 to 275 in 2013

due to various mergers (

). The total housing

stock has increased slightly (by 0.4 %). The

number of corporation dwellings has grown less

than the housing market as a whole, as the social

housing market share decreased from 31.3 % in

2011 to 30.1 % in 2013. In 2013, 0.6 % of the

existing social housing market stock was sold to

households, a similar ratio to the two previous

years.

The private rental market is recovering for the

second year in a row.

The number of construction

permits issued for rented apartments is expected to

rise above 17 000 (extrapolated, based on data for

(

) For

information,

see

Volkshuisvesting (www.cfv.nl).

Centraal

Fonds

swd (2016) 0087 - Ingen titel

2.5. The housing market

January-November 2015), well above the 10 700

issued in 2013 (see Graph 2.5.6). The increase was

greatest for institutional investors and private

builders, who are expected to have received twice

as many constructions permits in 2015 as in 2013.

The average rent increases of above 4 % in 2013

and 2014 also indicate a recovery of the rental

market.

The private rental market is the only non-

subsidised housing sector.

Since subsidies for the

other sectors are so large, there is much less of an

incentive for institutional or private investors to

enter the market and provide rental housing. At the

same time, the generous tax incentives for home

ownership make it less advantageous for

households to pay relatively high market rents. The

price-finding mechanism between supply and

demand for the private rental market is distorted by

subsidies in the other housing subsectors. As long

as those tax advantages remain at elevated levels,

they will continue to severely affect the

functioning of the private rental market.

Graph 2.5.6:

Construction permits issued for rented

apartments

ths

Private builders

Institutional investors

Government and housing corporations

Source:

Statistics Netherlands

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2.6. MIP ASSESSMENT

This MIP assessment matrix summarises the main findings of the in-depth review in the country report. It

focuses on imbalances and adjustment issues relevant for the MIP.

Table 2.6.1:

MIP assessment matrix (*) - Netherlands

Gravity of the challenge

Current account

Evolution and prospects

Policy response

Imbalances (unsustainable trends, vulnerabilities and associated risks)

The Netherlands has been recording

persistent current account surpluses for

three decades, averaging 6 % of GDP.

Currently, the surplus stands at over

10% of GDP. As such it still

contributes 0.6 pp. to the euro area

surplus (by comparison, the German

contribution increased to 2.3 % of euro

area GDP).

The surplus is mostly structural. The

economy has traditionally been a net

lender to the rest of the world, which is

mainly explained by the strong net

lending position of non-financial

corporations (7.5 % of GDP in 2014).

The excess savings of non-financial

corporations have increased since

2000, and are due to both a sharp

increase in saving by foreign-owned

multinationals, which distribute only a

low share of their profits, and declining

investment. The household sector also

contributes to the surplus in response

to relevant deleveraging needs, while

the government is running a deficit.

Re-exports and to a lesser extent

natural gas production underscore the

positive trade balance, while the

incentives in the regulatory framework

and the tax system drive savings and

investment decisions by households,

multinational companies and the

funded pension system that influence

the income accounts.

(Continued on the next page)

Rising household savings

in view of deleveraging

needs played a major role

in the surplus increase

during the financial crisis,

and

its

stabilisation

afterwards.

Improved

cyclical

conditions and a relatively

strong

recovery

domestic demand

2014/2015 are expected to

lead to a slight decline in

the surplus over the

forecast horizon.

In addition, lower gas

production is expected to

lead to higher energy

imports.

The government has announced

a tax cut (0.7 % of GDP) mainly

targeting low-income workers.

The demand stimulus package is

thus expected to slightly

decrease the surplus through

improving domestic demand.

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2.6. MIP assessment

Table (continued)

Private debt

Private-sector debt as a percentage of

GDP peaked in 2009 at 231 % of GDP

and has since been decreasing very

gradually, to 229 % in 2014.

In the past two decades, household

debt has been growing rapidly reaching

112 % of GDP in 2014. The build-up

of household debt was driven by

regulatory settings, taxation incentives

and large increases in both house

prices and associated mortgage

lending.

While household liabilities are large, in

particular mortgage debt, they coexist

with persistently large illiquid assets in

the form of housing wealth and

pension wealth.

The

savings

households have been

increasing compared to

their disposable income

since the mid-2000s and

are now comparatively

high

(14.8 %

disposable income in

2014).

Given the high level of

debt,

pressures

households to continue

deleveraging remain.

Since 2012, the government

has taken a series of policy

initiatives targeted at the

housing market. The most

significant legislative changes

relate to the eligibility for

mortgage

tax

interest

deductibility and the gradual

reduction in the maximum

deductible rate. The regulatory

ceiling for the loan-to-value

(LTV) ratio is gradually being

lowered to 100 % by 2018.

The measures are still

insufficient and are being

phased in only very slowly;

faster implementation would

be required to improve the

financial

resilience

households

and

reduce

distortions in the housing

market



Conclusions from IDR analysis

Among the euro area countries, the Netherlands has the largest current account surplus in terms of GDP,

mainly due to structural features of the economy and policy settings. The household sector is

characterised by a very large debt stock. The need for household sector deleveraging has contributed to

the increase in the surplus since 2007.

The current account surplus has decreased slightly over 2014/2015 due to improved cyclical conditions

and a relatively strong recovery of domestic demand. Nevertheless, household deleveraging has

contributed to maintaining the current account surplus at its high level, but needs to proceed further as the

outstanding household debt is still large.

The government has taken measures to support the household deleveraging process, but phasing-in is

slow. A tax package is expected to strengthen consumption and thus contribute to a declining surplus in

2016.

(*) The first column summarises ‘gravity’ issues which aim at providing an order of magnitude of the level of imbalances. The

second column reports findings concerning the ‘evolution and prospects’ of imbalances. The third column reports recent

and planned relevant measures. Findings are reported for each source of imbalance and adjustment issue. The final three

paragraphs of the matrix summarise the overall challenges, in terms of their gravity, developments and prospects, policy

response.

Source:

European Commission

swd (2016) 0087 - Ingen titel

ADDITIONAL STRUCTURAL ISSUES

In addition to the imbalances and adjustment issues addressed in section 2, this section provides an

analysis of other structural economic and social challenges for the Netherlands. Focusing on the policy

areas covered in the 2015 country-specific recommendations, this section analyses issues related to

taxation and the fiscal framework, labour market developments and challenges, recent productivity-

related developments, as well as energy, transport and climate challenges.

3.1. TAXATION, SUSTAINABILITY OF PUBLIC FINANCES AND

FISCAL FRAMEWORK

Taxation

contribution to the disincentive is relatively

small (

Graph 3.1.1:

Compulsory payment wedge, single person

earning the average wage (2014)

The total tax and non-tax burden on labour is

high in the Netherlands.

Labour taxes make up a

relatively large share of total tax revenues.

Whereas revenues from personal income taxes,

expressed as a percentage of GDP, are below the

EU average, revenues from social contributions are

the second highest in the EU due to high revenues

from employee contributions. In addition, non-tax

compulsory payments on labour activity are

substantial in the Netherlands, increasing

employers’ labour costs and reducing employees’

net earnings in a similar way to taxes (

). Graph

3.1.1 shows the ‘tax wedge’ on labour for a single

person who earns the average wage (

). Non-tax

compulsory payments are included, showing the

high burden on labour in the Netherlands.

The high tax and non-tax burden on labour

combined with relatively high reservation

wages creates disincentives to work.

The

inactivity trap is among the highest in the EU, with

labour taxes making a substantial contribution to

the disincentive effect. The unemployment trap is

among the highest as well, although taxation’s

(

) Non-tax compulsory payments are compulsory payments in

relation to employment that do not qualify as taxes or

social security contributions because they are ‘requited’

(offset by benefits) or they are made to an organisation

outside the general government. In the Netherlands, these

payments include employer and employee pension and

healthcare insurance contributions to privately managed

funds. See

http://www.oecd.org/tax/tax-policy/Non-tax-

compuslory-payments_2014.pdf.

(

) The tax wedge on labour represents the difference between

the total labour cost of employing a worker and the

worker’s net earnings. It is defined as personal income tax

and employer and employee social security contributions

(net of family benefits) as a percentage of total labour costs

(the wage and employer social security contributions).

Source:

OECD. The OECD does not provide data on non-

tax payments for non-members.

A sizeable unfinanced tax cut has been

introduced to increase financial incentives to

work.

While incremental, but relatively minor,

measures were introduced in recent years, the

Netherlands published a sizeable package of tax

measures in September 2015. The in-work tax

credit was increased, while the rate applicable in

the second and third income tax brackets was

reduced from 42 % to 40.15 %, both from

1 January 2016. To boost employment among low-

(

) The unemployment trap measures the short-term financial

incentive for an unemployed person receiving

unemployment benefits to move to paid employment. The

inactivity trap measures the short-term financial incentive

for an inactive person not entitled to unemployment

benefits (but potentially receiving other benefits such as

social assistance) to move from inactivity to paid

employment.

Income tax

Employee contributions

Employer contributions

Non-tax payments

swd (2016) 0087 - Ingen titel

3.1. Taxation, sustainability of public finances and fiscal framework

skilled workers, a wage cost subsidy for low-

income earners will be introduced in 2017. To

stimulate labour participation further, the childcare

allowance is being increased by EUR 0.3 billion in

2016 and an additional EUR 0.2 billion in 2017.

The total budgetary impact of the policy package

amounts to EUR 5 billion (0.7 % of GDP), of

which EUR 4.4 billion is for tax measures and

EUR 0.6 billion expenditure measures. The CPB

has estimated that, once fully implemented, the

policy package could create 35 000 jobs in the long

run (

Several features of the Netherlands’ tax system

can be used in structures for aggressive tax

planning (

The absence of anti-abuse rules (

)

and the absence of withholding tax on outbound

interest and royalties vis-à-vis non-EU countries

are particularly relevant. Furthermore, some tax

deductions for deemed interest cost (

), excess-

profit rulings (

) and the patent box regime can

prompt or facilitate aggressive tax planning

without sufficient safeguards. In addition, the

(

) The CPB uses its recently developed microsimulation

model for the analysis of tax and benefit reforms

(MICSIM) for this purpose. One key empirical finding

embedded in this model is that labour supply elasticities are

lower for women than was previously understood.

(

) For an overview of the most common structures for

aggressive tax planning and the provisions (or lack thereof)

necessary for these structures to work, see Ramboll

Management Consulting and Corit Advisory (2016),

Study

on Structures of Aggressive Tax Planning and Indicators,

European Commission Taxation Paper No 61. Note that

country-specific information in this study refers to the state

of play by May/June 2015.

