COMMISSION STAFF WORKING DOCUMENT Country Report The Netherlands 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: EU employment policy, EU investment, Netherlands, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 84 final   COMMISSION STAFF WORKING DOCUMENT  Country Report The Netherlands 2017 Including an In-Depth Review on the prevention and correction of macroeconomic imbalances  Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}   
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

1.1.  Recent economic developments 

1.2. 

The economy in perspective 

2. 

Progress with country-specific recommendations 

3. 

Summary of the main findings from the MIP in-depth review 

3.1. 

Imbalances and their gravity 

3.2.  Evolution, prospects and policy responses 

3.3.  Overall assessment 

4. 

Reform priorities 

4.1.  Public finances and taxation 

4.2. 

Financial sector 

4.3. 

Labour market, education and social policies 

4.4. 

Investment 

4.5. 

Sectoral policies 

4.6.  Public administration 

A.  Overview table 

B.  MIP Scoreboard 

C. 

Standard tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key economic, financial and social indicators 

CSR progress 

3.1.  MIP assessment matrix(*) – the Netherlands 

B.1. 

The MIP Scoreboard for the Netherlands 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

1 

4 

4 

6 

10 

13 

13 

14 

14 

19 

19 

23 

28 

33 

39 

42 

44 

48 

49 

54 

9 

11 

16 

48 

49 

50 

51 

 
 
 
 
C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

1.4. 

1.5. 

1.6. 

1.7. 

1.8. 

GDP and GDP per capita (2007-2016Q3) 

GDP growth and contributions 

HICP Inflation 

Employment by type (year-on-year changes) 

Government balances and debt 

Real GDP and disposable income per capita (index 1995=100) 

GDP per capita and household disposable income (2015) 

Distribution of net disposable income by institutional sector (2015) 

4.1.1.  Compulsory payment wedge of single person earning the average wage (2015) 

4.1.2.  Cross-border interest payments (2015) 

4.1.3.  Debt profile (2012-2027) 

4.2.1. 

Interest rate spread between small and large loans (monthly data) 

4.2.2.  House price valuation 

4.2.3.  Housing market in the Netherlands (2015) 

4.2.4.  Household debt 

4.2.5.  Change in mortgage debt and house prices 

4.3.1.  Main labour market developments 

4.3.2. 

Trends in labour costs and components 

4.3.3. 

Long-term unemployment by age (2005-2016Q3) 

4.3.4.  Employment gap (2015) 

4.3.5.  Flexibility increase on the labour market 

4.3.6.  Unadjusted wage gap between employees with permanent and temporary contracts 

(2014) 

4.4.1.  Net lending/borrowing by sector 

4.4.2.  Domestic and foreign investment 

4.4.3.  Gross fixed capital formation by sector 

4.4.4.  NFC net lending compared to other countries (average 2010-2015) 

4.4.5.  Net distributed income ratios (average 2012-2015) 

4.4.6.  Net savings by type of corporation 

4.4.7.  Savings by MNEs 

4.4.8.  Savings by large domestic enterprises 

4.4.9.  Assets held by MNEs 

4.4.10.  Asset holdings by pension funds (2016Q2) 

4.4.11.  Investment home bias (2014) 

4.4.12.  Current account breakdown 

4.4.13.  Nominal unit labour cost (per hour worked) 

52 

53 

4 

4 

5 

5 

6 

7 

7 

8 

19 

20 

21 

23 

24 

25 

26 

26 

28 

28 

29 

29 

30 

31 

34 

34 

34 

35 

35 

36 

36 

36 

37 

37 

38 

38 

38 

 
 
 
4.5.1.  GDP per hour worked (constant prices, year-on-year growth) 

4.5.2.  R&D expenditure by sector (2015) 

LIST OF BOXES 

2.1. 

3.1. 

Contribution of the EU budget to structural change in the Netherlands 

Spillovers: trade balance impact of a shock to domestic demand 

4.4.1. 

Investment challenges and reforms in the Netherlands 

4.6.1.  Selected highlight: Offshore wind farms in the Netherlands 

39 

39 

12 

18 

33 

43 

 
 
 
 
EXECUTIVE SUMMARY 

In 

the 

the 

survey 

light  of 

the  economy  of 

report  assesses 
in 

the 
This 
Netherlands 
the  European 
Commission’s  Annual  Growth  Survey  published 
the 
on  16 November 2016. 
Commission  calls  on  EU  Member  States  to 
redouble their efforts on the three elements of the 
virtuous  triangle  of  economic  policy  –  boosting 
reforms  and 
investment,  pursuing  structural 
ensuring  responsible  fiscal  policies.  In  so  doing, 
Member  States  should  focus  on  enhancing  social 
fairness in order to deliver more inclusive growth. 
At  the  same  time,  the  Commission  published  the 
Alert  Mechanism  Report  (AMR)  that  initiated  the 
sixth  round  of  the  macroeconomic  imbalance 
procedure.  The  in-depth  review,  which  the  2017 
AMR  concluded  should  be  undertaken  for  the 
economy, is presented in this report. 

is 

economy 

experiencing  a 

The 
steady 
expansion,  after  a  longer  period  of  declining 
and relatively slow growth. In 2012 and 2013, in 
particular  private  consumption  declined  alongside 
fixed  investment,  aggravated  by  the  pronounced 
downturn  in  the  housing  market.  Since  2014  the 
to  a 
housing  market  has 
relatively  sharp  rise  in  transactions  and  prices, 
driving  up  household  investment.  In  2015  and 
2016  the  economic  recovery  accelerated  based  on 
investment  activity  and  with  private 
strong 
consumption 
to 
economic growth. 

contributing 

increasingly 

improved 

leading 

in  2018,  reflecting 

Looking ahead, a growth rate of close to 2 % is 
expected,  slightly  above  estimated  potential 
growth  rates.  The  European  Commission  winter 
2017  forecast  projects  economic  growth  by  2.0 % 
in  2017  and  1.8 % 
the 
continued  strong  performance  of  the  domestic 
economy, 
including  employment  and  wages 
growth.  This  growth  is  being  driven  entirely  by 
domestic demand. Net exports, on the other hand, 
are  expected  to  contribute  slightly  negatively  to 
GDP  growth  given 
increased  external 
uncertainties.  

the 

housing 

has 
investment 
particular, 
In 
rebounded  sharply 
in  recent  years.  The 
weakness  in  economy-wide  investment  appears  to 
have  a  strong  cyclical  character,  and  has  been 
driven by a sharp decline in investment in housing. 
Public 
investment  has  also  fallen,  following 
substantial  fiscal  consolidation.  While  barriers  to 
investment seem to be minor, procedures to obtain 

1 

building  permits  are  relatively 
lengthy.  Low 
investment in renewable energy could be linked to 
past  market  dynamics,  market  uncertainty  and 
regulatory  factors,  even  though  some  steps  have 
been taken in the field of energy to counteract this. 

and 

volumes 

transaction 

Rising  house  prices  are  boosting  household 
assets,  but  may  also  provide  the  basis  for  a 
build-up  of  more  imbalances.  Fuelled  by  low 
interest  rates,  an  upward  trend  is  visible  in  house 
prices, 
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 losses in the event of a forced home sale. 
Nevertheless,  nominal  debt  levels  have  started  to 
grow  again  as  the  volume  of  transactions  and 
prices  have 
the 
European  Systemic  Risk  Board  has  issued  a 
warning,  as  some  city  centre  housing  markets 
show signs of overheating.  

increased.  In  view  of 

this, 

have 

to  5.4 % 

conditions 

been 
Labour  market 
improving, but there are signs of labour market 
segmentation. Employment growth has increased, 
and  the  rate  of  unemployment  is  on  a  downward 
in  December  2016). 
trend  (falling 
Nevertheless,  there  are  signs  of  labour  market 
segmentation  as  job  creation  is  largely  based  on 
temporary  contracts.  The 
total  number  of 
permanent contracts has only increased marginally 
in  recent  years,  while  the  wage  premium  for 
permanent  contracts 
international 
standards. In 2015, wage growth was outpaced by 
moderate  productivity  gains,  resulting  in  a  small 
decline  in  the  nominal  unit  labour  cost.  However, 
robust  wage  growth  is  expected  to  drive  unit 
labour costs up in the short term. 

is  high  by 

is 

Public  finances  weathered  the  crisis  well,  but 
challenges  remain.  The  Netherlands  corrected  its 
excessive  government  deficit  in  2013.  For  2017  a 
small  budget  surplus 
forecast.  However, 
challenges  remain,  in  particular  the  quality  of 
public  expenditure.  Public  investment  levels  fell 
by  almost  1 pp.  of  GDP  between  2009  and  2015, 
and a turnaround is not yet projected. Public R&D 
investment  and  expenditure  on  education  is  low 
compared to the top performers. Although heavily 
debated,  plans  for  an  ambitious  reform  of  the  tax 
system have not been put into action, aside from a 

