OECD Economic Surveys
NETHERLANDS Executive Summary June 2021
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The COVID-19 pandemic drags down the economy The recovery will be gradual and subject to risks Investments are needed for sustainable growth The dual labour market and skill needs should be addressed Digitalisation can boost productivity
2 . OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY
Key recommendations Supporting the economy through COVID-19
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Provide targeted fiscal support until the economic recovery is well underway.
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Phase out policies aimed at preserving existing companies and jobs when the health crisis is brought under control.
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Design in advance a multi-year plan for fiscal adjustment once the recovery is self-sustained.
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Increase training subsidies to jobseekers and workers with high up-skilling and re-skilling needs.
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Fully implement the tri-partite occupational pension agreement moving to defined contributions.
Reducing household leverage and re-balancing the housing market
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Increase the supply of housing by speeding up land use planning and building procedures, designating housing construction locations, and making binding agreements with all parties involved.
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Gradually reduce favourable tax treatment of owner-occupied housing beyond current plans.
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Gradually limit rent controls to a narrower part of the market.
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Evaluate how housing corporations affect the overall housing market and ensure that enough space is left for a private rental market.
Investing in the environment for growth and well-being
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Make emission pricing more consistent across sectors and fuels not covered by the EU emissions trading scheme.
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Consolidate instruments to manage transferable nitrogen emission rights to further facilitate standardisation and transfer of rights.
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Further enhance cross-border cooperation to tackle the nitrogen problem.
Reducing labour market duality and inequalities, boosting trust
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Implement the Commission for the Regulation of Work recommendations.
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Allow employers to adapt jobs, workplace and working hours of regular employees in line with the needs of the economy.
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Align tax rates and social security contributions between contract types for workers doing similar jobs.
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Go further than current plans in reserving leave entitlements following childbirth for partners.
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Increase leave replacement rates after the birth of a child for partners to the level available to mothers.
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Reduce user prices for childcare.
Boosting productivity with digitalisation, skills and leaner regulations
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Increase direct support to SMEs to facilitate the adoption of digital tools, including business advisory services and testing facilities.
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Encourage enterprises to implement existing digital security standards.
OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY . 3
The COVID-19 pandemic drags down the economy The Dutch economy experienced a severe contraction in 2020, reversing six years of strong growth. The spring COVID-19 outbreak was brought under control while still allowing for most economic activity to continue subject to social distancing and hygiene measures. This led to a less pronounced contraction than in other countries (Figure 1). Effective support policies and a high degree of digitalisation and teleworking already before the pandemic further dampened the blow. Resurgence of the virus in the autumn led to stricter measures but the economic downturn was limited as businesses and workers were able to adapt more swiftly. Unemployment increased only slightly, aided by quickly implemented policy support measures for firms. The measures included wage subsidies and the coverage of fixed costs, loan guarantees and deferred tax payments. These measures have so far prevented a wave of bankruptcies, but can hinder necessary structural change if kept in place after the recovery is well established.
Figure 1. The economy contracted less than elsewhere Real GDP, Index Q1 2015=100
Source: OECD Economic Outlook: Statistics and Projections (database).
4 . OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY
The recovery will be gradual and subject to risks Output is projected to gradually improve in 2021 and 2022 (Table 1), although it remains contingent on developments of the health situation and the distribution of vaccines. Following high saving in 2020, pent-up demand will drive the initial pick-up. However, increased pension premiums and rising unemployment as support measures are phased out, will hold back private consumption growth. Business investment will improve, but continues to be held back by reflecting lingering uncertainty. Increased leverage over the crisis is a further risk to private investment. Fiscal prudence up to the crisis provided room for a strong government response. Automatic stabilisers were allowed to operate and generous discretionary support measures were swiftly introduced, resulting in a hike in public debt (Figure 2). There is room to maintain accommodative fiscal policy until the recovery is self-sustained, but ageing pressures call for structural reform and consolidation in the long run.
debt is a source of macroeconomic vulnerability. Both first-time buyers and existing homeowners are borrowing more relative to their income than before as house prices have continued to increase, but the share of non-performing loans has remained low. Macroprudential regulations and a mortgage guarantee fund have reduced housing-related financial risks, but a loan to value limit of 100% remains high in international comparison.
Figure 2. The budget deficit and public debt have increased substantially % of GDP
Table 1. The economy will slowly recover
Source: OECD Economic Outlook: Statistics and Projections (database).
The financial sector has shown few signs of stress so far and banks have continued to provide credit throughout the pandemic. Pension funds funding ratios have long been under pressure from persistently low interest rates. High household
2020
2021
2022
Gross domestic product
-3.7
2.7
3.7
Private consumption
-6.4
-0.4
6.1
Government consumption
0.6
2.1
1.4
Gross fixed capital formation
-3.6
6.3
3.8
Exports
-4.3
4.7
3.8
Imports
-4.3
4.0
4.2
Unemployment rate (%)
3.8
4.1
4.7
Consumer price index
1.1
1.8
1.5
Current account balance (% of GDP) General government fiscal balance (% of GDP) General government gross debt (% of GDP, Maastricht definition)
7.8
8.8
8.9
-4.3
-6.1
-2.5
54.5
58.5
58.8
Source: OECD Economic Outlook: Statistics and Projections (database).
OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY . 5
Investments are needed for sustainable growth More could be done to improve the business climate. Regulations are in general lean, and insolvency proceedings have recently been reformed. Increased teleworking and the Internet of Things require increased bandwidth both in fixed and mobile connections. Policies support demand for social and owneroccupied housing but supply constraints result in rising prices and rationing. Most public and private rental housing is subject to rent controls and rationing. Around half of the population is eligible for social housing, which is mostly supplied by housing corporations on state guarantees. Owner-occupied housing enjoys favourable tax treatment driving up prices. As a result, lowand middle-income households, notably single persons, that do not qualify for social housing and at the same time cannot access sufficient mortgage and equity to buy, are left with few housing options. Proposed legislation to allow municipalities to ban buy-to-let investments is counterproductive. The Netherlands is set to fall short of its national target to reduce greenhouse gas emissions (Figure 3). A High Court ruling (the Urgenda ruling) mandated a 25% reduction of greenhouse gas emissions compared to 1990 levels by the end of 2020. This target was just met, owing to the COVID-19-related economic crisis, the reduction of coal power capacity and other measures. For sectors not covered by the EU emission trading system, CO2 prices vary by emission sources and fuels.
Figure 3. Emission reduction targets call for additional policies Megatons of CO² equivalent
Source: OECD, Wealth Distribution database.
Excessive nitrogen deposits in natural preservation areas limit the available nitrogen space for new developments, slowing down new investment projects. Another High Court ruling in 2019 resulted in the re-evaluation of permits for a range of nitrogen emitting activities, notably for construction and agriculture projects near natural preservation areas. To allow important infrastructure projects to resume, short-term measures such as reducing speed limits and paying farmers to reduce livestock were introduced. Multiple instruments are being put in place, and transfer of emission permits is allowed.
6 . OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY
The dual labour market and skill needs should be addressed Self-employed and other flexible workers have been particularly affected by the COVID-19 crisis. These workers tend to earn less, save less, have less social protection, are less likely to engage in training and to own a house. Self-employed pay lower rates of income tax and social security, while permanent employees enjoy among the highest employment protection in the OECD. Temporary contracts are used more in sectors affected by the COVID-19 crisis, in lower skilled occupations and by young workers. Women’s labour participation is high, but nearly 60% of women work part-time. This is roughly three times the rate for men (Figure 4). This represents an inefficient use of human capital and leads to large gender gaps in earnings, wealth and pensions. A relatively short parental leave period available to partners and a relatively high out-ofpocket price of centre-based childcare likely play a role.
Continuing structural change may increase skill mismatches and thus reduce the value of some workers’ skills. The COVID-19 crisis has likely accelerated this development, notably in some hard-hit sectors (Figure 5). Figure 5. Employment in some hard-hit sectors is vulnerable to automation
Figure 4. Women spend less time in paid work than men Gap between women’s and men’s working hours
Note: Average usual weekly hours worked on the main job. Source: OECD Labour Force Statistics (database).
Note: Data on hours worked refer to the percentage change between 2019Q2 and 2020Q2. Source: Author’s calculations based on Nedelkoska and Quintini (2018) and Eurostat (2021), Short-term business statistics.
OECD ECONOMIC SURVEY OF THE NETHERLANDS – EXECUTIVE SUMMARY . 7
Digitalisation can boost productivity The Netherlands has a strong ICT infrastructure and well-educated workforce, which put it in a good position to adopt digital technologies. Digitalisation is essential to boost productivity and support the recovery from the COVID-19 crisis. For this to happen, digital tools will need to be taken up more broadly. Small and medium-sized enterprises (SMEs) lag behind in digital adoption (Figure 6), while they account for a relatively large share of employment and value added. A lack of awareness and the fixed cost nature of investment in digital technologies weigh on the digitalisation process. A lack of finance is a further barrier to growth, and R&D expenditure is low. Shortages of ICT professionals put a brake on digitalisation. A considerable share of students, especially those in vocational training, lack essential digital skills. Declining performance and increasing between-school differences in the latest PISA vintages are concerns.
Figure 6. Small firms lag behind in adopting digital technologies % of adopting firms
Note: ERP = Enterprise Resource Planning software, CRM = Customer Relationship Management software. Small: 10-49 employees, Medium: 50-249, Large: 250 or more. Source: OECD (2021), ICT Access and Usage (database).
OECD Economic Surveys
NETHERLANDS Structural and institutional strengths, a strong crisis response and a high level of digitalisation have helped the Netherlands to weather the COVID-19 crisis with so far limited economic damage compared to many OECD countries. Several long-standing challenges are set to affect the strength of the recovery and its long-term sustainability. Non-standard employment is high, driven to a large extent by lower labour costs for the self-employed and other non-standard workers than for regular employees. Women are overrepresented among non-standard workers and typically work shorter hours. Households’ balance sheets, inflated by tax-subsidised housing debt and mandatory pension savings, create macroeconomic vulnerabilities and underpin inequality of assets. Landmark court rulings limiting nitrogen and greenhouse gas emissions are set to speed up a necessary green transition and led to earlier than planned closures of polluting economic activities, but have slowed down investments in infrastructure, buildings and agriculture. Embracing digitalisation is key to raise living standards further, but the social costs of skill-biased structural change, in many cases accelerated by COVID-19, must be handled firmly, notably by boosting skills and ensuring equal access to social protection. SPECIAL FEATURE: DIGITALISATION AND PRODUCTIVITY
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