(

) For example, there is no beneficial-owner test for reducing

dividend withholding tax; the tax deduction for interest is

not linked to the tax treatment in the creditor Member

State; there are no rules to counter mismatches in the tax

status of domestic companies or partnerships and those of a

foreign state.

(

) The Ramboll study on aggressive tax planning explains

that ‘if a Member State offers a tax deduction for interest

costs which have actually not accrued as a result of non-

arm’s-length conditions being applied to an inter-company

debt, there is a risk of aggressive tax planning if such a tax

deduction is not contingent on a corresponding adjustment

in the state of the creditor company’.

(

) By ‘excess-profit rulings’, the Ramboll study is referring to

regimes that ‘offer a tax exemption of a portion of local

company profits to the extent that they are deemed to

exceed a normal arm’s-length profit. This practice can be

agreed with the tax authorities in the form of a ruling, and

targets profits earned on transactions with related parties

(i.e. member companies of the group).’ In the Netherlands,

profit deemed to have been left to a company by its

shareholders is treated as an informal capital contribution

and remains untaxed following case law established by the

Supreme Court of the Netherlands.

inward and outward foreign direct investment

stock expressed as a percentage of GDP amounted

to approximately 500 % and 600 % of GDP in

2014. Around 80 % of these positions were held by

‘special purpose entities’ (

), suggesting that the

Netherlands is used by multinational companies to

channel tax-driven financial flows to other

jurisdictions.

Long-term sustainability of public finances

The Netherlands is at medium risk in terms of

fiscal sustainability.

Government debt, currently

above Treaty threshold of the 60 % of GDP (at

68.2 % of GDP in 2014) is expected to decrease to

65.1 % in 2017, partly thanks to increasing

nominal GDP growth and partly thanks to the sale

of financial assets and other debt-reducing

measures. The Commission’s debt sustainability

analysis for the Netherlands shows that

government debt is likely to continue falling, to

62.5 % of GDP in 2024 to stabilise until 2026

(final projection year) (

). The projected excess

over the 60 % of GDP threshold at the end of

projection period places the country at medium

risk under the baseline medium-term debt

projections. The overall assessment of the debt

sustainability analysis confirms the medium-risk

category for the debt projection results under

alternative risk scenarios, for example a negative

shock (-0.5 pp.) on nominal GDP growth (Graph

3.1.2).

(

) Source: European Commission (Eurostat). A special

purpose entity is a legal entity that has little or no

employment, operations or physical presence in the

jurisdiction where it is located. It is related to another

corporation, often as its subsidiary, and is typically located

in another jurisdiction.

( ) European Commission, 2014, "Assessing Public Debt

Sustainability in EU Member States: A Guide", European

Economy Occasional Paper, n. 200.

swd (2016) 0087 - Ingen titel

3.1. Taxation, sustainability of public finances and fiscal framework

Graph 3.1.2:

Debt profile 2011-2026

Gross public debt as % of GDP

2011

2016

2021

Baseline no-policy change scenario

2026

currently in place are: (i) the use of independently

derived macroeconomic assumptions; (ii) the use

of real (i.e. inflation-adjusted (

)) expenditure

ceilings, which are predetermined and cover the

government’s entire term of office; (iii) the use of

automatic stabilisers on the revenue side, and (iv) a

well-defined budgetary process in terms of

decision making and clear distribution of

responsibilities, including the tasks of CPB and the

Council of State (Advisory Division), which has

been mandated to monitor compliance with

numerical fiscal rules. Finally, the commitment to

comply with European fiscal rules is embedded in

the legal framework of the Netherlands.

The coverage of expenditure ceilings is wide,

but does not include a number of expenditure

categories.

Four main categories do not fall under

the current expenditure ceilings in the Netherlands:

spending by local government, some tax

expenditures, interest expenditures and revenues

from natural gas. Local government spending is

subject to a requirement to balance the budget (in

the medium run). Tax expenditures add up to

relatively large sums, especially mortgage interest

deductibility (around EUR 11 billion in 2014, or

1.8 % of GDP), and deductibility of pension

contributions (EUR 13 billion, 2.2 % of GDP). A

number of smaller tax facilities, which together

represent a significant amount, do not fall under

any ceiling (for example, specific tax support for

the self-employed, which is about 0.3 % of GDP).

These categories are therefore not subject to the

same high level of oversight.

The fiscal framework of the Netherlands

operates reasonably well, but there is limited

flexibility in the event of a serious downturn.

The current multiannual planning creates stability

in ‘normal times’, but provides limited flexibility

to deal with unforeseen circumstances, in

particular if expenditure ceilings have, with the

benefit of hindsight, been based on overly

optimistic growth forecasts. The application of

‘rolling mechanisms’ with multiannual expenditure

ceilings updated on an annual basis according to

pre-defined drivers (e.g. an update in macro

conditions), the removal of cyclical expenditure

from the ceilings (or a more frequent update), the

(

) The expenditure ceilings are indexed by the deflator of

domestic demand (prijs

nationale bestedingen).

Standardised (permanent) negative shock (- 0.5 pp.) on GDP

growth

Standardised (permanent) positive shock (+ 0.5 pp.) on GDP

growth

Source:

European Commission

The Netherlands has adopted substantial

pension and long-term care reforms, with the

aim of addressing its medium- and long-term

fiscal sustainability risks.

In the last three years

the authorities have undertaken substantial

structural reforms to address fiscal sustainability,

in particular in the areas of pensions and

healthcare. The official statutory retirement age is

gradually being increased to 67 in 2021 and will be

linked to life expectancy thereafter. Policy reforms

and cost-cutting in healthcare have improved the

long-term sustainability of government finances.

Nevertheless, despite these recent efforts,

compared to other European countries the

projected increase in long-term care expenditure is

still high, particularly in comparison with other

euro area Member States. In the Netherlands,

following the so called Ageing Working Group

reference scenario (

), public expenditure on long-

term care is set to increase from 4.1 % of GDP in

2013 to 7.1 % in 2060. For the euro area as a

whole, both the baseline and the increase are much

lower, from 1.7 % in 2013 to 3.0 % in 2016.

Fiscal framework

The Netherlands has a well-established fiscal

framework.

The main characteristics of the

multiannual

trend-based

fiscal

framework

(

) See European Commission,

The 2015 Ageing Report.

Economic and budgetary projections for 28 EU Member

States.

European

Economy

–

2015.

http://europa.eu/epc/pdf/ageing_report_2015_en.pdf

swd (2016) 0087 - Ingen titel

3.1. Taxation, sustainability of public finances and fiscal framework

use of ‘rainy day funds’ (

) and the introduction of

formal escape clauses limited to a few pre-defined

circumstances are also among the options to

improve flexibility within the framework while not

hampering responsible budgeting.

A dedicated study group put in place in 2015 is

expected to review the national fiscal

framework well ahead of next elections, and

report its findings in the summer of 2016.

Membership of this non-partisan advisory group

on budgetary principles includes high level civil

servants, the director of the CPB and the relevant

director of the Central Bank of the Netherlands.

This study group is expected to analyse fiscal

performance, and to provide policy advice on the

fiscal framework and fiscal stance.

(

) Rainy day funds are financial assets accumulated in order

to be used in times of liquidity constraints. Note that the

use of rainy day funds in crisis years does not affect the

budget deficit, as this measures the difference between

revenues and expenditures in a certain year. However, it

will positively affect the development of the general

government debt in a crisis year, as expenditure is financed

via accumulated savings and not via additional borrowing.

swd (2016) 0087 - Ingen titel

3.2. LABOUR MARKET, SOCIAL POLICIES, SKILLS AND

EDUCATION

In 2015, the labour market situation improved

in conjunction with robust economic growth.

The rate of job losses decreased, which is reflected

in a fall in unemployment from 7.2 % in the third

quarter of 2014 to 6.8 % in the third quarter of

2015. At the same time the labour force grew by

0.6 %, reflecting structural trends such as rising

participation in the labour market by women and

older workers but also pointing to a cyclical labour

market recovery. However, the labour market is

still underperforming compared with the situation

before 2008. In the third quarter of 2008, 219 600

people were unemployed (and unemployment

stood at 3.6 %), while in the third quarter of 2015,

there were 586 200 unemployed. In terms of

employment, too, the Netherlands is not yet back

at pre-crisis levels.

Youth unemployment has declined, however the

number of young people not in employment,

education or training has increased.

The youth

unemployment rate for those under 25 stood at

11.4 % in the third quarter of 2015, below the peak

reached in the fourth quarter of 2013 (13.8 %). In

2014, the unemployment rate among young people

born in a non-EU country stood at 22.7 %, more

than 10 pps. higher than for young people born in

the Netherlands. Furthermore, the rate of people

aged 15-24 not in employment, education or

training stood at 5.5 % in 2014. This is lower than

the EU average (12.5 %), but the rate has been

steadily increasing in recent years.

Although the employment rate is relatively

high, a further increase, in particular for

under-represented groups, is needed to cope

with the demographic challenge of an ageing

population.

The employment rate (20-64 age

group) increased from 75.7 % in the third quarter

2014 to 76.5 % in the third quarter of 2015, but

remains substantially below its pre-crisis level of

78.9 % (2008). Employment rates were higher for

men than women, and although the gender

employment gap has narrowed in the last five

years, it was still 11 pps. in the third quarter of

2015 (EU: 12 pps.). Ensuring the financial

sustainability of the social security system requires

raising labour market participation rates among

under-represented groups. These include non-EU-

born immigrants (employment rate: 58.9 % in

2014), people with a disability (50.8 % in 2013),

low-skilled workers (60.5 % in the third quarter of

2015), older workers (55-64, 61.9 % in the third

quarter of 2015) and female part-time workers.

75.2 % of women worked part-time in 2014, by far

the highest percentage in the EU even though only

10 % of women would like to work more

hours (

).The high level of part-time work goes

hand in hand with a high financial dependency of

women indicated by high gender gaps in pensions

and overall earnings (

Graph 3.2.1:

Main labour market developments

% of labour

force

% of

population

Source:

European Commission (Eurostat)

The Netherlands has introduced important

labour market reforms, aimed at increasing

labour market participation and improving the

long-term financial sustainability of the social

security system.

However, despite these recent

reforms and a moderated recovery of the labour

market, long-term unemployment continues to

increase, especially for certain groups. In addition,

labour market segmentation between permanent

contracts, temporary contracts and self-

(

) This is far below the EU average of 26.8 %.

(

) The Netherlands has one of the highest gender gaps in

pensions in the EU (46 %) and the second highest overall

earnings gap in the EU (49.1 %). This last indicator shows

that the average number of hours paid per month to women

in the Netherlands is by far the lowest in the EU. As a

result, 47 % of all women aged 20-65 are not economically

independent.