 
 
substantial  tax  cut  lowering  the  tax  wedge  on 
labour implemented in 2016 (EUR 5 billion, 0.7 % 
of  GDP).  Some  features  of  the  taxation  system 
remain  sensitive  to  international  initiatives  in  the 
fight  against  tax  avoidance.  Lastly,  despite  the 
recent long-term care reform, public expenditure in 
this  sector  is  still  expected  to  increase  relatively 
to  other  EU  member  states, 
fast  compared 
indicating 
fiscal 
sustainability. 

a  possible 

challenge 

to 

Overall,  the  Netherlands  has  made  limited 
progress in addressing the 2016 country-specific 
recommendations  (CSR).  With  regard  to  the 
fiscal-structural  part  of  CSR  1,  no  progress  has 
been  made  in  increasing  public  and  private  R&D 
expenditure.  Regarding  CSR  2,  the  Netherlands 
has  made  no  progress  in  facilitating  the  transition 
to  permanent  employment  contracts.  While  no 
specific  measures  were  taken  to  reduce  distortive 
tax  incentives  favouring  self-employment  or  to 
increase  the  social  protection  coverage  for  self-
employed,  limited  progress  has  been  made  in 
reducing  incentives  for  the  use  of  self-employed 
without employees. Similarly, the Netherlands has 
made limited progress on CSR 3. The government 
announced a general ambition to reform the second 
pillar  pension  system  and  currently  different 
reform  paths  are  being  discussed,  but  tangible 
measures  have  been  left  for  the  next  government 
term.  No  further  measures  have  been  taken  to 
speed up the reduction in distortive tax incentives 
on the owner-occupied housing market.  

the  Europe  2020 Strategy 

Regarding progress in reaching the national targets 
under 
(see  also 
Annex A),  the  Netherlands  is  performing  well  on 
employment,  greenhouse  gas  emissions,  energy 
efficiency,  early  school 
tertiary 
education  attainment,  while  more  effort  is  needed 
on  R&D 
investment,  renewable  energy  and 
reducing poverty. 

leaving,  and 

findings  of 

The  main 
review 
contained  in  this  report,  and  the  related  policy 
challenges, are as follows: 

in-depth 

the 

  Housing  market 

institutions 

have 
contributed  to  high  household  debt  levels 
and  inefficiencies  remain.  Owner-occupancy 
rates are high and have been encouraged by the 
generous tax deductibility of mortgage interest 
interest-only 
payments.  Before 

the  crisis, 

Executive summary 

substantial. 

mortgages  and  very  high  loan-to-value  ratios 
drove  up  household  indebtedness  to  around 
120 %  of  GDP  in  2009.  Although  receding 
gradually,  the  household  debt  to  GDP  ratio  is 
still twice the euro area average. The mortgage 
interest  deductibility  is  reduced  progressively, 
but  the  effective  subsidy  to  debt-financed 
In 
remains 
homeownership 
conjunction  with  more  stringent  mortgage 
lending guidelines, the reforms, effective since 
2013  may  nonetheless  limit  the  build-up  of 
mortgage debt as the housing market recovers. 
rent-
Moreover, 
controlled sector is relatively large compared to 
other  EU  Member  States.  The  combined 
problems  of  social  tenants  with  income  above 
the  qualifying  threshold  (scheefhuurders)  and 
the  scarcity  of  social  housing  cause  long 
waiting lists, while this is tackled only slowly. 
Moreover, 
financial  attractiveness  of 
owner-occupancy  and  social  housing  partly 
accounts  for  the  underdeveloped  private  rental 
market. 

the  social  housing  and 

the 

  The  current  account  continues  to  show  a 
marked  surplus.  The  Netherlands  has  had  a 
current-account surplus for the last 30 years. Its 
high level is mostly accounted for by the non-
financial  corporate  sector.  A  comparably  large 
savings  surplus  in  the  non-financial  corporate 
sector  is  rooted  in  relatively  high  investment 
income and low levels of profit distribution of 
the  crisis, 
multinational  enterprises.  After 
household  deleveraging  together  with  fiscal 
consolidation  increased  the  current  account 
surplus  to  a  peak  of  10.3%  of  GDP  in  2012. 
The recent decline to 8.7% in 2015 was largely 
driven by lower receipts from foreign corporate 
participations.  The  autumn  forecast  projects  a 
further  gradual  decline  in  the  current  account 
balance,  following  robust  growth  in  domestic 
demand.  An  additional  increase  in  domestic 
demand  would  lower  the  trade  surplus  and 
would  also  be  passed  on  to  the  euro  area 
through moderate spillover effects as about one 
third  of  imports  into  the  Netherlands  are 
sourced from other euro area countries. 

  The large second pillar pension system plays 
a central role in shaping household finances, 
especially 
combination  with  high 
mortgage  debt.  While  the  pension  system 

in 

2 

 
 
Executive summary 

and  self-employment.  A  high  permanent  wage 
premium  combined  with  low  transition  rates 
from temporary to permanent contracts point to 
labour  markets. 
segmented 
potentially 
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.  People  born  outside  the  EU  face 
significant challenges, as their employment rate 
lags  behind 
the 
Netherlands. 

those  born 

that  of 

in 

than 

  Growth  friendly  public  expenditures  are 
lower 
top  performers, 
that  of 
hampering  the  development  of  a  more 
innovation-intensive  economy.  The  well-
performing  education  system  and  scientific 
base  of  the  Netherlands,  which  is  marked  an 
'innovation  leader',  provides  a  sound  basis  for 
boosting  innovation  and  growth  capacity  via 
education  and  R&D  activities.  Nevertheless, 
spending  on  education  is  substantially  below 
that  of  top  performers  such  as  the  Nordic 
countries,  and  the  public  R&D  intensity  is  set 
to  decline.  Higher  public  expenditure  on 
growth-friendly  areas  such  as  R&D  and 
to  unlock 
education  has 
capital, 
in 
investment 
including private R&D, and improve long-term 
growth potential. 

the  potential 
knowledge-based 

is 

still 

  The  Netherlands  is  on  track  in  reducing  its 
CO2-emissions,  but  the  share  of  renewable 
energy  production 
low  by 
international  standards.  Despite  a  slight 
increase  and  successful  tenders  for  off-shore 
wind  (see  Box  4.5.1),  the  Netherlands  had  a 
comparatively  low  renewable  energy  share  of 
5.5 %  in  2014,  missing  the  interim  target  of 
5.9 %.  Furthermore,  it  is  expected  to  miss  its 
national  target  of  14 %  by  2020,  with  the 
National  Energy  Outlook  2016  estimating  a 
renewable  energy  share  by  2020  of  only 
12.5 %. Relevant large-scale investments in the 
area are scheduled only for 2020-2023.  

in 

it  has  drawbacks 

terms  of  quality  and 
performs  well 
terms  of 
in 
adequacy, 
intergenerational  fairness, 
transparency  and 
flexibility.  Second  pillar  pension  contributions 
are  high  and  fluctuate  with  financial  market 
performance  and  may  affect  households’ 
spending  in  a  pro-cyclical  manner.  Moreover, 
risks  seem  to  weigh  disproportionately  on  the 
young  age  groups,  as  lower  indexation  and 
higher  pension  contributions  seem  to  be  the 
primary  ways  of  adjusting. 
Importantly, 
households  combine  substantial  housing  and 
pension  wealth  with  high  mortgage  debt,  but 
the  former  are  highly  illiquid  and  unevenly 
distributed  across  generations.  This  makes 
households vulnerable to economic shocks and 
the  pro-cyclical  dynamics  of 
accentuates 
household finances. 

  Pension  funds  hold  the  largest  share  of 
household  savings,  and  invest  mainly  in 
securities  and  mostly  abroad.  Total  assets 
held  by  pension 
increased 
substantially over the last 10 years, from 117 % 
of GDP in 2005 to 185 % of GDP in 2015.  

funds  have 

Other key economic issues analysed in this report 
which  point  to  particular  challenges  facing  the 
Netherlands' economy are as follows: 

tax  wedge 

  The total tax and non-tax burden on labour 
is  high.  This  can  create disincentives  to work, 
especially  for  the  low-skilled  and  second 
earners.  The 
is  average,  but 
compulsory non-tax payments such as pension 
contributions and healthcare premiums drive up 
the  total  burden  of  labour.  This  substantial 
collective  redistribution  may  be  equitable,  but 
could  also  give  rise  to  other  inefficiencies, 
especially  with  respect  to  the  aforementioned 
link between compulsory pension contributions 
and household finances.  

