# EUR-Lex - 52011SC0813 - EN

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# 52011SC0813

**Recommendation for a COUNCIL RECOMMENDATION on the National Reform Programme 2011 of the Netherlandsand delivering a Council opinionon the updated Stability Programme of the Netherlands 2011-2015 /* SEC/2011/0813 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on the National Reform Programme 2011 of
the Netherlands
and delivering a Council opinion
on the updated Stability Programme of the Netherlands 2011-2015

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1],
and in particular Article 5(3) thereof,

Having regard to the recommendation of the
European Commission[2],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

After consulting the Economic and Financial
Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the European Commission’s proposal to launch a new strategy for jobs and
growth, Europe 2020, based on enhanced coordination of economic policies, which
will focus on the key areas where action is needed to boost Europe’s potential
for sustainable growth and competitiveness.

(2) 
On 13 July 2010, the Council adopted a
recommendation on the broad guidelines for the economic policies of the Member
States and the Union (2010 to 2014) and, on 21 October 2010, adopted a decision
on guidelines for the employment policies of the Member States[3],
which together form the ‘integrated guidelines’. Member States were invited to
take the integrated guidelines into account in their national economic and
employment policies.

(3) 
On 12 January 2011, the Commission adopted the
first Annual Growth Survey, marking the start of a new cycle of economic
governance in the EU and the first ‘European semester’ of ex-ante and
integrated policy coordination, which is anchored in the Europe 2020 strategy.

(4) 
On 25 March 2011, the European Council endorsed
the priorities for fiscal consolidation and structural reform (in line with the
Council’s conclusions of 15 February and 7 March 2011 and further to the
Commission’s Annual Growth Survey). It underscored the need to give priority to
restoring sound budgets and fiscal sustainability, reducing unemployment
through labour market reforms and making new efforts to enhance growth. It requested
Member States to translate these priorities into concrete measures to be
included in their Stability or Convergence Programmes and National Reform
Programmes.

(5) 
On 25 March 2011, the European Council also
invited the Member States participating in the Euro Plus Pact to present their
commitments in time to be included in their Stability or Convergence Programmes
and their National Reform Programmes.

(6) 
On 29 April 2011, the Netherlands submitted its
2011 Stability Programme update covering the period 2011-2015 as well as its
2011 National Reform Programme. In order to take account of the interlinkages,
the two programmes have been assessed at the same time.

(7) 
In spite of a previously robust performance, as
the crisis unfolded, the very open Dutch economy suffered significantly: real
GDP contracted by almost 4% in 2009. The recovery started in the second half of
2009, led by a pick-up in external demand, and gained momentum in the first
half of 2010, resulting in a GDP growth of 1.8%. The impact of the crisis on
the labour market was relatively contained. Unemployment is expected to
decrease gradually over the next two years from 4.5% in 2010 to 4% in 2012. The
crisis impacted Dutch public finances heavily, with the general government deficit rising to 5.5% of GDP in 2009
and 5.4% in 2010. Government operations to support
financial institutions and stabilise the financial markets entailed an increase
in the government debt ratio by 15 percentage points
of GDP, with the debt ratio reaching 60.8% of GDP in 2009.

(8) 
Based on the assessment of the updated Stability
Programme pursuant to Council Regulation (EC) No 1466/97, the Council is of the
opinion that the macroeconomic scenario underpinning the budgetary projections
presented in the Stability Programme is plausible. The programme is based on
slightly more prudent growth projections for 2011 and 2012 than the Commission
services’ Spring 2011 Forecast. The Stability Programme plans to reduce the
general government deficit below the 3% reference value in 2012, which would be
one year ahead of the deadline set by the excessive deficit procedure. Based on
the figures in the Stability Programme, the medium-term objective (MTO), a
structural deficit of 0.5% of GDP, will be almost achieved by the end of the
programme period, as the structural balance calculated by the Commission comes
out at -0.8% of GDP in 2015. The budgetary strategy is fully underpinned by
sufficiently specified measures up to 2015, though their implementation is
subject to some risks, mainly with respect to the ability to offset health care
overruns and to monitor local government expenditure. The average annual fiscal
effort is 0.75% of GDP over the period 2011-2013, in compliance with the
Council Recommendation of 2 December 2009 under the EDP procedure. For the
years following the deadline for correcting the excessive deficit (2014 and
2015), the recalculated structural balance improves by 0.25% in 2014 and 0.5%
in 2015, thereby slightly falling short of the required 0.5% improvement in the
structural balance until the MTO is reached.

(9) 
The budgetary consolidation planned and
implemented by the Dutch authorities strongly relies on largely structural
expenditure cutbacks, amounting to approximately 3% of GDP by the end of the
programme period (2015) compared to the baseline. The resulting adjustment path
envisages a reduction in the general government deficit from 3.8% of GDP in
2011 to 2.4% of GDP in 2012, falling further in annual steps of around 0.5% in
the period 2013-2015. The Netherlands is firmly committed to reaching those
targets. Safeguarding growth-enhancing policy areas such as education from
budgetary cuts would avoid hampering the future potential for economic growth,
and contribute to achieving a sustainable correction to the excessive deficit.

(10) 
Besides short-term consolidation, one of the
main challenges is improving the long-term sustainability of public finances,
which is negatively affected by the strong increase in age-related expenditure.
The long-term cost of ageing is clearly above the EU average, notably in
long-term care and pensions. The expected increase in long-term care
expenditure is the highest in Europe, as shown in the Commission’s 2009 Ageing
Report. The main reason for this is the existence of an already comprehensive
system of formal long-term care (e.g. public long-term insurance covering
personal care, nursing, assistance, treatment and stay in an institution),
while informal care plays a more limited role in the Netherlands.

