Recommendation for a COUNCIL RECOMMENDATION on the Netherlands' 2014 national reform programme and delivering a Council opinion on the Netherlands’ 2014 stability programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Netherlands, budget deficit, economic convergence, economic growth, economic reform, economic stabilisation, financial control, job creation, multilateral surveillance, social situation, stability programme, structural adjustment













EUR-Lex - 52014DC0420 - EN











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52014DC0420

Recommendation for a COUNCIL RECOMMENDATION on the Netherlands' 2014 national reform programme and delivering a Council opinion on the Netherlands’ 2014 stability programme /* COM/2014/0420 final */









 
Recommendation for a
COUNCIL RECOMMENDATION
on the Netherlands' 2014 national reform
programme 
and delivering a Council opinion on the Netherlands’ 2014 stability programme
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(2) thereof,
Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2],
and in particular Article 6(1) thereof,
Having regard to the recommendation of the
European Commission[3],
Having regard to the resolutions of the
European Parliament[4],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
Having regard to the opinion of the
Economic and Financial Committee,
Having regard to the opinion of the Social
Protection Committee,
Having regard to the opinion of the
Economic Policy Committee,
Whereas:
(1)                   
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, 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, on the basis of
the Commission's proposals, 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, 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 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the level
of the Member States, in particular expressing full commitment to achieving the
objectives of the Europe 2020 Strategy and to implementing the country-specific
recommendations.
(4)                   
On 9 July 2013, the Council adopted a
recommendation on the Netherland's national reform programme for 2013 and
delivered its opinion on the Netherlands' updated stability programme for 2012-2017.
On 15 November 2013, in line
with Regulation (EU) No 473/2013[5], the Commission presented its opinion on the Netherlands' draft
budgetary plan for 2014[6].