  The  labour  market  is  continuing  to  recover 
and  is  performing  well  overall,  although 
long-term  unemployment  and  the  potential 
segmentation of the labour market remain a 
concern.  Total  employment  rose  steadily  and 
the  unemployment  rate  continued  to  fall  in 
2016.  However,  long-term  unemployment  is 
high  among  older  workers.  Employment  gains 
are largely concentrated in temporary contracts 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

1.1. 

RECENT ECONOMIC DEVELOPMENTS 

GDP growth 

to  double  digit  annual  growth 

The economy is experiencing a period of steady 
growth.  Economic  growth  is  expected  to  have 
accelerated  to  2.1 %  in  2016,  according  to  the 
European  Commission  winter  2017  forecast.  The 
economic  recovery  in  2014  and  2015  was  driven 
by a sharp rise in investment activity, following an 
increase in housing prices and transaction volumes 
leading 
in 
investment  in  housing.  More  recently,  economic 
activity  broadened  with  private  consumption 
contributing  significantly  to  economic  growth  as 
well. By the end of 2016, the total volume of GDP 
was  substantially  above  the  pre-crisis  peak  level 
and  roughly  at  the  pre-crisis  peak  level  in  per 
capita  terms  (Graph  1.1).  In  line  with  improved 
cyclical conditions, productivity growth (GDP per 
hour  worked)  increased  slightly  from  very  low 
levels to 1.5 % in 2015. 

Graph 1.1:  GDP and GDP per capita (2007-2016Q3) 

growth  contribution  from  net  exports  is  expected 
to  be  fairly  limited  given  the  relatively  weak 
outlook for world markets and global uncertainties 
(Graph 1.2). 

Graph 1.2:  GDP growth and contributions 

Source: European Commission, winter 2017 forecast 

Inflation 

Inflation has declined substantially compared to 
pre-crisis  years,  but  is  expected  to  pick  up. 
Declining  energy  prices  have  had  a  negative 
impact on inflation for a couple of years in a row. 
Nevertheless,  a  relatively  stable  difference  of 
0.5 pps  between  headline  and  core 
inflation 
illustrates  relatively  small  overall  second-round 
effects  (Graph  1.3).  Looking  ahead,  inflation  is 
expected to pick up based on higher energy prices 
and positive base effects. 

Source: European Commission (Eurostat) 

Private consumption is expected to be the main 
driver  of  economic  growth  as  the  economic 
cycle matures. Real GDP is projected to increase 
on average by roughly 2 % per year between 2016 
and 2018, according to the European Commission 
winter 2017 forecast. In line with the current phase 
of  the  economic  cycle,  domestic  demand  is 
expected  to  be  the  main  driver  of  economic 
growth.  In  particular  private  consumption 
is 
expected  to  pick  up  as  wage-  and  employment 
growth improve household disposable income. The 

4 

37500380003850039000395004000097989910010110210310410510610707080910111213141516GDP (index 2007=100, lhs)GDP per capita (rhs)Index, Euro-5-4-3-2-10123-5-4-3-2-1012309101112131415161718pps.Output gap (rhs)Net exportsInventoriesHH consumpt.Gov. consumpt.GFCFReal GDP (y-o-y%)forecast%of pot. GDP 
 
 
 
1. Economic situation and outlook 

Graph 1.3:  HICP Inflation 

Graph 1.4: 

Employment by type (year-on-year changes) 

Source: European Commission (Eurostat) 

Labour market 

Source: Statistics Netherlands 

Social developments 

Job creation has gained momentum. The recent 
labour  market  recovery  is  reflected  in  a  steadily 
declining  unemployment  rate  (5.5 %  in  2016Q4, 
down 1.2 pps from 2015Q4). Although the number 
of  permanent  contracts  has  increased  somewhat, 
the  increase  in  jobs  is  mainly  attributable  to 
flexible,  temporary  contracts  (Graph  1.4).  Job 
finding  rates  have  started  to  pick  up  in  2015.  As 
this  concerned  mostly  those  with  unemployment 
spells  of 
long-term 
unemployment  remained  relatively  high  in  2015, 
in  particular  among  older  workers.  Also  youth 
unemployment is falling steadily, while it remains 
particularly  high  for  people  born  in  a  non-EU 
country. 

than  12  months, 

less 

(according 

income.  Also 

Income inequality is relatively low, compared to 
the  EU  average,  but  wealth  inequality  is  high. 
Although income inequality is low by international 
standards 
the  Eurostat  Gini-
to 
coefficient  or  quintile  income  share  ratio (1)), 
wealth  inequality  is  relatively  high.  Statistics 
Netherlands estimates a Gini coefficient of almost 
0.9  in  2014  for  the  distribution  of  household 
wealth (including housing), which is roughly three 
times  the  Gini-coefficient  for  the  distribution  of 
disposable 
international 
comparison,  net  wealth  is  relatively  unequally 
distributed  in  the  Netherlands  (Carroll,  Slacalek 
and  Tukuoka,  2014).  The  unequal  distribution  of 
wealth  seems  to  be  driven  by  intergenerational 
differences.  In  2014,  almost  80 %  of  measured 
household wealth (including housing) belonged to 
households  with  a  main  income  earner  older  than 
50  years;  55 %  of  total  wealth  in  60+  households 
and  more  than  25 %  of  total  household  wealth 
belonged  to  the  generation  70+.  The  age  group 
65-75  has  an  average  net  wealth  of  more  than 
EUR 250 000,  which  is  for  a  large  part  related  to 

by 

(1)  The  Gini-coefficient  is  an  indicator  which  measures  the 
inequality  of  a  income  distribution.  For  incomes  the 
coefficient  is  bounded  by  0  (no  inequality)  and  1 
(maximum  inequality),  for  wealth  the  coefficient  can  take 
values  above  1  as  households  may  have  negative  net 
wealth.  The  income  quintile  share  ratio  measures  the 
incomes of the richest 20 % of the population compared to 
the  the  incomes  of  the  poorest  20 %.  For  the  Netherlands 
the  Gini-coefficient  for  equivalised  disposable  income 
stood  at  0.267  in  2015  compared  to  0.310  for  the  EU-
average,  while  the  income  quintile  share  ratio  was  3.8  in 
2015, compared to a ratio of 5.0 for the EU average. 

5 

-1.0-0.50.00.51.01.52.02.53.03.511Q212Q112Q413Q314Q215Q115Q416Q3HICPCore HICP% yoy-250-200-150-100-50050100150200250080910111213141516Year-on-year change in thousend personsSelf-employedTemporaryPermanentOverall 
 
 
                                                           
1. Economic situation and outlook 

Public finances 

finances  are 

Public 
sound.  The  headline 
government  deficit  is  set  to  fall  from  1.9 %  of 
GDP in 2015 to -0.1 % of GDP in 2016, as lower 
gas  revenues  and  a  tax  stimulus  are  more  than 
offset  by  strong  endogenous  increases  in  tax 
revenues,  in  particular  corporate  taxes.  For  2017 
and  2018  a  small  budget  surplus  is  projected 
(Graph  1.5).  As  a  result  of 
the  sustained 
improvement  in  the  headline  balance  and  stable 
GDP  growth,  the  debt-to-GDP  ratio  is  forecast  to 
decrease from 62.2 % of GDP in 2016 to 58.3 % in 
2018.  The  debt  reduction  also  depends  on  further 
steps 
financial 
reprivatisation 
institutions. 

towards 

of 

Graph 1.5:  Government balances and debt 

Source: European Commission, winter 2017 forecast  

1.2. 

THE ECONOMY IN PERSPECTIVE 

The  recent  recovery  of  domestic  demand 
follows  a  long period  of  slow  domestic  demand 
growth  and  stagnating  household 
income 
(Graph  1.6).  Whereas  GDP  per  capita  increased 
sharply right before the crisis, this did not translate 
into  an  equal  increase  in  household  income 
(adjusted  disposable 
includes 
government transfers in kind such as education and 
healthcare). However, at the onset of the crisis, the 
household  sector  was  protected  against 
the 
immediate impact of the crisis. GDP per capita fell 
sharply in 2009, but household disposable income 
slightly  increased  as  fiscal  buffers  absorbed  the 
immediate impact of the crisis. In the aftermath of 
the  2009  recession,  household  disposable  income 

income,  which 

the  possession  of  a  (nearly)  debt-free  house.  It 
should  be  noted  however  that  substantial  parts  of 
household wealth are not included in the standard 
household wealth statistics, such as pension wealth 
or  savings  in  mortgage  related  financial  products 
('kapitaal  verzekering  eigen  woning').  According 
to  calculations  by  Caminada  and  Goudszwaard 
(2014)  and  by  Kooiman  and  Lejour  (2016), 
allocating pension wealth to the household wealth 
distribution  would  lead  to  a  substantially  lower 
Gini-coefficient,  given  that  pension  entitlements 
are  relatively  more  equally  distributed 
than 
financial  or  housing  wealth.  However,  given  the 
collective  pension  system  and  illiquidity,  pension 
wealth  is  intrinsically  different  than  individual 
financial wealth (Van Bavel, 2014).  