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

2013Q1

2013Q3

2014Q1

2014Q3

2015Q1

2015Q3

Employment rate (%) (20-64) (lhs)

Unemployment (%) (15-74) (rhs)

Youth unemployment (%) (15-24) (rhs)

Long-term unemployment (%) (15-74)(rhs)

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

employment is increasing. These challenges are

described in detail in the sections below.

Long-term unemployment

again over the coming years, assuming sound

economic growth and a continued increase in

employment.

Among the long-term unemployed, low-skilled

workers, older workers and non-EU-born

immigrants are over-represented.

In 2013, 37 %

of the long-term unemployed were low-skilled

workers (compared with 23 % of the total

workforce), while 39 % were older workers (over

50) (29 % of the total workforce) and 8 % were

non-EU-born immigrants (2 % of the total

workforce).

Graph 3.2.3:

Long-term unemployment (LTU) of specific

groups

While unemployment has started to fall, long-

term unemployment continues to rise.

The long-

term unemployment rate in the Netherlands

increased from 1.0 % in third quarter of 2009 to

2.9 % in the third quarter of 2015 (EU28: 4.3 %).

Long-term unemployment increased by almost

8 pps. to 42.8 % of total unemployment in the third

quarter of 2015, compared to the third quarter of

2013 (Graph 3.2.2), but it is below the EU average

(48.2 %).

Graph 3.2.2:

Unemployment and long-term

unemployment

4.0

Netherlands

3.5

Change in LTU rate 2007-14 (ppts)

Third-country

ths

800.0

700.0

600.0

500.0

400.0

300.0

200.0

100.0

0.0

3.0

2.5

Young adults

2.0

(25 to 29)

Low

skilled

Nationals

Men

Medium

skilled

Older

workers

(50-64)

EU mobile

1.5

Young

(20 to 24)

1.0

Prime age

(25 to 49)

Total

Women

High

skilled

0.5

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

2013Q1

2013Q3

2014Q1

2014Q3

2015Q1

2015Q3

0.0

1.0

2.0

3.0

4.0

Total

>24 months

> 6 months

> 48 months

> 12 months

LTU rate 2007 (% of labour force)

Source:

European Commission (Eurostat)

Source:

European Commission (Eurostat)

The recent increase in long-term unemployment

gives cause for concern, even though the

Netherlands has proportionally more long-term

unemployed returning to work than other

Member States.

Of those that were in long-term

unemployment in 2013, around 30 % moved back

to work within one year, which is among the

highest ranking out of 22 EU countries (

). This

means that institutional factors that typically

explain weak labour market dynamics and

persistently high long-term unemployment are

possibly less relevant for the Netherlands. Long-

term unemployment could gradually decrease

(

) Employment and Social Developments in Europe (ESDE)

2015, European Commission.

About 40 % of the long-term unemployed in the

Netherlands are above 50 years old.

A CPB

study

concluded

that

higher

long-term

unemployment among older workers was a

structural issue caused by existing features of the

labour market such as employment protection

increasing with seniority, the obligation to keep

paying wages to employees on sick leave (for up to

two years), and favourable wage conditions for

older workers (

). These established practices put

upward pressure on older workers’ wage costs,

making it financially less attractive for employers

to recruit them. The study concludes that

improving the situation would inevitably mean

(

) De Graaf-Zijl, Van der Horst and Van Vuuren (2015).

'Langdurige werkloosheid, Afwachten én hervormen'

CPB

Policy Brief,

2015/11,.

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

addressing these features of the labour market.

Moreover, job search requirements are less often

enforced for older workers and those perceived to

be socially disadvantaged (

The integration of immigrants into the labour

market is a major challenge.

The Netherlands

has a relatively high percentage of non-EU-born

immigrants (8.6 % in 2014). This group is

characterised by a low employment rate (58.9 % in

2014), a high unemployment rate (14.4 % in 2014)

and a high inactivity rate (32.2 % in 2014) (

The employment rate is lower than for the native

population at all qualification levels. Attachment

to the labour market is particularly weak among

women and young people. The Netherlands

refrains from taking a target-group approach to

labour market policy. The government offers broad

generic measures to remove barriers to entering the

labour market, such as language courses, childcare

facilities and adequate housing conditions.

There are several explanations for the poor

performance of non-EU-born immigrants in the

labour market.

These include a lower education

level and poorer language skills (

). The reasons

for leaving the country of origin and the reason for

entering the host country also have an impact on

labour market outcomes; economic migrants have

better labour market outcomes than refugees (

While the Netherlands experienced an inflow of

56 900 refugees in 2015, almost twice as many

as in 2014, the implications for the labour

market and the social security system are not

yet visible.

Due to the length of the asylum

procedure, including cases going to higher courts,

the legal status of most refugees will only become

clear in 2016 or even 2017. To strengthen the

labour market position of refugees, early access to

the labour market, the recognition of diplomas,

immediate language training and measures to fight

possible

discrimination

deserve

particular

attention. On average, the participation rate of

(

) Inspectie SZW (2013a),

Voor wat hoort wat,

Den Haag.

(

) Compared with an employment rate of 77.6 %, an

unemployment rate of 6.7 % and an inactivity rate of

19.6 % for the population born in the Netherlands.

(

) In 2014, 21 % of non-EU immigrants had tertiary

education (compared with 31 % of the native-born), while

37 % had only primary education (28 % of the native-

born).

(

) OECD (2015), Settling in: OECD Indicators of Immigrant

Integration 2015.

those who entered the Netherlands as refugees

increases with the duration of stay. This means the

newly arrived migrants could enlarge the labour

force potential in the medium and long run (

), on

the condition of active support to integration and

labour market participation in an early stage (

Refugees may enter the labour market six months

after the start of the asylum procedure (under

specific conditions: only 24 weeks per year) or

once they have obtained a legal status

(statushouder), although there are some exceptions

for internships and voluntary work.

Labour taxation

The structure of the tax and benefits system

leads to relatively high inactivity and

unemployment traps.

The average tax wedge is

below the EU average at all wage levels, but the

overall average burden on labour is among the

highest in the EU when taking into account

compulsory non-tax payments (see Graph 3.1.1 in

section 3.1) (

). The high average burden on

labour reduces take-home pay for employees and

increases wage costs for employers. The inactivity

trap for low wage earners and the unemployment

trap are relatively high. However, incremental tax

measures aimed at making work pay have

contributed to a slow but steady decline of these

traps. For single households earning 50 % of the

average wage in 2014, the inactivity trap is 87.2 %,

down from 95.1 % in 2006, while the

unemployment trap is 93.7 %, down from 98 % in

2006.

(

) Labour Force Survey and ad hoc module 2008.

(

) Engbersen et al. (2015) ‘Geen tijd verliezen: van opvang

naar integratie van asielmigranten’,

WRR-Policy Brief 4,

Den Haag: WRR.

( ) Non-tax compulsory contributions in the Netherlands are

paid under collective labour agreements by employees and

employers to privately managed pension funds and for

basic health insurance to a privately managed health

insurance company.

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

Graph 3.2.4:

Inactivity trap for single earner at 50% of

average wage

Graph 3.2.5:

Employment by type, year-on-year changes

300

120

Inactivity

trap (%)

ths

200

100

-100

-200

-300

-400

-500

05 06 07

Max EU-28

11 12 13 14

Min EU-28

Average EU-28

Source:

European Commission

Source:

European Commission (Eurostat)

For 2016 and 2017 a relatively large tax

package has been introduced, leading to a fall in

the average burden on labour

(see section 3.1).

In particular, the ‘low-income advantage’ (lage

inkomensvoordeel),

which is a wage cost subsidy

for employers who employ low wage earners, is

likely to positively affect labour demand for low-

skilled workers. This measure is based on the

hourly wage, leading to a relatively low

deadweight loss (

Labour market segmentation

The relatively modest labour market impact of

the crisis and the recent growth in employment

can be fully attributed to an increase in the

number of people employed on temporary

contracts and of the self-employed.

Since 2012,

their numbers have increased in each quarter,

while the number of people on permanent

contracts has decreased (Graph 3.2.5).

(

) Previous wage cost measures have typically been applied

to annual wage income, providing a disincentive to work

more hours. Moreover, given the high incidence of part-

time work arrangements, wage cost subsidies based on

annual income could lead to large deadweight losses.

While the percentage of temporary contracts is

high and increasing, transition rates from

temporary to permanent contracts are

comparatively low.

In times of labour market

recovery, there is typically an increase in the

number of temporary contracts, at least initially.

These contracts can be seen as potential stepping

stones to a permanent contract. However,

transition rates from temporary to permanent

contracts in the Netherlands are among the lowest

in the EU. In 2013, the transition rate between

temporary and permanent contracts stood at

12.3 %, well below the EU average of 22.7 %.

Moreover, the percentage of temporary contracts is

among the highest in the EU and the Netherlands

has a relatively high pay gap between permanent

contracts and temporary contracts (

(

) Eurofound (2015), Recent developments in temporary

employment: Employment growth, wages and transitions.

Publications Office of the European Union, Luxembourg;

IZA Policy Paper No 105 (August 2015), Precarious and

less well paid? Wage differences between permanent and

fixed-term contracts across the EU.

05Q1

05Q3

06Q1

06Q3

07Q1

07Q3

08Q1

08Q3

09Q1

09Q3

10Q1

10Q3

11Q1

11Q3

12Q1

12Q3

13Q1

13Q3

14Q1

14Q3

15Q1

15Q3

Permanent employees

Self-employment

Temporary employees

Overall

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

Graph 3.2.6:

OECD indicators on employment protection

legislation (2013)

3.00

2.50

2.00

1.50

1.00

0.50

after three contracts or two years had expired was

raised from three to six months. Although there are

signs that the measures have had some adverse

effects, such as less job security, it is too early to

assess their impact pending evaluations in the

coming years.

The increase in employment has been

particularly marked for self-employed people

with no employees.

Between 2005 and 2014, the

total number of self-employed increased by 35 %,

the largest increase in the EU (Graph 3.2.7). The

self-employed accounted for 15.9 % of total

employment in 2014, somewhat above the EU

average of 14.6 %. The increase in self-

employment was mainly driven by a rise in the

number of self-employed people with no

employees, which increased by 51 % between

2005 and 2014 while the number of self-employed

people with employees increased by only 5 %.