(5)                   
On 13 November 2013, the Commission adopted the
Annual Growth Survey[7],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[8],
in which it identified the Netherlands as one of the Member States for which an
in-depth review would be carried out.
(6)                   
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.
(7)                   
On 5 March 2014, the Commission published the
results of its in-depth review for the Netherlands[9], under Article 5 of
Regulation (EU) No 1176/2011. The Commission's analysis leads it to conclude
that the Netherlands continues to experience macroeconomic imbalances, which
require monitoring and policy action. In particular, macroeconomic developments
regarding private sector debt and ongoing deleveraging, coupled with remaining
inefficiencies in the housing market, deserve attention. Although the large
current account surplus does not pose risks similar to large deficits, and is
partly linked to the need for deleveraging, the Commission will follow current
account developments in the Netherlands in the context of the European
Semester.
(8)                   
On 29 April 2014, the Netherlands submitted its
2014 national reform programme and on 30 April 2014 its 2014 stability programme.
In order to take account of their interlinkages, the two programmes have been assessed
at the same time.
(9)                   
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to ensure that the correction of the
excessive deficit in 2013 is sustainable, and to reach a budgetary position
close to the medium-term objective by 2015. The medium-term objective is a
structural deficit of no more than 0.5% of GDP, reflecting the requirements of
the Stability and Growth Pact. Additional sizeable fiscal measures were
implemented, but the (recalculated) structural balance in 2014 is planned to
remain constant compared to 2013, which points to a significant deviation from
the required minimum adjustment of 0.5% of GDP. In 2015, the (recalculated)
structural balance is planned to improve by 0.3 pp. of GDP. Expenditure would
grow at a pace consistent with the expenditure benchmark both in 2014 and 2015.
Following an overall assessment of the Netherland's budgetary strategy, the
adjustment path towards the medium-term objective is partly in line with the
requirements of the Stability and Growth Pact. According to the Stability
Programme, general government gross debt is stabilising in 2015 and decreasing
thereafter. The macroeconomic scenario underpinning the budgetary projections
in the programme is plausible, and was prepared by the independent Netherlands
Bureau for Economic Policy Analysis. Risks to the budgetary targets appear to
be sizeable but broadly balanced. The Commission 2014 spring forecast expects a
stabilisation of the structural balance in 2014 and an improvement of 0.5% of
GDP in 2015. According to the Commission forecast, the Netherlands would comply
with the expenditure benchmark in 2014, but not in 2015. In order to enhance
the growth potential of the Netherlands, it is of paramount importance that the
required consolidation safeguards growth-enhancing expenditure, such as
innovation and research, including fundamental research, education and
training.  Based on its assessment of the programme and the Commission forecast,
pursuant to Council Regulation (EC) No 1466/97, the Council is of the opinion
that the Netherlands has brought its general government deficit sustainably
below 3% of GDP in 2013, but is at risk of significantly deviating from the
requirements of the preventive arm as from 2014. 
(10)               
A key challenge lies in the housing market,
where rigidities and distortive incentives have built up over decades to shape
house financing and sectoral savings patterns. Households' tendency to leverage
up gross mortgage debt against housing wealth largely reflects long-standing fiscal
incentives, notably the full tax deductibility of mortgage interest. Since
April 2012, a series of measures have been implemented to partly address these
incentives. Some of these involve adjustments to the fiscal treatment of
housing finance. The gradual move to limit mortgage interest tax deductibility
and increase the incentive to amortise is warranted, but the phasing-in of this
measure is too slow to significantly influence amortising behaviour. The loan-to-value
ratio of 100%, to be reached in 2018, is still high. The rental market is
restrained by regulation and the presence of a very large social housing sector
that also has to cope with long waiting lists. The recent introduction of more income-based
rent differentiation in the social housing sector is a step in the right
direction, but its impact is limited. Social housing corporations are still
allowed to build dwellings with a monthly rent above the social rent ceiling. Even
though the 2013 recommendations called for a focus on support for households
most in need, this redirection has not taken place. Therefore, while the
proposed measures are steps in the right direction, the overall pace of reforms
is slow in addressing underlying problems and thus needs to be stepped up,
while continuing to ensure that social housing is available to disadvantaged
citizens unable to obtain housing at market conditions, including in high
demand locations. The 2013 recommendations suggested that the stepping-up of
the housing market measures should be subject to overall  economic developments.
As the economy and the housing market are expected to continue recovering, consideration
should be given to speeding up the pace of reforms.
(11)               
The long-term sustainability of the pension
system has been improved through the gradual increase in the statutory
retirement age from 65 years in 2012 to 67 in 2023. The
Netherlands has initiated comprehensive reforms in the public- and private-funded
pillars of the pension system and in the long-term care system. This is
complemented by reforms encouraging older workers to work longer and increase
labour market mobility. Long-term care reforms shifted responsibilities to
municipalities, with a reduction in overall expenditure and a focus on
efficiency gains. Parts of these substantial reforms still have to be adopted. Remaining
challenges include an appropriate intra- and inter-generational distribution of
costs and risks, and the quality and accessibility of long-term care needs to
be monitored. Implementation of the plans to reform long-term care would help
curb the fast-rising costs of ageing and thus support the sustainability of
public finances. In this regard, the quality and accessibility of long-term
care should be maintained at an adequate level.
(12)               
The labour market reforms proposed by the
government aim to increase labour market participation and mobility. The
Participation Act aims at boosting labour market participation. However, the
reforms are not yet enshrined in law. In addition, further measures are needed to
reduce fiscal disincentives to work and to improve the employability of people
at the margin of the labour market, including women, people with a migrant
background, people with a disability and the elderly. The Netherlands has
announced reforms to the unemployment benefit scheme and its relatively strict
employment protection legislation, including a tax incentive to increase
participation. However, while these measures point in the right direction, they
cannot be fully assessed until actually implemented. Accelerating the removal
of remaining disincentives for second earners to increase the number of hours worked
has the potential of further alleviating future labour supply shortages.
Finally, making better use of existing flexibility in the institutional
framework for more differentiated wage increases can support overall household
income and thus domestic demand without hurting competitiveness.
(13)               
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of the Netherlands' economic
policy. It has assessed the stability programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in the Netherlands but also their compliance
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. Its recommendations under the European
Semester are reflected in recommendations (1) to (4) below.
(14)               
In the light of this assessment, the Council has
examined the Netherlands' stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.
(15)               
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the stability programme. Its recommendations under Article 6 of Regulation (EU)
No 1176/2011 are reflected in recommendations (2)and (4) below.
(16)               
In the context of the European Semester the
Commission has also carried out an analysis of the economic policy of the euro
area as a whole. On the basis of this analysis, the Council has issued specific
recommendations for the Member States whose currency is the euro. The
Netherlands should also ensure the full and timely implementation of these
recommendations.
HEREBY RECOMMENDS that the
Netherlands take action within the period 2014-2015 to:
1.                      
Following the correction of the excessive
deficit, reinforce the budgetary measures for 2014 in the light of the emerging
gap of 0.5% of GDP based on the Commission 2014
spring forecast, pointing to a risk of significant deviation relative to
the Stability and Growth Pact requirements. In 2015, significantly strengthen
the budgetary strategy to ensure reaching the medium-term objective and
maintain it thereafter, and ensure that the debt rule is met in order to keep
the general government debt ratio on a sustained downward path. Protect
expenditure in areas directly relevant for growth such as education, innovation
and research.
2.                      
Step up efforts to reform the housing market by
accelerating the reduction in mortgage interest tax deductibility, by providing
for a more market-oriented pricing mechanism in the rental market, and by further
relating rents to household income in the social housing sector. Monitor the
effects of the social housing reforms in terms of accessibility and
affordability for low-income households. Continue efforts to refocus social
housing policies to support households most in need.
3.                      
Implement reforms of the second pillar of the pension
system, ensuring an appropriate intra- and inter-generational distribution of
costs and risks. Underpin the gradual increase of the statutory retirement age
with measures to improve the employability of older workers. Implement the
envisaged reform in the area of long-term care with a view to ensure
sustainability, while ensuring fair access and the quality of services and
monitor its effects.
4.                      
Take further measures to enhance labour market participation
particularly among people at the margin of the labour market and to reduce tax
disincentives on labour. Implement reforms of employment protection legislation
and the unemployment benefit system, and further address labour market
rigidities. In consultation with the social partners and in accordance with
national practice, allow for more differentiated wage increases by making full
use of the existing institutional framework.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ L 306, 23.11.2011, p. 25.
[3]               COM(2014) 420 final.
[4]               P7_TA(2014)0128 and P7_TA(2014)0129.
[5]               OJ L 140, 27.5.2013, p.11.
[6]               C(2013) 8008 final
[7]               COM(2013) 800 final.
[8]               COM(2013) 790 final.
[9]               SWD(2014) 87 final.
[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.