Generational  earnings  mobility 
is  average, 
compared  with  other  European  countries.  The 
annual  statistical  observations  above  do  not  take 
mobility into account, which typically may matter. 
In  the  Netherlands,  inequalities  measured  over  a 
full  life  cycle  tend  to  be  lower  than  inequality 
measured at one point in time (Lever and Waaijers, 
2012; De Beer, 2014). To better understand social 
developments,  it  is  relevant  to  assess  the  income 
relationship between parents and offspring. A low 
intergenerational  wage  elasticity 
that 
is  determined  by  personal 
personal 
capacities;  a  high  elasticity  points  to  a  high 
influence  of  the  parent's  income.  Van  den  Brakel 
and Moonen (2013) estimated an intergenerational 
wage  correlation  of  0.27  for  the  Netherlands, 
which  is  somewhat  larger  than  the  available 
estimates  for  Scandinavian  countries  (below  0.2, 
Corak,  2006),  but  substantially  smaller  than  the 
estimates  for  Anglo-Saxon  countries  (0.5  in  the 
UK, ibid).  

implies 

income 

External position 

The  very  large  current  account  surplus  is 
declining  slowly.  Following  sluggish  domestic 
demand and strong export performance, the current 
account  surplus  peaked  above  10 %  of  GDP  in 
2013.  Largely  as  a  consequence  of  a  declining 
primary  income  account,  the  current  account 
surplus has declined to 8.7 % of GDP in 2015. The 
trade surplus is projected to decline only slowly in 
line  with  the  projected  increase  in  domestic 
demand  as  generally  positive  developments  in 
price  competitiveness  are  expected  to  continue  to 
provide support to export growth (see section 4.4).  

6 

52545658606264666870-5.0-4.0-3.0-2.0-1.00.01.0101112131415161718% of GDP% of (potential) GDPNet lending (lhs)Structural balance (lhs)Gross debt (rhs)Forecast  
 
 
1. Economic situation and outlook 

declined sharply in 2012 and 2013, while GDP per 
capita  declined  marginally.  More  recently,  GDP 
per  capita  and  disposable  income  have  started  to 
grow again.  

Graph 1.6: 

Real GDP and disposable income per capita 
(index 1995=100) 

Graph 1.7:  GDP per capita and household disposable 

income (2015) 

Adjusted disposable income includes income from 
economic activity and property income, social benefits in 
cash and social transfers in kind (goods and services such as 
healthcare, education and housing, received free of 
charge or at reduced prices). GDP is deflated with the GDP 
deflator and disposable household income is deflated with 
the price of actual individual consumption (and in the thin 
line with the GDP deflator to illustrate the impact of relative 
price developments). 
Source: European Commission (Eurostat) 

A  larger  corporate  sector  share,  increasing 
pension  and  healthcare  contributions  and 
different  price  developments  explain  a  gap 
between GDP and household disposable income 
growth.  The  central  bank  (DNB,  2013)  points  to 
an  increasing  corporate  sector  income  share,  and 
higher  pension-  and  healthcare  contributions  as 
main  drivers  behind  an  increasing  gap  between 
GDP and household incomes. Also different price 
developments play a role. Prices of healthcare and 
other  consumption  goods  tend  to  increase  faster 
than  the  price  of  investment  goods,  such  as  ICT. 
The  thin  line  in  Graph  1.6  shows  household 
income corrected for price differences. (2)  

(2)  A  recent  OECD  study  places  these  developments  in 
international  perspective  and  conclude  that  differences 
between growth in GDP and household disposable income 
could  be  related  to  different  developments  in  prices  faced 
by producers versus prices faced by consumers and a rising 
profit share of corporations (OECD 2016d). 

Adjusted gross disposable income includes individual 
government expenditure (such as government expenditure 
on healthcare or education). Income gap is the nominal 
difference between GDP per capita and adjusted 
household income per capita. International comparison 
based on purchasing power standards (pps). 
Source: European Commission (Eurostat) 

The size of the gap between GDP per capita and 
household disposable income is relatively large. 
A  gap  between  household  disposable  income  and 
GDP  per  capita  occurs  in  many  countries,  and  is 
usual  as  households  are  only  one  sector  in  the 
economy,  next  to  the  corporate  sector  and  the 
government sector. Graph 1.7 shows the difference 
between GDP and household income for the EU 15 
countries  in  per  capita  terms.  This  difference  is 
relatively  large  in  the  Netherlands.  It  indicates  a 
larger  share  in  value  added  of  other  institutional 
sectors  and  substantial  taxation  and  compulsory 
saving.  Moreover,  the  graph  implies  that  the 
material  living  standard  of  households  in  western 
European countries, measured in purchasing power 
standards, is more comparable than GDP per capita 
numbers suggest. 

The  household  income  share  is  comparatively 
low.  One  explanation  of  a  relatively 
large 
difference between GDP per capita and disposable 
income  is  a  relatively  low  income  share  of 
households.  The  share  of  net  national  income  (3) 
attributed  to  households  was  72 %  in  2015, 
compared to 80 % for the euro area. The difference 
is  even  bigger  where  the  distribution  of  net 
national  disposable  income  (NDI)  is  concerned. 
The  difference  between  these  concepts  lies  in  the 
taxes  paid  and  benefits  received;  after  correcting 

(3)  Net  national  income  equals  GDP  plus  the  balance  of 
primary incomes, after depreciation of fixed capital.  

7 

Real GDP per capitaReal adjusted disposable income per capitaimpact of relative prices9010011012013014095979901030507091113151705,00010,00015,00020,00025,00030,00035,00040,00045,00050,00055,000IENLATDKDESEBEUKFIFRITESPTELGDP per capitaadjusted gross disposable income of householdsgap 
 
                                                           
 
                                                           
1. Economic situation and outlook 

impose 

liquidity 
for 

their  preferences  (Lukkezen  and  Elbourne,  2015). 
In  addition,  high  compulsory  contributions  can 
constraints  on 
effectively 
those  with  high 
households,  especially 
mortgage  debt  and  child  expenses.  The  current 
arrangements  put  a  significant  burden  on  the 
younger  generations,  who  benefit  from  collective 
institutions only to a limited extent. The low share 
of  income  for  households,  combined  with  an 
uneven  distribution  across  generations  might 
signal  imbalances  in  policy  settings  related  to 
household balance sheets (5). 

in 

partly 

explain 

volatility 

the  combination  of 

Stagnating  disposable  income  may  be  at  the 
root of slow growth in domestic demand, which 
only recently has started to grow again. Whereas 
the  housing  market  dynamics  and  wealth  effects 
may 
private 
consumption  growth,  the  relatively  low  share  of 
households  in  net  national  disposable  income  and 
slow  growth  in  disposable  income  could  explain 
the  overall  sluggish  development.  Stagnating 
household disposable income could be linked to a 
period  of  relatively  low  wage  growth  (see  section 
4.3)  and  high  compulsory  contributions  on  labour 
(see  section  4.1, 
taxes, 
healthcare  and  pension  contributions).  These 
developments  increased  the  saving  surplus,  as 
domestic  demand  only  absorbs  production  to  a 
limited  extent,  leading  to  a  persistent  current 
account surplus. The flip side of this large current 
account  surplus  is  an  outflow  of  capital.  In  line 
with  the  high  pension  savings  that  are  mostly 
invested abroad (section 4.4) and increased foreign 
direct  investment  by  corporations  based  in  the 
Netherlands,  the  Netherlands  is  a  net  exporter  of 
capital to other countries. The size and persistence 
low 
of 
consumption  growth  could  reflect  suboptimal 
resource  allocation.  Starting  in  2014,  domestic 
demand 
line  with  rising 
household  disposable  income  and  some  policy 
measures  such  as  a  pension  reform  lowering 
pension  contributions  (adjustment  of  the  so-called 
Witteveen kader),  and  an  income  tax  cut  in  2016. 
A major pension overhaul, which may reduce pro-
cyclical  household  saving  and  may  lead  to  lower 
pension  contributions  and  higher  disposable 
income  is  currently  being  discussed  (Section  4.2 
and Box 3.1). 

in  combination  with 

increased  again 

these  outflows 

in 

for these, households receive only 55 % of national 
income,  compared  to  71 %  in  the  euro  area  (see 
also  DNB,  2014).  This  share  is  the  lowest  in  the 
EU (Graph 1.8).  