Graph 3.2.7:

Change in self-employed and self-

employment as a share of total employment

Share (%)

0.00

Protection of permanent

Regulation on temporary

workers against (individual)

forms of employment

dismissal

Netherlands

Germany

Belgium

OECD countries

Scale from 0 (least restrictions) to 6 (most restrictions)

Source:

OECD

The high and increasing percentage of

temporary contracts is observed in the context

of great differences in employment protection

legislation between temporary and permanent

contracts.

The low transition rates from temporary

to permanent contracts may be a result of relatively

stringent legal protection for employees on

permanent contracts, and the high cost of

employer-paid sick leave. Based on the OECD’s

Employment Protection Legislation indicators,

there is a big difference in regulation between

permanent contracts and temporary contracts. In

particular, protection against individual dismissal

is much greater than that of neighbouring countries

and the OECD average (rated 2.84 versus 2.03 for

the OECD average). By contrast, protection of

employees on temporary contracts is weaker than

that of neighbouring countries and the OECD

average (Graph 3.2.6). These figures do not yet

reflect the changes in the legislation introduced in

2015.

In July 2015, several measures reducing the

differences between permanent and temporary

contracts were introduced

(

). The number of

consecutive temporary contracts was limited to

three, with a maximum of two years, and the

waiting time for renewal of a temporary contract

(

) Work Security Act (Wet

Werk en Zekerheid)

adopted in the

upper house of the Parliament of the Netherlands on 10

June 2014.

Change

(%)

-10

-20

-30

EU-28

-10

-20

-30

-40

Change in self-emloyment (2005-2014)

Self-employed share of total employment in 2014 (%)

Source:

European Commission (Eurostat)

As regards the rapid increase in the number of

self-employed with no employees, several

macroeconomic and institutional factors may

play a role.

In the past decade, changes in

technology and in the production structure have

helped to expand the service sector, in which self-

employment is more common. In addition, self-

employed workers received favourable tax

treatment, in particular high tax relief (the self-

employment deduction,

Zelfstandigenaftrek)

and a

14 % discount in taxable profits for small

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

businesses (the

MKB winstvrijstelling).

A CPB

study indicates a positive relation between

developments in tax treatment and the number of

self-employed (

). Furthermore, the self-employed

are allowed to pay lower social and non-tax

contributions — thereby enabling them to offer

their services at lower cost — as they can decide

on the extent to which they insure themselves

against the risks of sickness, labour disability,

unemployment and old age. For employers, using

self-employed workers is financially attractive as

they are not covered by minimum wage and

employment protection legislation or entitled to

employer-paid sick leave.

There is a clear financial incentive for

employees to start working as self-employed.

For the same gross labour cost, a self-employed

person without employees earning a typical wage

receives a take-home pay that is 12 % higher than

an employee if he or she is privately insured

against sickness, labour disability, unemployment

and old age and 23 % higher if not insured (Graph

3.2.8, panel a). In addition, there are financial

incentives for employers to make use of self-

employed people. At the same net income, the

gross labour cost of an employee earning an

average wage is 84 % of net income, but 41 % for

a self-employed person without employees who is

privately insured against sickness, disability,

unemployment and old age, and 6 % for a self-

employed person without employees who is not

insured (Graph 3.2.8, panel b).

A recent government study suggests that tax

incentives for the self-employed do not lead to

additional job creation

(

). The study points out

that tax and legal incentives for the self-employed

and employers lead to labour market distortions

and that the rise in self-employment is leading to a

decline in public revenue and probably an increase

in public expenditure. The study also shows that

there is no correlation between self-employment

and innovation.

Graph 3.2.8:

Take-home pay and labour costs for

employees and the self-employed

Panel a. Take-home pay at the same gross labour

costs for employees and self-employed without

employees

100%

23%

80%

60%

40%

54%

20%

66%

46%

11%

Employee

Self-employed without

employees

Taxes

Reservations for sickness, disability, unemployment and old age

Net income

200%

180%

160%

140%

120%

100%

80%

60%

40%

20%

Panel b. Labour costs at the same net income for

employees and self-employed without employees

84%

41%

100%

Employee

Self employed

without employees

making no

reservations

Self employed

without employees

making reservations

Net-income

Gross labour costs

Source:

Ministerie van Financiën (2015) IBO Zelfstandigen

zonder personeel.

(

)

CPB Notitie, 21-2-2014

De Winstbox en de Wig.

(

) Ministerie van Financiën, 2015, IBO Zelfstandigen zonder

personeel.

The increase in the number of self-employed

could put pressure on the social security system,

as most self-employed are not insured, or only

partly, against the risks of sickness, labour

disability, unemployment and old age

(

). The

rapid rise in self-employment has led to a

presumption that many of these contracts could be

bogus self-employment (

). A new law against

fraudulent

schemes

(Wet

aanpak

schijnconstructies)

adopted in June 2015 aims at

tackling this. It combines new provisions and

amendments to existing laws to prevent fraud,

(

) For example, in 2013 only 33.2 % of the self-employed

without employees were insured against disability (IBO

ZZP,

2015).

(

) This term refers not only to economically dependent self-

employed workers, but to workers who are pushed into

self-employment by external factors and would prefer to

work as an employee.

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

including bogus self-employment, and seeks to

strengthen workers’ protection. These measures

should help to enforce the statutory minimum

wage (by clarifying whether specific allocations or

reimbursements can be included or deducted and

making salary slips more transparent). In addition,

they extend the contractor’s or client’s liability for

the salary paid by the employer to wages laid

down in collective agreements, of which at least

the statutory minimum wage part should be paid

electronically. They expand the powers of social

protection inspectorates and improve control and

monitoring of collective agreements, while

providing for fines for social fraud.

Social dialogue in the Netherlands is gradually

adapting to the increase in the number of self-

employed without employees.

For example, for

the first time, the 2013 social agreement between

the government and social partners covers the self-

employed with no employees.

Social inclusion

provisions. The negative trends in the social

situation may be related to a transitional effect.

From 1 January 2015 responsibility for groups

more distant from the labour market shifted to the

municipalities; it remains to be seen what social

effects this reform will have.

Graph 3.2.9:

Poverty and social inclusion

% of

population

2005

2013

2006

2007

2008

2009

2010

2011

2012

Poverty levels in the Netherlands are low but

increasing and have reached the highest level

over the past decade.

The at-risk-of-poverty-or-

social-exclusion rate (

) has increased by 0.6 pp.

from 2013 to 2014, from 15.9 % to 16.5 % (Graph

3.2.9). In particular, poverty increased for groups

that already faced high at-risk-of-poverty rates,

namely non-EU-born immigrants and households

with (very) low work intensity (

). Since 2008, the

number of people that lived in households with

very low work intensity rose by 67 000 persons

until 2014. In addition, in-work poverty (at 5.3 %)

has increased, although it is still significantly

lower than the EU average. This issue is most

prevalent among the self-employed, for whom in-

work poverty stands at 13.2 %. The self-employed

are more susceptible to the risk of poverty or social

exclusion due to the combined effect of income

volatility and limited coverage by social security

(

) This rate is the percentage of people who are: at risk of

poverty, i.e. whose equalised household disposable income

(after social transfers and after pensions) is below 60 % of

the median national household disposable income; or

severely materially deprived; or living in households with

very low work intensity.

(

) For individuals living in households with very low-work

intensity, the at-risk-of-poverty rate has increased by 8.9

pps., from 39.8 % in 2013 to 48.7 % in 2014. For non-EU-

born immigrants, the at-risk-of-poverty rate increased from

20.8 % in 2013 to 24.5 % in 2014.

At-risk-of-poverty-or-social-exclusion rate

At-risk-of-poverty rate

Severe material deprivation

People living in low work intensity households

In-work poverty rate

Source:

European Commission (Eurostat)

Education and skills

The Netherlands has a high tertiary education

attainment rate and the results of international

surveys show that educational performance is

good

(Graph 3.2.10). These are major assets given

the strong connection between educational

outcomes, skills levels, labour productivity and

participation (and achievement) in the labour

market. The tertiary education attainment rate, for

which the Europe 2020 national target is 40 %,

already exceeds that level and stood at 44.6 % in

2014. The increase in tertiary education attainment

has partly been achieved by providing guidance to

improve students’ choice of courses and by

encouraging students to complete their studies.

Competence levels in mathematics have decreased

somewhat since 2009, but the proportion of low-

achieving students is relatively low in all three

areas tested (reading, mathematics and science).

Measures to improve the quality and range of

courses offered in higher education have been

taken. This includes more differentiation between

courses and guidance for and selection of

2014

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

prospective students (

). Plans to foster talent in

primary and secondary education were also

adopted in 2014 (

). These measures cover

support for more challenging education, support

for education in which outstanding achievements

are positively recognised and support for better

equipped teachers. The measures seem promising,

but it is too early to assess their long-term impact.

Graph 3.2.10:

Education indicators

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Tertiary education 30-34 (right axis)

NEET 15-24 (left axis)

Early school leavers 18-24 (left axis)

vacancies (

). This challenge is in part because

science and technology graduate numbers have

failed to rise, as not enough young people,

including women, are being attracted to careers in

ICT. This is part of a broader issue touching many

science and engineering studies, as reflected by the

position of the Netherlands (25

among the EU

Member States) on the indicator 'new graduates in

science and engineering per thousand population

24-34'. The Netherlands has been seeking to

address actual and potential technological and

digital skills shortages with a range of

programmes, and recently launched the Human

Capital Agenda ICT-Innovation to link demand

and supply of ICT professionals in the ‘top sectors’

and to stimulate lifelong learning. It is too early yet

to assess this measure.

The new social lending system (sociaal

leenstelsel)

is replacing the previous grant

system for new students starting their studies as

of the academic year 2015/16.

In this new system,

students will be able to take out low-interest loans

to finance their studies. Repayment of these loans

will depend on the students’ income after

graduation. The system includes special provisions

for students from low-income families. Although

the high private rents from higher education

provide a theoretical and empirical justification for

increasing private contributions to tertiary

education, there are worries about the accessibility

of the higher educational system.

The implementation of the reform promoting

inclusive education for children with special

needs seems to be challenging.

Since August

2014, schools must provide appropriate education

(passend

onderwijs)

for pupils who need extra

support. Some reports from stakeholders (

)

indicate that there is a lack of adequate

coordination between schools, unfamiliarity with

certain disabilities or disorders, or pupils not

finding an appropriate school, which is leading to

an increase in truancy. Around 70 % of

headmasters report that the quality of education

provided is being compromised by shortages of

qualified or high-quality teachers and of teachers

able to teach students with special needs. The

Ministry is aware of these problems and has taken

measures such as providing support (via education

(

) Digital Agenda Scoreboard, based on Eurostat.