(11) 
The Dutch labour market is characterised by
relatively high participation rates, high productivity per hour worked and low
unemployment. However, the main challenge for the labour market will be
to increase the utilisation of untapped labour potential, in particular to
compensate for the expected decrease in the working age population as a result
of ageing. The average amount of hours worked per year is the lowest in the EU,
as confirmed by the latest available data. The low number of hours worked
results from the very large share of people working part-time, particularly
women, reflecting personal preferences but also the existence of financial
disincentives for either entering the labour market or for extending the hours
worked. Currently, one of the main disincentives for second-income earners to
enter the labour market or to work more hours in the Netherlands is the high
marginal tax rate on second incomes, which can in some cases turn out to be
above 80 %, as a result of inter alia the general tax credit and
the reduction in income-dependent benefits such as childcare subsidy.

(12) 
For an increasing and heterogeneous group of
partly disabled, long-term unemployed who face a growing risk of structural
unemployment, the implementation of active labour market policies has
apparently not produced positive results. Non-EU
nationals are experiencing particular difficulties, thereby amplifying the
persistent employment and unemployment gaps.

(13) 
The Dutch research and innovation (R&I)
system has succeeded in maintaining its innovative capacity, but the low share
of the private sector in research and development (R&D) investment may
negatively affect future economic growth and the competitiveness of the Dutch
economy. The government aims to create an attractive climate for
R&I-intensive firms, including firms from abroad, in terms of fiscal
incentives, space for entrepreneurs and excellence of research. Due to the need for budgetary consolidation
this year, some subsidies for companies may, however, not be continued while
others will be streamlined and targeted towards ‘top economic areas’ and
shifted to more generic tax instruments.

(14) 
The business environment is negatively affected
by the congestion levels in road and rail transport. These congestion levels
are among the highest in the EU. In this context, a relatively inefficient
transport infrastructure negatively affects labour mobility and thus potential
growth through productivity. Workers are faced with long commutes, unreliable
travel times and high congestion costs. The latter are expected to increase
further until 2020 in the absence of policy changes. Improvements in the
efficient use of infrastructure, for example through road pricing measures,
would contribute to increasing labour mobility and productivity and thus to
potential growth.

(15) 
On 4 April 2011, the Netherlands announced a
number of commitments under the Euro Plus Pact[4]. These include
measures to foster competitiveness (introduction of a new business policy based
on more generic reductions in taxation and administrative burdens) and
employment (making social security more activating and reducing dependence on
unemployment benefits), to contribute further to the sustainability of public
finances (anchoring the stability and growth pact in national law) and to
reinforce financial stability (more power to supervisory institutions). These commitments refer to all areas of the Pact. They represent a
continuation of the broader reform agenda outlined in the Stability and
National Reform Programmes. However, there is a lack of
detail in terms of their timing and the measures that will be needed to
implement them. These commitments have been assessed and taken into account in
the recommendations.

(16) 
The Commission has assessed the Stability
Programme and National Reform Programme, including the Euro Plus Pact commitments[5].
It has taken into account not only their relevance for sustainable fiscal and
socio-economic policy in the Netherlands but also their conformity with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. It considers that the fully specified Dutch budgetary consolidation
strategy should be implemented as envisaged, while preserving expenditure in
areas most conducive to long-term growth. Further steps should be taken to
improve the long-term sustainability of public finances, notably in the areas
of pensions and long-term care, to increase labour market participation and
integration, and to address the issues arising from transport congestion.

(17) 
In the light of this assessment, also taking
into account the Council Recommendation of 2 December 2009 under Article 126(7)
of the Treaty on the Functioning of the European Union, the Council has
examined the 2011 update of the Stability Programme of the Netherlands and its
opinion[6] is reflected in
particular in its recommendation under (1) and (2) below. Taking into account
the European Council conclusions of 25 March 2011, the Council has examined the
National Reform Programme of the Netherlands,

HEREBY RECOMMENDS that the
Netherlands should take action within the period 2011-2012 to:

(1) 
Implement the budgetary strategy for the year
2012 and beyond as envisaged. Ensure that the correction of the excessive
deficit is sustainable and growth-friendly, by protecting expenditure in areas
directly relevant for growth such as research and innovation, education and
training.

(2) 
Take measures to increase the statutory
retirement age by linking it to life expectancy, and underpin these measures
with others to raise the effective retirement age and to improve the long-term
sustainability of public finances. Prepare a
blueprint for reforming long-term care in view of an ageing population.

(3) 
Enhance participation in the labour market by
reducing fiscal disincentives for second-income earners to work and draw up
measures to support the most vulnerable groups and help them to re-integrate
within the labour market.

(4) 
Promote innovation, private R&D investment
and closer science-business links by providing suitable incentives in the context
of the new enterprise policy (‘Naar de top’).

(5) 
Continue to reduce the high congestion costs in
transport networks by shifting from fixed to variable road transport charges,
targeted expansion of the rail network and introducing road pricing.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ C , p. .

[3]               Maintained for 2011 by Council Decision 2011/308/EU
of 19 May 2011.

[4]               More details on the commitments made under the Euro
Plus Pact can be found in SEC(2011) 727.

[5]               SEC(2011) 727.

[6]               Foreseen in Article 5(3) of Council Regulation (EC)
No 1466/97.