Graph 1.8:  Distribution of net disposable income by 
institutional sector (2015) 

Source: European Commission (Eurostat) 

By  contrast,  the  income  share  of  the  corporate 
sector  is  relatively  large,  while  collectively-
financed healthcare drives up the income share 
of  the  government  sector.  With  10.8 %  of  NDI, 
the  income  share  of  the  non-financial  corporate 
sector is almost three times the euro area average. 
This  difference  can  largely  be  explained  by 
retained earnings. While this is partly related to the 
presence  of  headquarters  of  multinational 
enterprises and related financial flows from abroad 
(see  Section  4.4),  tax  incentives  limit  the  profit 
distribution  of  corporations  in  general.  Also,  the 
income  share  of  the  financial  corporate  sector  is 
relatively  large  in  the  Netherlands,  which  reflects 
the 
including  pension 
funds (4).  The  share  of  the  government  sector  in 
NDI is 29 %, which is 5 pps higher than euro area 
average.  This  high  share  can  be  attributed  to  the 
comparatively  extensive  collective  arrangements, 
in  particular  for  the  healthcare  system.  This  leads 
to  redistribution  within  the  household  sector  and 
may 
inequality. 
However,  it  may  also  entail  a  negative  impact  on 
growth  and  welfare 
suboptimal 
allocation  of  resources.  Specifically,  it  limits  the 
choice of households' ability to absorb shocks and 
to  shift  their  income  over  time,  and  according  to 

large  financial  sector, 

social  and 

through  a 

income 

reduce 

(4)  Relatively  high  compulsory  pension  contributions  shift 

income from households to pension funds. 

(5)  See  also  DNB  2015c  and  the  report  of  the  non-partisan 
study group on sustainable growth (Rijksoverheid, 2016a). 

8 

-101030507090110NLDKSEIEBEFIDEATEUEAELESFRUKPTITfinancial corporationsnon-financial corporationsgeneral governmenthouseholds; non-profit institutions serving households 
 
                                                           
                                                           
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators 

(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, ECB 

9 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)2.6-3.81.41.7-1.1-0.21.42.02.12.01.8Private consumption (y-o-y)0.9-2.10.00.2-1.2-1.00.31.81.62.01.9Public consumption (y-o-y)3.44.71.0-0.2-1.3-0.10.30.20.80.91.1Gross fixed capital formation (y-o-y)4.2-9.2-6.55.6-6.3-4.32.39.96.44.03.5Exports of goods and services (y-o-y)5.8-8.910.54.43.82.14.55.03.33.43.2Imports of goods and services (y-o-y) 5.6-7.79.33.52.71.04.25.83.83.93.8Output gap0.1-2.8-2.1-1.2-2.8-3.2-2.5-1.5-0.8-0.20.2Potential growth (y-o-y)1.71.00.70.80.50.30.61.01.31.31.4Contribution to GDP growth:Domestic demand (y-o-y)2.0-1.9-1.11.1-2.1-1.30.62.62.22.01.8Inventories (y-o-y)0.0-0.41.1-0.40.00.10.2-0.6-0.10.10.0Net exports (y-o-y)0.6-1.51.50.91.11.00.60.00.0-0.1-0.1Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.40.20.10.10.00.00.30.40.60.50.5Capital accumulation (y-o-y)0.70.50.30.50.30.10.20.40.50.60.6Total factor productivity (y-o-y)0.60.30.20.20.20.20.20.20.20.30.3Current account balance (% of GDP), balance of payments7.25.57.08.710.39.98.98.7...Trade balance (% of GDP), balance of payments8.67.38.48.59.610.710.810.8...Terms of trade of goods and services (y-o-y)0.00.8-1.1-1.5-0.30.4-0.10.70.2-0.7-0.8Capital account balance (% of GDP)-0.40.1-0.40.1-1.40.1-0.1-5.0...Net international investment position (% of GDP)-6.11.411.220.427.031.057.863.9...Net marketable external debt (% of GDP) (1)-79.2-99.8-109.3-110.3-107.6-102.3-92.5-76.2...Gross marketable external debt (% of GDP) (1)314.8344.8358.3371.7373.5354.0373.9363.3...Export performance vs. advanced countries (% change over 5 years)6.42.6-0.60.1-2.4-2.8-4.2-6.36...Export market share, goods and services (y-o-y)-1.20.6-6.7-3.4-2.91.50.5-4.1...Net FDI flows (% of GDP)5.85.58.94.30.610.1-5.01.3...Savings rate of households (net saving as percentage of net disposable income)4.87.14.95.87.27.36.36.0...Private credit flow, consolidated (% of GDP)10.68.52.83.52.12.1-1.7-1.6...Private sector debt, consolidated (% of GDP)214.8231.5229.4228.1229.0226.9229.6228.9...of which household debt, consolidated (% of GDP)107.5117.6118.0117.6117.6113.9112.3111.2...of which non-financial corporate debt, consolidated (% of GDP)107.3113.9111.4110.5111.4113.0117.3117.7...Corporations, net lending (+) or net borrowing (-) (% of GDP)9.010.611.311.210.29.08.53.97.46.96.9Corporations, gross operating surplus (% of GDP)27.527.529.128.728.828.428.128.427.527.427.3Households, net lending (+) or net borrowing (-) (% of GDP)-1.41.01.11.62.93.32.21.51.51.20.8Deflated house price index (y-o-y)1.9-3.5-2.7-4.0-8.0-8.20.03.6...Residential investment (% of GDP)6.15.64.74.23.53.03.03.7...GDP deflator (y-o-y)2.10.40.80.11.41.40.10.10.50.80.8Harmonised index of consumer prices (HICP, y-o-y)1.71.00.92.52.82.60.30.20.11.41.4Nominal compensation per employee (y-o-y)2.72.80.62.42.52.21.60.42.32.62.4Labour productivity (real, person employed, y-o-y)1.4-2.92.10.8-0.91.01.71.0...Unit labour costs (ULC, whole economy, y-o-y)1.35.6-1.41.32.91.2-0.1-0.61.62.01.9Real unit labour costs (y-o-y)-0.75.2-2.21.21.5-0.2-0.2-0.71.11.21.1Real effective exchange rate (ULC, y-o-y)0.32.9-3.40.6-1.11.9-0.7-4.01.61.10.2Real effective exchange rate (HICP, y-o-y)-0.31.9-3.9-0.4-1.82.7-0.1-3.11.1-0.9.Tax rate for a single person earning the average wage (%)32.531.832.831.432.131.230.529.9...Tax rate for a single person earning 50% of the average wage (%)22.9*21.521.921.421.421.619.318.7...Total Financial sector liabilities, non-consolidated (y-o-y)10.24.47.08.65.4-0.98.23.3...Tier 1 ratio (%) (2).12.411.811.712.112.515.016.2...Return on equity (%) (3).-0.47.27.35.65.53.67.5...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).2.62.32.42.72.73.02.4...Unemployment rate4.94.45.05.05.87.37.46.96.05.24.7Long-term unemployment rate (% of active population)1.40.81.21.61.92.52.93.0...Youth unemployment rate (% of active population in the same age group)10.210.211.110.011.713.212.711.310.8..Activity rate (15-64 year-olds)77.779.778.278.179.079.479.079.6...People at risk of poverty or social exclusion (% total population)15.815.115.115.715.015.916.516.4...Persons living in households with very low work intensity (% of total population aged below 60)9.78.58.48.98.99.310.210.2...General government balance (% of GDP)-0.3-5.4-5.0-4.3-3.9-2.4-2.3-1.9-0.10.20.3Tax-to-GDP ratio (%)36.535.936.736.436.537.138.038.239.839.839.7Structural budget balance (% of GDP)..-3.5-3.5-2.1-0.9-0.6-1.00.20.00.1General government gross debt (% of GDP)48.056.559.061.766.467.767.965.162.260.258.3forecast 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

provides  scope  for  a  more  flexible  rental  market, 
but  it  is  too  early  to  assess  the  impact  of  these 
reforms. 

without 

the  assessment  points 

Overall,  the  Netherlands  has  made  limited(6) 
progress in addressing the 2016 country-specific 
recommendations.  With  respect  to  the  fiscal-
structural part of CSR 1, no notable measures have 
been  identified  to  improve  R&D  investment  and, 
thus, 
to  no  progress. 
Regarding  CSR  2,  in  view  of  the  absence  of 
dedicated  measures,  the  Netherlands  has  made  no 
progress in facilitating the transition to permanent 
employment contracts. No specific measures were 
taken to reduce distortive tax incentives favouring 
self-employment  or  increase  the  social  protection 
coverage  for  self-employed.  Limited  progress  has 
been  made  in  reducing  incentives  for  the  use  of 
self-employed 
The 
Employment Relationships Deregulation Act (Wet 
DBA),  which  aims  at  reducing  bogus  self-
employment,  has  been  adopted  and  is  gradually 
being implemented. However, its enforcement has 
been  suspended  until  at  least  the  beginning  of 
2018.  In  addition,  the  government  has  announced 
the intention to increase the coverage of the second 
pillar  pension  system,  specifically  with  regard  to 
self-employed  and  contract  workers.  Overall,  this 
implies  limited  progress  on  CSR 2.  Similarly,  the 
Netherlands has made limited progress on CSR 3. 
While  the  government  has  announced  a  general 
ambition  to  reform  the  second  pillar  pension 
system,  tangible  measures  have  been  left  for  the 
next  government  term.  No  further  measures  have 
been taken to reduce the distortions in the housing 
market and the debt bias for households. 