(

) Balans, Steunpunt passend onderwijs, Kinderombudsman.

Source:

European Commission (Eurostat)

The Survey of Adult Skills (PIAAC) shows the

literacy, numeracy and problem-solving in

technology-rich environments skills of adults to

be significantly above the EU average.

While the

proportion of low-skilled adults is comparatively

low, the gap between the educational level and

numeracy and literacy skills of native- and foreign-

born adults is larger than the EU average. This

suggests a need for further action to reduce this

gap and thereby improve the chances of

successfully

integrating

the

foreign-born

population in the labour market and society at

large (

A lack of engineers and information and

communication technology (ICT) professionals

may hamper job matching and innovation

performance.

In 2015, more than half (53 %) of

the companies in the Netherlands trying to recruit

ICT specialists found it hard to fill their

(

) Wet Kwaliteit in verscheidenheid hoger onderwijs.

(

) Ruim baan voor toptalent 33 400 Nr. 166 Brief van de

Staatssecretaris van onderwijs, cultuur en wetenschap.

(

) OECD (2013), ‘OECD Skills Outlook 2013: First Results

from the Survey of Adult Skills’, OECD Publishing.

swd (2016) 0087 - Ingen titel

3.2. Labour market, social policies, skills and education

consultants) and setting up a national conciliation

committee. The aim is to provide every pupil with

the necessary support within three months of

identifying the special need by 2020.

In 2014, several initiatives were launched to

increase the amount of work-based training in

vocational education and training programmes.

Particular attention has also been given to

improving the general quality of education,

offering incentives for employers to provide more

and better quality internships and more

opportunities for students’ personal development,

including doing more to avoid students dropping

out. Further changes are expected to be made to

increase the amount of work-based learning in

vocational education and training programmes.

EUR 400 million will become available as of 2015

from investment and performance budgets created

as part of the quality agreements in secondary

vocational education.

swd (2016) 0087 - Ingen titel

3.3. DRIVERS OF GROWTH

Productivity developments

The Netherlands combines a very high level of

productivity with very low post-crisis

productivity growth (

Productivity is one of

the three drivers of economic growth, alongside

labour and capital inputs. Graph 3.3.1 shows that

the Netherlands ranks third after Belgium and

Ireland in terms of productivity, measured as GDP

per hour worked, which is around 30 % higher

than the EU average. The average annual growth

rate of GDP per hour worked, however, since 2008

is only 0.2 %. Total factor productivity, which is a

measure of the economy’s long-term technological

dynamism, decreased between 2008 and 2014, in

contrast to many other euro area Member States,

and especially the US (

Graph 3.3.1:

GDP per hour worked (2014)

did GDP per hour increase again, after a long

period of stagnation.

Graph 3.3.2:

Labour hoarding in the early phase of the

crisis

101

100

index 2008 = 100

150

125

100

3.5

2007 2008

2009 2010

2011 2012 2013

2014

Total employment

Total hours worked

GDP volume

Source:

European Commission (AMECO)

2.5

1.5

0.5

EA-19

EU-28

-25

-0.5

-50

-75

-1

gdp per hour worked (index EU-27 = 100, right axis)

post-crisis average growth rate (left axis)

-1.5

International comparison based on PPS; growth (right axis)

is represented in compound average growth rates.

Source:

European Commission (AMECO)

Labour hoarding only explains low productivity

growth in the first years of the economic crisis.

Between 2009 and 2011, productivity growth was

heavily influenced by labour hoarding. Since 2011,

GDP and employment (both in hours and in

persons) moved in tandem, indicating low growth

of labour productivity (Graph 3.3.2). Only in 2014

(

) See European Commission (2015), ‘Single Market

Integration and Competitiveness in the EU and its Member

States’, SWD (2015) 203, notably charts 2.11, 2.13, 2.16,

2.17, 2.18, 2.20, 3.18-3.23.

(

) Total factor productivity could be seen as the residual

economic growth component, not accounted for by labour

and capital inputs.

Businesses rank among the most productive in

the euro area in many sectors, but in there is

scope for catching up in the financial services

sector.

A sectoral perspective shows high

productivity in resource-rich and capital-intensive

industries, which contrasts with lower levels of

productivity in (non-financial) services and

agriculture. Graph 3.3.4 shows the 2014 level of

productivity for different branches of activity. The

graph also shows the comparable sectoral

productivity level of the top euro area performers

(here defined as the average of the top three euro-

area Member States in each area of activity). It

shows that many sectors in the Netherlands operate

close to or above the European frontier; only in

finance and business services is there scope for

catching up with the top European performers.

swd (2016) 0087 - Ingen titel

3.3. Drivers of growth

Graph 3.3.3:

Productivity per sector (2014)

160

120

agriculture

Netherlands is one of the few Member States

where labour reallocation contributes negatively to

productivity growth (

The Netherlands' public research base is of

global-level quality but its research and

innovation (R&I) system is still endeavouring to

leverage additional business investment.

The

Netherlands is a global player in terms of the

quality of its public research base, with 16.4 % of

its scientific publications among the 10 % most

cited worldwide. The efficiency and high quality

of the R&I system has the potential to leverage

additional business R&I investment (

). The ‘top

sectors’ approach, implemented in 2011, addresses

this challenge by enhancing science-business

cooperation. This approach is complemented by

support for R&D activities via tax incentives (

an innovation fund (

) and the ‘national science

agenda’, via which the government aims to

improve cooperation between universities and the

corporate sector. In 2016 two existing tax

facilities, the WBSO and the RDA, are being

merged, which is expected to lead to improved

access for SMEs and new entrants to support for

R&D activities.

Industry

(excl.construction)

Finance and

Business services

construction

-40

-80

-120

-160

top 3

Productivity is measured as gross value added per

employed worker in constant prices. Leader represents the

average of the three best performing euro area Member

States. The sample is restricted to euro area countries to

eliminate exchange rate effects.

Source:

European Commission (AMECO).

Innovation policy challenges

The Netherlands is developing less favourably

than the Nordic countries and the US in a

number of key drivers of competitiveness,

including productivity growth, innovation and

R&D, development of ICT skills and

integration of digital technologies, notably by

SMEs (

)

This raises a number of longer-term

challenges to the productivity and competitiveness

of the economy and shows the need to further

enhance framework conditions, encourage

technology adoption and boost innovation.

Framework conditions, such as a high-quality

educational system and well-functioning product

and labour markets, are key for productivity

growth. Although the Netherlands scores well on

bankruptcy procedures and product market

regulation, there are signs that the relatively

stringent employment protection legislation for

permanent contracts having reached a certain

seniority may hinder productivity growth via its

impact on labour turnover rates (

). The

(

) For example, only 17 % of SMEs sell online and only 15 %

of enterprises send e-invoices, even though 76 % of

consumers use the internet for shopping and 91 % for

banking.

http://ec.europa.eu/digital-agenda/en/desi.

(

) Andrews, Criscuolo and Gal (2015). ‘Frontier firms,

technology diffusion and public policy: micro-evidence

Trade,

transport and

communication

Other service

activities

(

)

(

)

(

)

(

)

from OECD countries’

OECD future of productivity main

background papers.

The authors use a harmonised firm-

level productivity database covering the top performing

enterprises in 23 OECD Member States, and isolate the

productivity growth at the frontier from the productivity

growth in non-frontier firms and all firms, based on the

OECD Stan database. They show that potential labour

productivity in the Netherlands could be increased by ten

percent by reducing the stringency of employment

protection.

This follows from a shift-share analysis on Ameco-data

over the period 2000-2014 and has also been documented

by the OECD, see Molnar and Chalaux (2015) ‘Recent

trends in productivity in China: shift-share analysis of

labour productivity growth and the evolution of the

productivity gap’

OECD Economics Department Working

Papers No 122.

Figure 1, p.8 at

http://www.oecd-

ilibrary.org/docserver/download/5js1j15rj5zt.pdf?expires=

1454064978&id=id&accname=guest&checksum=31F5211

ED3F8C215B6C91F57C685361B.

Public-private cooperation in R&D is relatively well

positioned in an EU comparison (3rd position) with

0.083 % of public expenditure financed by the private

sector, compared to the EU average of 0.051 %.

The tax credit for R&D labour costs (‘WBSO’), the

Research & Development Allowance (‘RDA’) and the tax

relief for innovation (‘Innovation box’).

The MBK+ innovation fund will continue as a part of the

new ‘Future Fund’.

swd (2016) 0087 - Ingen titel

3.3. Drivers of growth

R&D intensity is below the EU average and

below Europe 2020 targets.

Despite the effort put

into introducing the integrated innovation policy,

total R&D intensity has stabilised at around 2 % of

GDP, markedly below the Europe 2020 target of

2.5 % of GDP and below the EU average (

). At

0.86 % of GDP in 2014, public R&D spending is

lower than in other Member States with similar

levels of educational attainment and economic

development (Denmark, Sweden, Germany).

Moreover, the overall level of public support to

R&D and innovation is expected to decline from

0.94 % of GDP in 2014 to 0.77 % by 2019, both in

terms of direct support and fiscal incentives (

). In

2014 business enterprise expenditure on R&D

stabilised at a level of 1.11 % of GDP compared to

the EU average of 1.30 %. This is a reason for

concern as at the ‘knowledge frontier’ productivity

improvements are typically made through R&D

and innovation.

Graph 3.3.4:

R&D expenditure by sector (2014)

Although patent applications per million

inhabitants are relatively high, the number of

patent applications has slightly declined. The share

of patents relating to key enabling technologies

(KETs) for the Netherlands has been slowly

declining, from close to 3 % of all patents in the

early 2000s to below 2 % in 2011 (

Access to finance

3.50

3.00

2.50

2.00

1.50

% of GDP

Financing conditions are showing signs of

improvement.

Financial sector deleveraging and

lower demand for credit have led to a decline in

credit growth (see also chapter 2.2). Although

Small and Medium-Sized Enterprises (SMEs) in

particular are still reporting difficulties in

obtaining credit from banks, credit conditions

seem to be improving according to the most recent

SAFE survey by the ECB and Commission (

This showed that for the first time more than 50 %

of surveyed SMEs reported access to finance being

of low importance to the company. Moreover, the

survey shows a high number of SMEs reporting

increased profits and decreased interest

expenditures. Although lower than in previous

years, the calculated loan rejection rate at 25 % is

still elevated and the highest in the EU.

Various measures to support access to finance

have been introduced.

These include microcredit

loans through Qredits (

) and guarantee

schemes (

). The government takes part in venture

capital for young innovative companies (SEED).

