Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the Netherlands and delivering a Council opinion on the 2016 stability programme of the Netherlands
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: Netherlands, budget deficit, economic policy, economic reform, full-time employment, housing, pension scheme, research and development, self-employment, stability programme

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 339 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of the Netherlands  and delivering a Council opinion on the 2016 stability programme of the Netherlands  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of the Netherlands 

and delivering a Council opinion on the 2016 stability programme of the Netherlands 

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 
policies1, 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 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

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  November  2015,  the  Commission  adopted  the  Annual  Growth  Survey5, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  17-18  March  2016.  On  26  November  2015,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report6,  in  which  it 
identified the Netherlands as one of the Member States for which an in-depth review 
would  be  carried  out.  On  the  same  day,  the  Commission  also  adopted  a 
recommendation for a Council recommendation on the economic policy of the euro 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2016) 339 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 

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(2) 

(3) 

(4) 

(5) 

the  Netherlands'  progress 

area7.  This  recommendation  was  endorsed  by  the  European  Council  on  18-19 
February  2016  and  adopted  by  the  Council  on  8  March  2016.  As  a  country  whose 
currency is the euro and in view of the close interlinkages between the economies in 
the economic and monetary union, the Netherlands should ensure the full and timely 
implementation of the recommendation. 
The 2016 country report for the Netherlands8 was published on 26 February 2016. It 
assessed 
country-specific 
recommendations  adopted  by  the  Council  on  14  July  2015  and  the  Netherlands' 
progress  towards  its  national  Europe  2020  targets.  It  also  included  the  in-depth 
review  under  Article  5  of  Regulation  (EU)  No  1176/2011.  On  8  March  2016,  the 
Commissionpresentedthe results of the in-depth review. 9 The Commission’s analysis 
leads it to conclude that the Netherlands is experiencing macroeconomic imbalances. 
In particular, it is essential to tackle the large and persistent current account surplus, 
which reflects structural features of the economy and policy setting as regards non-
financial  corporations.  In  view  of  its  size,  the  Netherlands  current  account  surplus 
likely  exerts  a  moderate,  but  non-negligible,  negative  impact  on  the  economic 
performance  of  the  euro-area  It  is  also  crucial  to  address  the  very  large  stock  of 
household debt.  

addressing 

the 

in 

On  28  April  2016,  the  Netherlands  submitted  its  2016  national  reform  programme 
and  its  2016  stability  programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

recommendations  have  been  addressed 

the 
Relevant  country-specific 
programming  of  the  European  Structural  and  Investment  Funds  for  the  2014-2020 
period.  As  foreseen  in  Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations,  the 
Commission may request a Member State to review and propose amendments to its 
Partnership  Agreement  and  relevant  programmes.  The  Commission  has  provided 
further  details  on  how  it  would  make  use  of  this  provision  in  guidelines  on  the 
application  of  the  measures  linking  effectiveness  of  the  European  Structural  and 
Investment Funds to sound economic governance.10 

in 

The Netherlands is currently in the preventive arm of the Stability and Growth Pact 
and  subject  to  the  transitional  debt  rule.  In  its  2016  stability  programme,  the 
government plans a gradual improvement in its headline balance to 0.1% of GDP in 
2019.  At  the  same  time,  the  government  plans  a  deterioration  of  the  recalculated11 
structural  balance  in  2016  to  -1.4  %  of  GDP  and  an  improvement  thereafter.  The 
medium-term budgetary objective - a structural deficit of 0.5 % of GDP – is planned 
to  be  reached  in  2019.  However,  based  on  the  recalculated  structural  balance,  the 
medium-term budgetary objective would already be met as from 2018. According to 
the stability programme, the government debt-to-GDP ratio is expected to reach 65.4 
%  in  2016  and  then  to  gradually  decrease  to  58.9  %  in  2019.  The  macroeconomic 
scenario  underpinning  these  budgetary  projections  is  plausible.  Based  on  the 
Commission 2016 spring forecast, the Netherlands is at risk of some deviation from 

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COM(2015) 692 final. 
SWD(2016) 87 final. 
COM(2016) 95 final. 
COM(2014) 494 final. 
The  structural  balance  as  recalculated  by  the  Commission  based  on  the  information  in  the  stability 
programme, following the commonly agreed methodology. 

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(6) 

(7) 

(8) 

the  requirements  of  the  preventive  arm  in  2016  and  over  2016  and  2017  taken 
together  under  unchanged  policies.  The  Netherlands  is  forecast  to  comply  with  the 
transitional debt rule in 2016 and, following the end of the transition period, with the 
debt  reduction  benchmark  in  2017.  Based  on  its  assessment  of  the  stability 
programme  and  taking  into  account  the  Commission  2016  spring  forecast,  the 
Council is of the opinion that the Netherlands is expected to broadly comply with the 
provisions of the Stability  and Growth Pact.  Nevertheless, further measures will be 
needed to ensure compliance in both 2016 and 2017.   

The recent growth in employment can be fully attributed to an increase in the number 
of  people  employed  on  temporary  contracts  and  the  number  of  self-employed. 
Although  the  Netherlands  has  taken  measures  to  address  the  issue,  a  more 
comprehensive  approach  is  needed.  Low  transition  rates  from  temporary  to 
permanent  contracts  still  pose  a  risk  of  labour  market  segmentation.  The  high  and 
increasing  percentage  of  temporary  contracts  is  observed  in  the  context  of  great 
differences in employment protection provisions on temporary contracts, on the one 
hand,  and  permanent  contracts,  on  the  other.  Self-employed  people  without 
employees  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.  Several  measures  were  introduced  that  reduced  the  differences  between 
permanent and temporary contracts. Favourable tax arrangements and the absence of 
obligations  to  pay  certain  social  security  contributions  still  provide  financial 
incentives for self-employment.  