employees. 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  respective  subpart  of  a 
CSR is presented in the Overview table in the Annex. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

the 

implementation  of 

Progress  on 
the 
recommendations addressed to the Netherlands 
in  2016  has  to  be  seen  from  the  longer-term 
perspective  of  the  launch  of  the  European 
Semester in 2011. The Netherlands has been able 
to  achieve  a  timely  and  durable  correction  of  its 
excessive  deficit.  Between  2012  and  2014,  the 
improved 
nominal  government  balance  was 
from  -3.9 %  to  -2.4 %  of  GDP  and  the  structural 
balance  from  -2.3 %  to  -0.6 %  of  GDP.  Since 
2012,  public  spending  on  education  expenditure 
and R&D has been roughly stable as a percentage 
of  GDP.  Total  support  for  R&D,  including  both 
direct and indirect (fiscal) measures, has stabilised 
at around 0.9 % of GDP during this period of fiscal 
consolidation, which is low in comparison to other 
advanced European countries. However, starting in 
2017,  available  budgetary  projections  indicate  a 
risk of a substantial decrease in the years to come.  

On  pensions  and  long-term  care,  substantial 
measures  were  taken,  while  reforms  for  the 
second  pillar  are  being  discussed.  The  statutory 
retirement age in the first pillar is being increased 
to  67  by  2021  and  a  linked  to  life  expectancy 
thereafter. There is a consensus on the need for far-
reaching reforms and several approaches to reform 
the  pension  system  are  being  discussed  (see 
Section 4.2.4).  In  the  area  of  long-term  care,  a 
major  reform  has  been  implemented.  Large  tasks 
have been shifted to municipalities and the role of 
individuals and family members in long-term care 
has been emphasized. Nevertheless, expenditure in 
this  sector  is  still  projected  to  increase  relatively 
fast compared to EU average. 

There  have  been  important  reforms  in  the 
owner-occupied  housing  market  and  the  rental 
market  to  limit  the  distortions  caused  by  tax 
incentives  and  rent  regulation.  The  mortgage 
interest  deductibility  (MID)  is  being  gradually 
reduced to 38% until 2041 and the requirement to 
repay on the principal of the mortgage in order to 
qualify for the MID was introduced. Since 2013 no 
further  steps  were  taken  to  reduce  mortgage 
interest deductibility. Concerning the rental sector, 
limited  progress  has  been  made  through  the 
implementation of a new point system that allows 
for  more  market-oriented  rents  and  higher  rent 
increases in the regulated sector for tenants above 
the  income  threshold.  With  the  introduction  of 
the  government 
short-term 

rental  contracts, 

10 

 
 
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

CSR progress 

(1) This does not include an assessment of compliance with the Stability and Growth Pact 
Source: European Commission 

11 

The Netherlands Overall assessment of progress with 2016 CSRs: limited progress (draft assessment) CSR1: 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. The Netherlands has made no progress in addressing the structural part of CSR1(1):  No progress has been made in prioritising public expenditure towards supporting more investment in research and development. CSR 2: 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. The Netherlands has made limited progress in addressing CSR2:  No (further) progress has been made to tackle remaining barriers to hiring staff or to facilitate transition from temporary to permanent contracts.  Limited progress has been made in addressing the increase in using self-employed without employees. No progress has been made in reducing tax distortions favouring self-employment or increasing the social protection coverage of self-employed. CSR 3: 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 remaining distortions in the housing market and the debt bias for households, in particular by decreasing mortgage interest tax deductibility The Netherlands has made limited progress in addressing CSR 3:  Limited progress has been made in making the second pillar of the pension system more transparent, inter-generationally fairer and more resilient to shocks.   No progress has been made regarding the distortions in the housing market.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

12 

Box 2.1: Contribution of the EU budget to structural change in the NetherlandsThe total allocation of the European Structural and Investment Funds (ESI Funds) in the Netherlands amounts to EUR 1.9 billion for the period 2014-2020. This is equivalent to 1.1 % of the expected national public investment (1). EUR 97 million is planned to be invested through financial instruments, such as loan, equity and guarantee funds. By 31 December 2016, an estimated EUR 614 million, which represents about 33 % of the total allocation for ESI Funds, have already been allocated to concrete projects. Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility (CEF) and other directly managed EU funds is additional to the ESI Funds. By end 2016, the Netherlands has signed agreements for EUR 260 million for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to nearly EUR 359 million, which is expected to trigger EUR 1.9 billion in total investments (as of end 2016).  Necessary reforms and strategies as required by the ex-ante conditionalities (2) were put in place thus ensuring a timely and efficient up-take of the funds. In the context of investments in the promotion of cost-effective improvements of energy end use efficiency and cost-effective investment in energy efficiency, an action plan has been agreed. All relevant CSRs were taken into account when designing the 2014-2020 programmes. The ESI Funds play a role in strengthening employability and job creation, by focussing specifically on enhancing the overall labour market participation of vulnerable groups and by investing in measures that improve the job prospects of older workers. In addition, the ESI Funds' investments target an increase in the private and public investments in Research and Innovation, while strengthening the innovation potential of the regions by enhancing cooperation between enterprises and knowledge institutions and by supporting SMEs in their efforts to turn innovations into marketable products. https://cohesiondata.ec.europa.eu/countries/NL                                                            (1) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries (2) At the adoption of programmes, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and investment conditions for the majority of areas of public investments. For Members States that do not fulfil all the ex-ante conditionalities by the end 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments  
 
 
 
 
 
3.  SUMMARY OF THE MAIN FINDINGS FROM THE MIP IN-

DEPTH REVIEW 

The  Alert  Mechanism  Report  2017  called  for 
further in-depth analysis to monitor progress in the 
unwinding  of  the  imbalances  identified  in  the 
2016 macroeconomic  imbalance  procedure  (MIP) 
cycle. Because in spring 2016 the Netherlands was 
identified as having macroeconomic imbalances in 
the  form  of  a  high  current  account  surplus, 
reflecting a saving and investment imbalance, and 
a  high  private  debt  level,  in  particular  mortgage 
debt,  a  new  in-depth  review  (IDR)  is  needed  to 
assess how these imbalances have evolved. 

Analysis  integrated  into  this  country  report 
imbalances 
provides  an  IDR  of  how  the 
particular 
In 
identified  have  developed. 
IDR-relevant  analysis  can  be  found 
the 
in 
following 
regulatory 
the 
framework  in  section  4.1;  private  indebtedness  in 
section 4.2; and saving and investment imbalances 
in  section 4.4.  Potential  effects  of  a  domestic 
demand  shock  on  the  trade  balance  are  discussed 
in Box 3.1. 

tax  and 

sections: 

3.1. 

IMBALANCES AND THEIR GRAVITY 

The  very  high  and  persistent  current  account 
surplus  points  to  an  imbalance  in  domestic 
savings  and  investments.  In  2015,  the  three-year 
average  of  the  current  account  surplus  stood  at 
9.1 % of GDP, higher than in any other euro area 
country.  Such  a  large  external  imbalance  may 
point to underlying causes leading to a sub-optimal 
allocation  of  resources,  leaving  opportunities  for 
increased  growth  and  welfare.  Domestic  demand 
remains weak in the Netherlands. In particular, the 
household  consumption-to-GDP  ratio  has  been 
significantly  below  the  euro  area  average,  driven 
by  low  real  income  growth  due  to  relatively  slow 
increasing 
wage  growth  and  a  high  and 
compulsory  payment  wedge,  consisting  of  a 
combination  of  taxes,  pensions  and  healthcare 
contributions (see section 4.1.1). At the same time, 
the  current  account  surplus  is  to  some  extent 
driven  by  the  high  corporate  saving  rate,  partially 
linked to the international interdependencies of the 
corporate  sector  and 
flows. 
enterprises 
Specifically 
the  Netherlands  distribute 
headquartered 
their 
relatively 

their  profits  given 

related  capital 

multinational 

little  of 

in 

profitability  abroad  (see  section 4.4.2).  This  has  a 
statistical upward effect on the external net lending 
position.  Moreover,  the  large  pension  savings  are 
channelled  abroad  via  sizeable  pension  funds, 
increasing  the  surplus  further  (see  section  4.2.4). 
As such, the current account surplus is to a certain 
extent  driven  by 
economic 
institutions, which do not reflect trade imbalances. 