The government set up an investment facility

linked to business angels (Investeringsfaciliteit

Business Angels), whereas the Netherlands

Investment Agency (NIA) aims to link

entrepreneurs to the European Fund for Strategic

Investments (EFSI). Finally, in 2015 a one-stop

shop

for

business

finance

(Nationale

Financieringswijzer) was set up to provide

(

) For further detail, see European Commission (2015), ‘Key

Enabling Technologies (KETs) Observatory, First annual

report’ May 2015. The six KETs analysed include:

adfvanced materials, nano-technology, micro- and nano-

electronics, industrial biotechnology, photonics and

advanced manufacturing technology.

(

) http://ec.europa.eu/growth/access-to-finance/data-surveys/.

(

) Qredits Microfinanciering Nederland is a non-profit

organisation

supported

the

government

http://qredits.com/.

(

) Garantie Ondernemingsfinanciering (GO), Borgstellings

MKB-kredieten

(BMKB),

Groeifaciliteit

and

Toekomstfonds (structural funding for R&D and

innovative companies).

1.00

0.50

0.00

Business enterprise sector

Higher education sector

Source:

European Commission (Eurostat)

Patent applications have declined significantly

from their average level before the crisis, in

contrast to trends in some other countries.

(

) The country-specific Europe 2020 R&D target of 2.5 % of

GDP takes the services-oriented economic structure of the

Netherlands into account.

( ) Rathenau Instituut (2015), 'Total Investment in Research

and Innovation (TWIN) 2013-2019'

https://www.rathenau.nl/en/node/98.

EU-28

Government sector

Private non-profit sector

swd (2016) 0087 - Ingen titel

3.3. Drivers of growth

entrepreneurs with knowledge, skills and networks

to obtain finance.

Quality of public administration

The perceived quality and effectiveness of

public administration is relatively high, both by

EU and international comparison.

According to

the World Bank Worldwide Governance

Indicators, the Netherlands ranks among the best

performing countries in terms of government

effectiveness (

). The burden of government

regulation is light. There is a framework to

systematically assess the impact of new policy and

legislation: the Advisory Board on Administrative

Burden Reduction (ACTAL), the mandate of

which has been extended until 2017. After

evaluating its impact, the government will decide

on ACTAL’s continuation or termination in 2017.

All enterprises will have the right to communicate

and to do business with the authorities online by

2017. By 2017, a reduction of EUR 2.5 billion in

the regulatory burden on business, professionals

and the public is planned to be achieved by

introducing new regulations revising or abolishing

existing rules (

The Netherlands does well in most key areas of

interaction between businesses and public

administration, except for fees for specific

administrative procedures.

The Netherlands

performs better than most of its EU peers in terms

of start-up conditions, including the time it takes to

start a business and the paid-in minimum capital

needed, which has contributed to a rise in start-ups

in recent years. Export and import procedures also

take up much less time than in the rest of the EU.

Yet several fees for specific administrative

procedures are higher compared to the EU average.

The cost to start a business at EUR 375 is still

more expensive than the EU average (EUR

312.86), and well below the Single Business Act

target of EUR 100. The same holds true for the

costs required to transfer property (6.1 % of

property value compared to an EU average of

(

) For the government effectiveness indicator, which captures

perceptions of the quality of public services, the capacity of

the civil service and its independence from political

pressure, and the quality of policy formulation, the

Netherlands scores well above the EU average and is

among the top performers worldwide.

( ) Goed geregeld, een verantwoorde vermindering van

regeldruk 2012-2017(2013) Letter to parliament.

4.45 %) and to enforce contracts (23.9 % of the

claim compared to an EU average of 21.54 %) (

Finally, the World Bank Doing Business 2016

report indicates that dealing with construction

permits remains burdensome, given the

Netherlands ranks 85

out of 189 economies (

Public procurement

The number of tenders published under EU –

rules is far below EU average, but the

competition among bidders is high and e-

procurement is used frequently.

The tenders

published under EU rules by the Netherlands in

2014 represent 2 % of GDP, compared to 4.4 % for

an average EU Member State. An increase in the

value of contracts published EU-wide would

generate additional opportunities for European

businesses in other Member States (

). The

reporting quality is poor, as 75 % of contracts

awards published EU-wide in 2015 have no

information about the value. On the other hand, the

Netherlands is one of the best performers in

enabling e-procurement and in ensuring high levels

of competition among bidders. In 2015, the

proportion of awards with just a single bid at 12 %

in the Netherlands was below the EU average of

21 %, together with Ireland, the UK and Denmark.

(

) 2015 Single Business Act Fact Sheet The Netherlands,

available at: http://ec.europa.eu/growth/smes/business-

friendly-environment/performance-review/files/countries-

sheets/2015/netherlands_en.pdf.

( ) World Bank Doing Business 2016.

(

) It should be emphasised that a low value in relation to GDP

does not imply that rules are not respected, simply that

other Member States publish tenders representing a higher

proportion of their economy.

swd (2016) 0087 - Ingen titel

3.4. ENERGY, TRANSPORT AND CLIMATE POLICY

While greenhouse gas emission targets are

expected to be met, targets for renewable

energy and energy efficiency remain key

challenges for the Netherlands in the area of

energy and climate policy.

Under the Effort

Sharing Decision, the Netherlands needs to reduce

its greenhouse gas emissions not covered by the

EU emission trading scheme by 16 % by 2020,

compared to 2005. Emissions from sectors not

covered by the emissions trading scheme fell by

23 % between 2005 and 2014. Taking into account

existing policies, the latest projections suggest that

it will beat this target by 5 %. On the other hand,

there is insufficient progress on meeting renewable

energy and energy efficiency targets (see the

Europe 2020 table in the annex) which are

especially important given the decline in gas

production.

The Netherlands is not on track to meet its 2020

renewable energy sources target.

This target (i.e.

energy from renewable sources as a share of gross

final energy consumption) is set at 14 % by 2020.

The fall in gas production makes renewable energy

resources more important, as they can limit

dependency on energy imports. The Netherlands

did not meet the first interim target (4.4 % in

2011/2012 when the target was 4.7 %) and the

latest 2014 data shows that it also did not meet the

second interim target (5.0 % in 2013/2014 versus a

target of 5.9 %). In the National Energy Outlook

2015, current measures are projected to not fully

meet the Europe 2020 target.

Furthermore, the Netherlands is at risk of not

meeting its primary energy efficiency target.

For the Netherlands, the Europe 2020 energy

efficiency target is 60.7 Mtoe expressed in primary

energy consumption and 52.2 Mtoe expressed in

final energy consumption. While the Netherlands

will most likely meet its final energy consumption

target, its primary energy efficiency target is more

challenging (

). Under the Energy Agreement for

sustainable growth, the Netherlands has taken

additional measures to improve energy

efficiency (

). While some of the agreed measures

have been translated into legislation, others are

(

) https://ec.europa.eu/energy/sites/ener/files/documents/

1_EEprogress_report.pdf

(

) For an overview of these measures, please see

http://afsprakengestart.energieakkoordser.nl/.

non-binding, meaning that their contribution to

meeting the targets is not guaranteed.

The findings of a 2016 progress report (

) on

the national Energy Agreement for sustainable

growth (

) indicate that reaching the 2020

renewable energy sources and energy efficiency

targets is still feasible,

given that full agreement

has been reached among all parties involved on

additional measures, including an action plan for

the production of wind energy and subsidies for

small-scale projects on renewable energy.

Energy dependency is expected to increase.

Petroleum products accounted for 41.9 % of

energy consumption in the Netherlands in 2013

(EU28: 33 %) while nuclear energy accounted for

0.9 % (EU28: 14 %) and renewables 4.8 % (EU28

15 %). Gas accounts for a higher proportion of

energy consumption than in other European

Member States, (NL 41.8 %, EU 23 % in

2013) (

). 66.2 % of the Netherlands energy needs

were covered domestically in 2014; the rest was

imported. Although the Netherlands’ overall

import dependency in total fossil fuels is low (due

to national gas production), its dependency on

imports of petroleum products is very high. Gas

import dependency is expected to increase in the

next 20 years, as a steady decline in domestic gas

production is expected due to concerns about

earthquake activity in Groningen (see section 1).

Besides the fiscal implications, the decrease in

domestic gas production strongly affects the

country’s energy supply and dependency on

energy imports. The gas production policy and

broader energy strategy from 2016 onwards has

not been determined yet.

A more circular economy and improved

resource efficiency would stimulate investment.

This would have both short-term and long-term

benefits for the economy, environment and

employment (

). Although the Netherlands is the

best performer in the EU in terms of resource

productivity (how efficiently the economy uses

material resources to produce wealth), at

(

) SER Energieakkoord voor duurzame groei.

(

) http://www.energieakkoordser.nl/energieakkoord.aspx

(

) See SWD (2015) 241 http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A52015SC0241.

(

) Annual Growth Survey 2016, p.13.

swd (2016) 0087 - Ingen titel

3.4. Energy, transport and climate policy

3.82 EUR/kg (EU average 1.95) in 2014 (

), its

high level of dependency on imported raw

materials is a concern. The Netherlands is among

the leading countries in making use of

environmental taxes (3.31% of GDP in revenue

compared to 2.45% in the EU; 2013 data) (

Transport policy has been successful in

supporting the adoption of cleaner cars.

The

average efficiency of all new cars sold in 2013 was

the highest among all Member States. But this

success came at a significant fiscal cost (

), which

contributed to the decision to focus fiscal support

even more on the most innovative, lowest-

emission vehicles. These political objectives

include having all new cars capable of driving at

zero emissions (including plug-in hybrids) or

chargeable by 2035 (

Traffic congestion is still significant, though it is

being reduced (

Congestion remains high both

inside the urban agglomerations and on the main

interurban links, which causes economic, health

and

environmental

costs.

While

recent

infrastructure developments have significantly

improved traffic flows, no further measures have

been taken.

(

)

http://ec.europa.eu/eurostat/web/europe-2020-

indicators/resource-efficient-europe

(

) European Commission (2015): ‘Tax reforms in EU

Member States’, Institutional Papers, No 008.

(

) Balans van de leefomgeving 2014, PBL. As an indication,

receipts from vehicle registration taxes declined by

between EUR 1 billion and EUR 1.5 billion between 2006

and 2012.

( ) https://www.rijksoverheid.nl/onderwerpen/

milieuvriendelijke-brandstoffen-voor-vervoer/documenten/

kamerstukken/2015/07/10/ duurzame-brandstofvisie-

en-uitvoeringsagenda.