A  key  challenge  in  addressing  high  household  indebtedness  lies  in  the  housing 
market,  where  rigidities  and  distortive  incentives  that  have  built  up  over  decades 
shape  housing  financing  and  sectoral  savings  patterns.  Households'  tendency  to 
leverage  up  gross  mortgage  debt  against  housing  wealth  largely  reflects  long 
standing  fiscal  incentives,  in  particular  the  tax  deductibility  of  mortgage  interest. 
Since  2012,  a  series  of  measures  has  been  implemented  to  address  this  partly,  but 
these have not been stepped up in line with the recommendation. The development of 
a  well-functioning  private  rental  market  is  constrained  by  subsidies  in  the  other 
housing  subsectors.  The  social  housing  sector  is  one  of  the  largest  in  the  EU  but 
housing  is  not  always  allocated  efficiently  to  those  really  in  need.  More  income-
based rent differentiation has been introduced in the social housing sector. Housing 
corporations will have to separate activities of general economic interest (i.e. social 
housing) from other activities. Given that some distortive incentives relating rents to 
income  in  the  social  housing  market  have  been  addressed,  it  is  appropriate  to  shift 
this part of the previous recommendation to monitoring of the situation. At the same 
time,  the  housing  market  remains  significantly  distorted  and  continues  to  create  a 
debt bias for households. Further progress is needed on these issues. 

In  addition  to  housing  market  distortions,  compulsory  non-tax  contributions  to  the 
second  pillar  of  the  pension  system  weigh  on  households'  disposable  income.  The 
second-pillar pension system performs well in terms of quality and adequacy, but has 
drawbacks  in  terms  of  inter-generational  fairness,  transparency  and  resilience  to 
economic shocks. In recent years, the sustainability of the pension system has been 
improved  by  raising  the  pensionable  age  to  67  by  2021  and  linking  it  to  life 
expectancy  thereafter.  On  average,  pension  contributions  have  been  lowered  since 
the  maximum  tax  exempted  accrual  rate  was  reduced.  An  appropriate  intra-  and 
inter-generational  distribution  of  costs  and  risks  beyond  the  rules  adopted  on 
indexation  and  financial  buffers  (the  financial  assessment  framework)  would  help 

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households  to  allocate  their  financial  means  in  more  growth-friendly  ways.  The 
government announced its intention to reform the second pension pillar substantially 
with  the  involvement  of  social  partners  in  order  to  create  a  more  transparent  and 
actuarially fairer system. 

Investment fell markedly during the economic crisis and has recovered only partially 
since. The weakness in economy-wide investment appears to have a strong cyclical 
character. It was driven by a downturn in the housing market and fiscal consolidation 
choices.  While  barriers  to  investment  seem  to  be  minor,  low  investment  in  the 
construction  sector  and  in  renewable  energy  appears  to  be  linked  to  market 
uncertainty  and  regulatory  factors.  In  spite  of  improving  credit  conditions,  risks  to 
new  lending  are  heightened  in  the  current  financial  environment.  Government 
expenditure  on  R&D  has  been  falling  since  2014,  while  private  R&D  spending 
remains  low.  It  was  therefore  recommended  that  the  Netherlands  shift  public 
expenditure towards supporting investment in R&D and work on improving private 
R&D expenditure. Public and private expenditure on R&D is low in relation to the 
level of educational attainment, academic achievement and economic development.  

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the Netherlands' economic policy and published it in the 
2016  country  report.  It  has  also  assessed  the  stability  and  the  national  reform 
programme  and  the  follow-up  given  to  the  recommendations  addressed  to  the 
Netherlands in previous years. It has taken into account not only their relevance for 
sustainable  fiscal  and  socioeconomic  policy  in  the  Netherlands  but  also  their 
compliance  with  EU  rules  and  guidance,  given  the  need  to  strengthen  the  EU's 
overall  economic  governance  by  providing  EU-level  input  into  future  national 
decisions.  The  recommendations  under  the  European  Semester  are  reflected  in 
recommendations 1 to 3 below. 

In  the  light  of  this  assessment,  the  Council  has  examined  the  stability  programme, 
and its opinion12 is reflected in particular in recommendation 1 below. 

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 
recommendation 3 below. 

(9) 

(10) 

(11) 

(12) 

HEREBY RECOMMENDS that the Netherlands take action in 2016 and 2017 to: 

1. 

2. 

3. 

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Limit the deviation from the medium-term budgetary objective in 2016 and achieve 
an annual fiscal adjustment of 0.6 % of GDP in 2017. Prioritise public expenditure 
towards supporting more investment in research and development.  

Tackle  remaining  barriers  to  hiring  staff  on  permanent  contracts  and  facilitate  the 
transition from temporary to permanent contracts. Address the high increase in self-
employed  without  employees,  including  by  reducing  tax  distortions  favouring  self-
employment,  without  compromising  entrepreneurship,  and  by  promoting  access  of 
the self-employed to affordable social protection. 

Take  measures  to  make  the  second  pillar  of  the  pension  system  more  transparent, 
inter-generationally fairer and more resilient to shocks. Take measures to reduce the 

Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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remaining  distortions  in  the  housing  market  and  the  debt  bias  for  households,  in 
particular by decreasing mortgage interest tax deductibility. 

Done at Brussels, 

For the Council 
The President 

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