financial 

and 

To  a  lesser  extent,  the  surplus  is  influenced  by 
cyclical factors. Following a severe recession, the 
recovery  is  now  well  on  track.  Nevertheless,  the 
cyclical  downturn  had  an  upward  effect  on  the 
current  account  in  the  aftermath  of  the  recession. 
The  fiscal  consolidation,  which  was  necessary  to 
restore  a  sound  budgetary  position,  acted  as  a 
temporary  drag  on  domestic  demand.  In  addition, 
the sharp fall in house prices had a negative effect 
on  private  consumption  via  household  wealth 
effects,  keeping  demand  low  and  increasing  the 
surplus.  Currently, 
are 
estimated  to  have  a  broadly  neutral  effect  on  the 
current account balance. 

conditions 

cyclical 

Given  the  openness  of  the  economy,  the 
Netherlands  is  a  potential  source  of  spill-over 
effects  to  other  euro  area  countries.  The 
aforementioned  imbalance  primarily  affects  the 
domestic  economy,  but  also  other  Member  States 
in  light of  the  strong  trade  and  financial  linkages. 
Simulations  show  that  an  increase  in  domestic 
demand would have moderate spill-over effects on 
the  trade  balance  of  the  rest  of  the  euro  area  (see 
Box 3.1). 

big  multinational 

Private  sector  indebtedness  remains  high,  at 
229 %  of  GDP  in  2015.  The  high  debt  level  is 
linked  to  both  non-financial  corporate  sector  debt 
(118 %  of  GDP)  and  household  debt  (111 %  of 
GDP). Whereas corporate sector debt largely stems 
from 
enterprises  with 
headquarters in the Netherlands, that pair liabilities 
with sufficiently large equity, gross household debt 
is high in terms of GDP, at almost twice the EU-28 
average.  The  ratio  of  gross  debt  over  disposable 
income  is  also  extremely  high:  219 %  compared 
the  euro  area  average.  The 
with  94 %  for 
incentives 
taxation 
regulatory  framework  and 
played  a  major  role  in  the  build-up  of  high 
mortgage  debt.  Fiscal  incentives  and  the  absence 

13 

 
 
3. Summary of the main findings from the MIP in-depth review 

of  a  well-functioning  private  rental  market  push 
households into homeownership. 

4.2.2).  Box  3.1  shows  how  such  a  reform  could 
lead  to  lower  pension  contributions  and  higher 
domestic demand.  

relatively 

sheets  make  households 
Long  balance 
vulnerable  to  financial  shocks.  In  addition  to 
high  mortgage  debt,  households  accumulate 
notable pension wealth over their working life due 
pension 
to 
contributions. Thus, households in the Netherlands 
save a lot, but as these savings are not liquid, they 
cannot  be  used  to  reduce  outstanding  debt  (see 
section  4.2).  The  resulting  long  balance  sheets 
make households vulnerable to financial shocks. 

compulsory 

high 

3.2. 

EVOLUTION, PROSPECTS AND POLICY 
RESPONSES 

The  Netherlands  has  recorded  surpluses  in  the 
current  account  for  more  than  30  years. 
However, the current account surplus has declined 
slightly  in  recent  years  and  the  expected  increase 
in  domestic  demand  is  likely  to  lead  to  a  further 
gradual decline in the surplus over the next years. 
The  economy  is  growing  on  the  back  of  robust 
domestic  demand.  Private  consumption  is  picking 
up,  supported  by  increasing  employment  and  real 
wages,  with  an  upward  effect  on  imports.  In 
combination  with  a  more  passive  deleveraging  of 
households, the current account surplus is expected 
to fall at a moderate pace. This is supported by the 
continuously declining balance of primary income, 
foreign 
which 
subsidiaries.  The  factors  that  weigh  on  household 
disposable  income  limit  the  scope  for  private 
deleveraging  and  increasing  domestic  demand  at 
the same time. 

reflects 

income 

lower 

from 

to 

income, 

The  government  has  taken  measures  that  are 
expected  to  further  increase  domestic  demand. 
In  order 
the 
raise  disposable 
government lowered pension contributions in 2015 
via a reduction in the fiscal maximum accrual rate. 
In  2016,  a  broad  package  of  tax  cuts  reduced  the 
tax  wedge,  with  positive  effects  on  employment, 
disposable income, and thus domestic spending. In 
addition, 
its 
intention to abolish distortionary tax incentives for 
specific  small  and  medium-sized  enterprises 
(SMEs),  which  could  lead  to  lower  retained 
earnings  and  reduce  the  corporate  savings  (see 
section 4.1.1). Currently, an overhaul of the second 
pension  pillar  is  being  discussed  (see  section 

the  government  has  announced 

Private  debt  remains  high.  Since  2009,  private 
debt  has  stayed  flat  at  around  230 %  of  GDP. 
Household debt, which is largely the result of high 
mortgage  debt,  peaked  at  118 %  of  GDP  in  2010 
but has decreased to 111 % of GDP in 2015. Given 
the  high  debt  level,  the  deleveraging  needs  of 
private  households  remain.  Nevertheless, 
the 
ongoing recovery of the housing market, reflected 
in increasing transactions and rising prices, has led 
to a slowdown in the private deleveraging process. 
Mortgage  debt  has  started  to  increase  again  in 
nominal  terms,  but  continues  to  decline  in  GDP 
terms.  This  passive  deleveraging  by  households 
leads to a further decline in debt ratios.  

The increase in mortgage debt is relatively low 
compared to the strong increase in house prices 
and  transactions.  This  can  be  partially  linked  to 
macro-prudential  measures  in  the  housing  market 
as  well  as  an  increase  in,  voluntary  repayments 
Households  now  face  a  declining  ceiling  for  the 
loan-to-value  ratio,  which  will  be  lowered  to 
100 %  by  2018.  Mortgage  interest  deductibility  is 
being gradually reduced, and the eligibility criteria 
for  the  deduction  have  changed.  Households  now 
have  a  strong  incentive  to  amortise  their  debt. 
However, the phasing-in of these measures is slow, 
in 
especially 
the  overall  economic 
the  continued  recovery  of  housing 
situation, 
markets and the low interest rate environment. 

light  of 

3.3.  OVERALL ASSESSMENT 

The Netherlands faces sources of imbalances in 
the  form  of  a  high  and  persistent  current 
account  surplus,  and  in  the  form  of  high 
household  debt.  The  current  account  surplus 
driven  by  low  domestic  demand,  in  particular 
depressed  disposable  income  for  households,  the 
presence of large capital funded pension funds, and 
to  multinational 
by  statistical  effects  related 
enterprises  (see  section  4.4.2).  To  the  extent  that 
the  surplus  reflects  subdued  domestic  demand, 
unwinding  these  imbalances  could  foster  growth 
and  welfare  in  the  Netherlands.  There  is  room  to 
further support investment and thus strengthen the 
growth  potential  of  the  economy,  particularly 
through  key  areas  such  as  R&D  (see  box  4.4.1). 

14 

 
3. Summary of the main findings from the MIP in-depth review 

Domestic  demand  has  been  hampered  in  the  past 
by  the  private  deleveraging  process,  specifically 
the rebalancing of household balance sheets in the 
the  housing  market  downturn. 
aftermath  of 
Moreover, the long household balance sheets make 
households  vulnerable  to  financial  shocks.  Given 
the  still  high  level  of  mortgage  debt,  private 
deleveraging needs persist.  

the  shock 

Recent  policy  measures  improve  household 
balance  sheets  and  support  domestic  demand. 
Measures  aimed  at  improving  household  balance 
sheets  are  promising,  but  are  being  phased  in 
slowly,  in  particular  taking  into  account  the 
recovery  of  the  housing  market  and  low  interest 
rates.  Relatively  generous  mortgage 
interest 
deductibility  continues  to  fuel  household  debt, 
negatively  affecting 
resilience  of 
households and the economy. The government also 
implemented  measures 
support  domestic 
demand.  In  2016,  the  tax  wedge  on  labour  has 
been  reduced,  with  positive  employment  effects, 
increasing  disposable 
income  and  domestic 
demand. In addition, the announced abolishment of 
distortive tax incentives in 2017 could reduce non-
financial  corporate  savings.  Finally,  as  fiscal 
adjustment  in  the  Netherlands  has  become  less 
restrictive,  the  budgetary  stance  is  now  less  of  a 
drag  on  domestic  demand  than  in  the  immediate 
aftermath of the crisis, with positive consequences 
on  domestic  demand  and  thus  on  rebalancing  of 
the current account.  

to 

15 

 
3. Summary of the main findings from the MIP in-depth review 

Table 3.1: 

MIP assessment matrix(*) – the Netherlands 

(Continued on the next page) 