(

) http://www.inrix.com/scorecard/key-findings-us/

swd (2016) 0087 - Ingen titel

ANNEX A

Overview table

Commitments

2015 country-specific recommendations (CSRs)

CSR 1:

Shift public expenditure towards supporting

investment in R&D and work on framework

conditions for improving private R&D expenditure in

order to counter the declining trend in public R&D

expenditure and increase the potential for economic

growth.

The Netherlands has made

limited progress

in addressing CSR 1:



Limited progress

in shifting public

expenditure towards supporting investment

in R&D and improving framework

conditions for private R&D. In 2016, the

WBSO tax credit (for R&D wage costs)

and the R&D allowance (RDA, for other

R&D costs) will be merged and increased.

The government has decided to drop a

planned cut in the WBSO tax credit of

EUR 110 million. However, despite these

measures, total public support for R&D

and innovation will continue its decline in

the longer run.

The Netherlands has made

some progress

addressing CSR 2:



No progress

on mortgage interest

deductibility, as its partial phasing out has

not been stepped up despite a recovery of

the housing market and the economic

environment.



Some progress

on a more market-based

pricing mechanism. The measure to

support mobility in the housing market

(the

rental

sum

approach

‘huursombenadering’)

will

implemented in 2017.



Substantial progress

on relating rents to

household income, as the Housing Act

(Woningwet) entered into force in July

2015 and the rental sum approach will be

implemented in 2017. Nevertheless,

progress on tackling the number of tenants

above the income threshold for social

housing is very small and waiting lists

(

) The following categories are used to assess progress in implementing the 2015 CSRs:

No progress: The Member State (MS) has neither announced nor adopted measures to address the CSR. This category also applies if

the MS has commissioned a study group to evaluate possible measures.

Limited progress: The MS has announced some measures to address the CSR, but these appear insufficient and/or their

adoption/implementation is at risk.

Some progress: The MS has announced or adopted measures to address the CSR. These are promising, but not all of them have been

implemented and it is not certain that all will be.

Substantial progress: The MS has adopted measures, most of which have been implemented. They go a long way towards

addressing the CSR.

Fully implemented: The MS has adopted and implemented measures that address the CSR appropriately.

Summary assessment (

)

CSR 2:

With the strengthening of the recovery, accelerate the

decrease in mortgage interest tax deductibility so that

tax incentives to invest in unproductive assets are

reduced. Provide for a more market-oriented pricing

mechanism in the rental market and further relate

rents to household income in the social housing

sector.

swd (2016) 0087 - Ingen titel

A. Overview table

have not been reduced.

CSR 3:

Reduce the level of contributions to the second pillar

of the pension system for those in the early years of

working life.

The Netherlands has made

limited progress

in addressing CSR 3:



Limited progress

has been made in

reducing pension contributions for young

workers. On 6 July 2015, the government

announced its intention to substantially

reform the second pension pillar in order

to create a more transparent and actuarially

fairer system. There is agreement in the

country that reform is necessary, but the

specifics need to be decided.

Europe 2020 (national targets and progress)

Employment rate target set out in the Netherlands:

80 %.

The employment rate was at 75.4 % in 2014,

having decreased slightly from 76.6 % in 2012

and 75.9 % in 2013. The negative trend

reversed in 2015, with the Q3 figure standing

at 76.5%. Based on the recovery of the labour

market, the Europe 2020 employment rate

target of 80 % still seems feasible.

Total R&D intensity has stabilised around 2 %

of GDP, markedly below its target of 2.5 % of

GDP and below EU average. At 0.86 % of

GDP in 2014, public R&D spending is lower

than in other Member States with similar level

of economic development.

According to the latest national projections

and taking into account existing measures, the

target is expected to be met: -21 % in 2020

compared to 2005 (with a margin of 5 pps.).

According to approximated data, greenhouse

gas emissions from sectors not covered by the

emissions trading scheme fell by 23 %

between 2005 and 2014.

With renewable energy accounting for 5 % of

energy consumption in 2014, the Netherlands

seriously risks missing its renewable energy

target for 2020. Current policy measures are

projected to be insufficient to meet the 2020

target.

With renewable energy sources accounting for

5 % of energy used in transport, the

Netherlands is about half-way towards the

R&D target set out in the Netherlands:

2.5 % of GDP.

National Greenhouse Gas emissions target:

-16 % in 2020 compared to 2005 (in sectors not

covered by the EU emission trading scheme)

Non-ETS 2014 target: -5 %.

2020 renewable energy target:

14 %.

Proportion of renewable energy in all modes of

transport:

swd (2016) 0087 - Ingen titel

A. Overview table

10 %.

binding 10 % renewable energy sources target

in transport.

The Netherlands has taken additional

measures to improve energy efficiency, and

final energy consumption in 2020 is estimated

at 49.4 Mtoe. The Netherlands is also on track

to meet the energy efficiency target of 1.5 % a

year.

Energy efficiency target:

20 %.

The Netherlands has set itself an indicative national

energy efficiency target of a reduction of 1.5 % a

year. This means it must reach a 2020 level of 60.7

Mtoe (megatonne of oil equivalent) in primary

energy consumption and 52.2 Mtoe in final energy

consumption.

Early school leaving target set out in the Netherlands:

<8.0 %.

Early leavers from education and training

(share of the population aged 18-24 with at

most lower secondary education and not in

further education or training) in 2014: 8.7 %

(2013: 9.3 %, 2012: 8.9 %).

The Netherlands has made some progress

towards achieving the target of below 8%.

Tertiary education attainment target set out in the

Netherlands:

>40 %.

Tertiary educational attainment (share of

population aged 30-34 having successfully

completed tertiary education) in 2014: 44.6 %

(2013: 43.2 %, 2012: 42.2 %)

The target of 40 % has been achieved.

Target for reducing the number of people living in

households with very low work intensity in number

of people:

- 100 000 (aged 0-64).

The number of people (aged 0-64) living in

households with very low work intensity was

1 680 000 in 2014 (2013: 1 624 000, 2012:

1 635 000).

The target was set in 2008, when 1 613 000

people aged 0-64 lived in households with

very low work intensity. This number rose by

67 000 persons until 2014.

swd (2016) 0087 - Ingen titel

ANNEX B

MIP Scoreboard indicators

Table B.1:

The MIP scoreboard for the Netherlands

Thresholds

Current account balance,

(% of GDP)

3 year average

-4%/6%

-35%

2009

5.3

0.9

2010

5.7

10.6

2011

7.4

19.8

2012

9.1

31.1

2013

10.4

32.3

2014

10.9

60.8

Net international investment position (% of GDP)

Real effective exchange

External imbalances rate - 42 trading partners,

and competitiveness HICP deflator

Export market share - %

of world exports

Nominal unit labour cost

index (2010=100)

3 years % change

±5% & ±11%

2.6

-1.5

-2.4

-6.0

0.4

0.8

5 years % change

-6%

-3.4

-7.1

-7.0

-12.6

-10.0

-11.0

3 years % change

9% & 12%

12.1

7.6

4.8

2.3

5.6p

5.4p

Deflated house prices (% y-o-y change)

-3.5

-2.7

-4.0

-8.0

-8.1

-0.5

Private sector credit flow as % of GDP, consolidated

14%

8.6

2.8

3.6

2.1

1.3p

-1.6p

Internal imbalances

Private sector debt as % of GDP, consolidated

General government sector debt as % of GDP

Unemployment rate

3 year average

133%

60%

10%

16.5%

231.4

56.5

4.1

7.8

229.4

59.0

4.4

5.8

228.0

61.7

4.8

9.3

229.0

66.4

5.3

5.2

226.6p

67.9

6.0

-1.9p

228.9p

68.2

6.8

8.2p

Total financial sector liabilities (% y-o-y change)

Activity rate - % of total population aged 15-64 (3 years

change in p.p)

-0.2%

2.3

-0.3b

-1.2b

-0.7

1.2

0.9

New employment

indicators

Long-term unemployment rate - % of active population

aged 15-74 (3 years change in p.p)

0.5%

-1.1

-0.2b

0.4

0.9

1.2

1.3

Youth unemployment rate - % of active population aged

15-24 (3 years change in p.p)

0.2

1.7

1.4

1.5

2.1

2.7

Flags: b: break in time series. p: provisional.

Note: Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism

Report. For REER and ULC, the first threshold applies to euro area Member States.

Source:

European Commission

swd (2016) 0087 - Ingen titel

ANNEX C

Standard tables

Table C.1:

Financial market indicators

Total assets of the banking sector (% of GDP)

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)

Financial soundness indicators:

- non-performing loans (% of total loans)

- capital adequacy ratio (%)

2010

358.0

84.2

15.4

2.8

13.9

8.9

4.0

5.5

120.3

0.8

229.4

36.0

288.7

24.8

44.6

2011

372.1

83.6

13.3

2.7

13.5

9.6

4.1

3.3

119.5

0.8

228.0

35.7

295.3

38.1

66.0

2012

379.9

82.1

11.2

3.1

14.2

7.4

4.0

4.3

119.2

1.5

229.0

36.3

304.5

43.8

86.4

2013

337.6

83.8

8.3

3.2

14.9

6.2

-1.1

-0.1

117.8

0.7

226.6

38.6

318.2

39.2

49.0

2014

370.0

85.0

6.9

3.0

17.9

6.6

1.0

1.3

113.2

0.6

228.9

41.2

328.8

29.0

28.2

2015

365.9

2.7

20.0

12.0

-0.6

5.4

112.4

0.6

37.1

337.5

19.5

16.1

- return on equity (%)

Bank loans to the private sector (year-on-year % change)

Lending for house purchase (year-on-year % change)

Loan to deposit ratio

Central Bank liquidity as % of liabilities

Private debt (% of GDP)

Gross external debt (% of GDP) - public

- private

Long-term interest rate spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*

Notes

(1) Latest data Q3 2015.

(2) Latest data September 2015. Monetary authorities, monetary and financial institutions are not included.

* Measured in basis points.

Sources:

IMF (financial soundness indicators); European Commission (long-term interest rates); World Bank (gross external

debt); Eurostat (private debt); ECB (all other indicators).

swd (2016) 0087 - Ingen titel

C. Standard tables

Table C.2:

Labour market and social indicators

2010

Employment rate

(% of population aged 20-64)

Employment growth

(% change from previous year)

Employment rate of women

(% of female population aged 20-64)

Employment rate of men

(% of male population aged 20-64)

Employment rate of older workers

(% of population aged 55-64)

Part-time employment (% of total employment,

aged 15 years and over)

Fixed term employment (% of employees with a fixed term

contract, aged 15 years and over)

Transitions from temporary to permanent employment

Unemployment rate

age group 15-74)

(1)

2011

76.4

0.9

70.4

82.4

55.2

48.9

18.3

20.8

5.0

1.7

10.0

4.3

9.2

41.2

6.0

2012

76.6

-0.2

71.0

82.3

57.6

49.6

19.4

16.5

5.8

2.0

11.7

4.9

8.9

42.2

7.0

2013

75.9

-0.9

70.6

81.1

59.2

50.6

20.5

12.3

7.3

2.6

13.2

5.6

9.3

43.2

6.0

2014

75.4

-0.2

69.7

81.1

59.9

50.4

21.5

7.4

3.0

12.7

5.5

8.7

44.8

2015

(4)

76.3

0.8

70.8

81.8

61.6

50.8

22.1

6.9

3.1

11.3

76.8

-0.7

70.8

82.8

53.7

48.9

18.5

20.0

5.0

1.4

11.1

4.3

10.0

41.4

6.0

(% active population,

Long-term unemployment rate

(2)

(% of labour force)

Youth unemployment rate

(% active population aged 15-24)

Youth NEET

(3)

rate (% of population aged 15-24)

Early leavers from education and training (% of pop. aged 18-24

with at most lower sec. educ. and not in further education or

training)

Tertiary educational attainment (% of population aged 30-34

having successfully completed tertiary education)

Formal childcare (30 hours or over; % of population aged less

than 3 years)

Notes

(1) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin

working immediately or within two weeks.

(2) Long-term unemployed are peoples who have been unemployed for at least 12 months.

(3) Not in education employment or training.

(4) Average of first three quarters of 2015. Data for total unemployment and youth unemployment rates are seasonally

adjusted.

Source:

European Commission (EU Labour Force Survey)

swd (2016) 0087 - Ingen titel

C. Standard tables

Table C.3:

Labour market and social indicators (continued)

Expenditure on social protection benefits (% of GDP)

Sickness/healthcare

Invalidity

Old age and survivors

Family/children

Unemployment

Housing and social exclusion n.e.c.

Total

of which: means-tested benefits

Social inclusion indicators

People at risk of poverty or social exclusion

(% of total population)

Children at risk of poverty or social exclusion

(% of people aged 0-17)

(3)

(1)

2009

9.7

2.3

10.8

1.2

1.3

0.3

27.6

4.2

2009

15.1

17.5

11.1

1.4

8.5

5.0

45.9

11648

0.0

4.0

2010

9.9

2.3

11.1

1.2

1.5

0.4

28.1

4.3

2010

15.1

16.9

10.3

2.2

8.4

5.1

51.2

11613

0.5

3.7

2011

10.1

2.2

11.2

1.1

1.4

0.4

28.4

4.4

2011

15.7

18.0

11.0

2.5

8.9

5.4

47.4

11516

2.3

3.8

2012

10.5

2.2

11.6

1.0

1.6

0.4

29.2

4.5

2012

15.0

16.9

10.1

2.3

8.9

4.6

51.0

11377

0.1

3.6

2013

10.2

2.3

12.2

1.0

1.6

0.4

29.3

3.9

2013

15.9

17.0

10.4

2.5

9.3

4.5

50.0

11214

1.2

3.6

2014

16.5

17.1

11.6

3.2

10.2

5.3

45.5

10962

2.4

3.8

At-risk-of-poverty rate

(2)

(% of total population)

Severe material deprivation rate (% of total population)

Proportion of people living in low work intensity households

(4)

(% of people aged 0-59)

In-work at-risk-of-poverty rate (% of persons employed)

Impact of social transfers (excluding pensions) on reducing

poverty

Poverty thresholds, expressed in national currency at constant

prices

(5)

Gross disposable income (households; growth %)

Inequality of income distribution (S80/S20 income quintile

share ratio)

Notes

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from

severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).

(2) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national

equivalised median income.

(3) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay

their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein

equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing

machine, viii) have a colour TV, or ix) have a telephone.

(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the

adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.

(5) For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices (HICP) = 100 in 2006

(2007 survey refers to 2006 incomes)

Sources:

For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.

swd (2016) 0087 - Ingen titel

C. Standard tables

Table C.4:

Structural policy and business environment indicators

Performance indicators

Labour productivity (real, per person employed, y-o-y)

Labour productivity in industry

Labour productivity in construction

Labour productivity in market services

Unit labour costs (ULC) (whole economy, y-o-y)

ULC in industry

ULC in construction

ULC in market services

Business environment

Time needed to enforce contracts

Time needed to start a business

(1)

2009

-5.08

-3.24

-1.87

11.07

3.83

4.10

2009

(days)

514

8.0

1.07

2009

1.69

5.95

1.12

(1)

2010

6.95

-5.77

2.27

-10.89

9.67

-2.69

2010

514

8.0

1.43

2010

1.72

5.98

1.71

2011

1.23

-0.04

1.33

1.61

-0.82

0.27

2011

514

8.0

1.25

2011

1.90

5.93

1.98

2012

0.43

-4.78

0.55

2.63

7.82

1.78

2012

514

8.0

1.80

2012

1.94

5.89

2.86

2003

1.49

1.47

1.57

2.06

2013

1.12

-0.07

-0.40

0.24

-3.01

1.52

2013

514

5.0

1.58

2013

1.96

2.26

2008

0.96

0.91

1.28

1.71

2014

-2.02

5.79

1.15

4.67

-6.96

0.00

2014

514

4.0

1.64

2014

1.97

2.22

2013

0.92

0.91

1.23

1.57

(days)

Outcome of applications by SMEs for bank loans

(2)

Research and innovation

R&D intensity

Total public expenditure on education as % of GDP, for all levels of

education combined

Number of science & technology people employed as % of total

employment

Population having completed tertiary education

(3)

Young people with upper secondary level education

Trade balance of high technology products as % of GDP

Product and service markets and competition

OECD product market regulation (PMR) , overall

OECD PMR , retail

OECD PMR , professional services

OECD PMR , network industries

(5)

(6)

(5)

(4)

Notes

(1) The methodologies, including the assumptions, for this indicator are shown in detail here:

http://www.doingbusiness.org/methodology.

(2) Average of the answer to question Q7B_a. ‘[Bank loan]: If you applied and tried to negotiate for this type of financing

over the past six months, what was the outcome?’. Answers were codified as follows: zero if received everything, one if

received most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the

application is still pending or ‘don’t know’.

(3) Percentage population aged 15-64 having completed tertiary education.

(4) Percentage population aged 20-24 having attained at least upper secondary education.

(5) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are

shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm

(6) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).

Source:

European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for

the product market regulation indicators); SAFE (for outcome of SMEs’ applications for bank loans).

swd (2016) 0087 - Ingen titel

C. Standard tables

Table C.5:

Green growth

Green growth performance

Macroeconomic

Energy intensity

Carbon intensity

Resource intensity (reciprocal of resource productivity)

Waste intensity

Energy balance of trade

Weighting of energy in HICP

Difference between energy price change and inflation

Real unit of energy cost

Ratio of labour taxes to environmental taxes

Environmental taxes

Sectoral

Industry energy intensity

Real unit energy cost for manufacturing industry

Share of energy-intensive industries in the economy

Electricity prices for medium-sized industrial users

Gas prices for medium-sized industrial users

Public R&D for energy

Public R&D for environment

Municipal waste recycling rate

Share of GHG emissions covered by ETS*

Transport energy intensity

Transport carbon intensity

Security of energy supply

Energy import dependency

Aggregated supplier concentration index

Diversification of energy mix

kgoe / €

kg / €

% GDP

% of value

added

ratio

% GDP

kgoe / €

% of value

added

% GDP

€ / kWh

% GDP

kgoe / €

kg / €

HHI

2009

0.15

0.35

0.33

-1.7

10.24

-0.1

15.8

5.6

3.5

0.15

58.8

9.23

0.11

0.04

0.02

0.00

57.8

40.8

0.58

1.45

35.8

18.0

0.36

2010

0.16

0.37

0.32

0.21

-2.7

10.30

-8.8

17.4

5.6

3.5

0.16

69.9

9.71

0.10

0.03

0.02

0.00

79.1

40.3

0.56

1.40

30.4

19.3

0.38

2011

0.14

0.34

0.32

-3.5

11.32

3.4

19.5

5.9

3.5

0.16

79.0

9.52

0.10

0.03

0.01

90.8

40.8

0.55

1.37

29.7

36.8

0.36

2012

0.15

0.34

0.30

0.21

-5.0

11.28

3.6

6.4

3.3

0.15

9.50

0.10

0.04

0.02

0.01

97.3

39.7

0.53

1.30

30.7

27.9

0.35

2013

0.15

0.34

0.27

-4.0

11.66

0.0

6.4

3.3

0.15

9.58

0.10

0.04

0.02

0.01

97.3

44.3

0.52

1.27

26.0

75.5

0.35

2014

0.28

-3.4

11.69

-1.5

6.1

3.4

9.16

0.10

0.04

0.02

0.00

47.6

Notes

General explanation of the table items:

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices)

Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)

Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)

Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)

Waste intensity: waste (in kg) divided by GDP (in EUR)

Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP. Weighting of energy in HICP:

the proportion of ‘energy’ items in the consumption basket used for the construction of the HICP. Difference between

energy price change and inflation: energy component of HICP, and total HICP inflation (annual % change). Real unit

energy cost: real energy costs as a percentage of total value added for the economy. Environmental taxes over labour

taxes and GDP: from European Commission’s database, ‘Taxation trends in the European Union’. Industry energy intensity:

final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR). Real unit energy costs

for manufacturing industry: real costs as a percentage of value added for manufacturing sectors. Share of energy-intensive

industries in the economy: share of gross value added of the energy-intensive industries in GDP. Electricity and gas prices for

medium-sized industrial users: consumption band 500-20 00MWh and 10 000-100 000 GJ; figures excl. VAT. Municipal waste

recycling rate: ratio of recycled municipal waste to total municipal waste. Public R&D for energy or for the environment:

government spending on R&D (GBAORD) for these categories as % of GDP. Proportion of greenhouse gas (GHG) emissions

covered by EU Emission Trading System (ETS): based on greenhouse gas emissions (excl. land use, land use change and

forestry) as reported by Member States to the European Environment Agency). Transport energy intensity: final energy

consumption of transport activity (kgoe) divided by transport industry gross value added (in 2005 EUR). Transport carbon

intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport sector. Energy import

dependency: net energy imports divided by gross inland energy consumption incl. consumption of international bunker

fuels. Aggregated supplier concentration index: covers oil, gas and coal. Smaller values indicate larger diversification and

hence lower risk. Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat,

renewable energies and solid fuels.

* European Commission and European Environment Agency

Source:

European Commission (Eurostat) unless indicated otherwise