16 

 Gravity of the challenge Evolution and prospects Policy response Imbalances (unsustainable trends, vulnerabilities and associated risk) Current Account balance The current account balances stood at 8.7 % of GDP in 2015. The high net lending to the rest of the world is mainly linked to the high savings by non-financial corporations. The household sector also contributes to the surplus as private deleveraging continues, albeit at a slower pace. The Netherlands has recorded surpluses on the current account for more than 30 years (see section 4.4.3). A persistent current account surplus points to an imbalance in domestic savings and investments, with possible adverse consequences for the allocation of resources and thus growth and welfare. While robust domestic demand growth is likely to affect the current account balance to some extent, the surplus position is expected to persist. The statistical upward effect of large cross-border capital flows related to the presence of multinational enterprises persists (see section 4.1.1 and 4.4.1). In addition, the large pension savings compared to the size of the domestic economy are projected to continue as an upward effect on the lending position (see section 4.4.2). Cyclical effects are currently neutral to the current account balance. Measures have been taken to reduce the tax wedge and thus support domestic demand via a package of tax cuts in 2016. In 2017, the government plans to abolish specific tax incentives for SMEs, which could lower retained earnings (see section 4.1.1). The fiscal stance, which acted as a drag on domestic growth in the past, has become less restrictive, with a positive effect on demand and thus on external rebalancing. Finally, the government has expressed the intention to reform the second pillar pension system, which could lead to lower compulsory pension savings.  Private debt Private sector debt in terms of GDP stood at 229 % in 2015, which is mainly linked to the high stock of gross household debt, 111 % of GDP in 2015 and 231 % of disposable income). While household liabilities are large they go alongside large illiquid assets in the form of housing wealth and pension wealth (see section 4.2.3). The relatively long household balance sheets, driven by tax incentives and the regulatory framework, increase financial vulnerability. Total private sector debt has only very gradually decreased in recent years. Household debt has declined 7 pps. of GDP since its peak in 2010, after having rapidly increased in the last three decades. In line with the ongoing recovery of the housing market driving up nominal mortgage debt levels, active deleveraging turned into passive deleveraging. Overall, private debt in terms of GDP is expected to remain high. Some housing market regulations have been adjusted to reduce the high household debt level in 2013. Nevertheless, these measures are still insufficient and are being phased in only very slowly. By consequence, these measures improve only marginally the financial resilience of households, while the distortions in the housing market remain relevant, specifically the bias towards the owner-occupied and regulated rental market.   
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

Table (continued) 

(*) 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 to address these. 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 

17 

Conclusions from IDR analysis  The Netherlands shows the largest three-year average current account surplus in terms of GDP among euro area countries. The surplus implies a suboptimal allocation of resources, leaving opportunities for increased growth and welfare. The disposable income of households is hampered by a high compulsory payment wedge. Private debt is high, specifically the stock of household mortgage debt. The long household balance sheets increase the vulnerability to financial shocks.  The current account surplus decreased slightly from 10.3 % of GDP in 2013 to 8.7 % of GDP in 2015 due to a decline of the primary income balance, improved cyclical conditions and recovering domestic demand growth. In the same time, household debt has only gradually declined, as the ongoing recovery of the housing market is driving up nominal mortgage debt levels.  Domestic demand is supported by recent policy measures aimed at reducing the tax wedge. Additional measures to unlock retained earnings could lead to a further rebalancing of the current account. Moreover, measures have been taken to support household deleveraging and to prevent excessive build-up of mortgage debt. Nevertheless, these measures appear insufficient and the phasing-in is too slow. Finally, the government has announced its intention to reform the second pension pillar in a letter to parliament with potential reform paths.   
 
 
 
 
3. Summary of the main findings from the MIP in-depth review 

18 

 Box 3.1: Spillovers: trade balance impact of a shock to domestic demandThe large financial sector and the trade openness of the Dutch economy imply potential spillovers to other European Member States (see also European Commission, 2016a). To the extent that a persistent current account surplus might reflect subdued domestic demand, an increase in domestic demand could reduce the surplus on the trade balance, while increasing exports of its main trading partners. Policy settings have the potential to support domestic demand. In light of this, the government implemented a tax cut of 0.7% of GDP in 2016. Currently a pension reform is under discussion (see section 4.2). In a letter to parliament from July 2016 (1), the government expressed its intention to reform the second pillar pension system. In particular, the letter proposes to substitute the current 'doorsneesystematiek' (contributions are averaged over age groups and yield the same entitlement) for an actuarially fair system with a degressive (age-dependent) accrual of pension entitlements. Calculations by the Netherlands Bureau for Economic Policy Analysis (CPB, 2016) show that this could eventually lead to lower pension contributions and higher pension fund assets. This would lower the surplus on the trade balance via higher import demand and fuel investment by pension funds. As an approximation of the reform, this box shows the impact of a permanent 1 % increase of private consumption and a temporary investment impulse on the Dutch economy and spillovers to other countries, using the Commission's QUEST(2) model. The consumption shock could be associated with a permanent increase in disposable income, while the investment impulse is assumed to be phased in gradually. After five years, the impact of the reform would be 0.2 % on real GDP in the Netherlands and roughly one tenth of that on real GDP in the rest of the euro area. With the increase of the productive capital stock, the impact increases to 0.4 % after 20 years for the Netherlands and to 0.1 % for the euro area. The surplus on the trade balance declines by roughly 0.3 % of GDP. This reflects both increased imports of consumption and investment goods as well as a slight increase in exports following the increase in production capacity in the Netherlands and higher demand from the rest of the euro area. As both euro area import and export volumes increase, the impact on the rest of the euro area trade balance is negligible in terms of euro area GDP. Graph 1: Stylised impact of a pension reform (Quest simulation)  Source: European Commission                                                             1) This refers to the so-called "perspectief nota", see Ministry of Social Affairs (2016b). 2) QUEST is the global macroeconomic model DG ECFIN uses for macroeconomic policy analysis and research. For detailed information see: http://ec.europa.eu/economy_finance/research/macroeconomic_models_en.htm.   0.00.10.20.30.40.551020YearReal GDP (%)The NetherlandsRest of euro area-0.4-0.3-0.2-0.10.00.151020YearTrade balance (% of GDP)The NetherlandsRest of euro area 
 
 
 
 
 
4.  REFORM PRIORITIES 

4.1.  PUBLIC FINANCES AND TAXATION 

4.1.1.  TAXATION* (7) 

is  high 

revenues 

from  personal 

The  combined  tax  and  non-tax  burden  on 
in  the  Netherlands.  While 
labour 
government 
income 
taxation  in  terms  of  GDP  are  below  the  EU 
average,  the  Netherlands  ranks  among  the  highest 
with regards to revenues from social contributions. 
Also compulsory contributions paid by households 
are  the  highest  within  the  EU  (as  a  percentage  of 
GDP).  In  addition,  non-tax  compulsory  payments 
on  labour  are  substantial  in  the  Netherlands,  and 
have  a  largely  similar  effect to  taxes. Graph  4.1.1 
shows the average compulsory payment wedge for 
a  single  person  earning  the  average  wage (8). 
Including  non-tax  compulsory  payments,  which 
include  pension  and  the  obligatory  healthcare 
insurance  contributions 
(to  privately-managed 
funds),  the  Netherlands  has  one  of  the  highest 
burdens  on  labour  in  the  EU.  Similarly,  the 
marginal  compulsory  payment  wedge  of  61 %  in 
2015 is substantially above that of other European 
countries. 

incomes.  To  stimulate 

In 2016, a sizeable package of tax cuts has been 
implemented,  with  a  total  budgetary  impact  of 
EUR 5 billion  (0.7 %  of  GDP).  The  measures 
included an increase in the employment tax credit 
and  a  reduction  in  the  tax  rate  applicable  for 
middle 
force 
participation, 
allowance  was 
childcare 
increased.  In  addition,  as  of  2017,  a  wage  cost 
subsidy for low-income earners, aims at increasing 
employment  among 
low-skilled  workers.  The 
government  has  implemented  additional  measures 
regarding  the  tax wedge  in 2017,  but their impact 
on  employment  is  expected  to  be  marginal  (see 
European Commission, 2016b). 

labour 

the 

The  tax  system  encourages  households  to  take 
on housing debt through the generous mortgage 

(7)  An  asterisk  (*)  indicates  that  the  analysis  in  the  section 
contributes  to  the  in-depth  review  under  the  MIP  (see 
section 3 for an overall summary of main findings) 

(8)  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).   

interest deductibility. Tax incentives have played 
an  important  role  in  the  build-up  of  excessive 
household  debt  and  measures  are  being  taken  to 
partially  reduce  these  incentives  (see  section  4.2 
for a further discussion), 

Graph 4.1.1:  Compulsory payment wedge of single person 
earning the average wage (2015) 

The OECD does not provide data on non-tax payments for 
non-members. 
Source: OECD 

the 

high 

taxes  are 

regarded  as 

Revenues  from  environmental  taxation  are 
relatively 
Netherlands. 
in 
less 
Environmental 
detrimental  to  growth,  compared  to  other  type  of 
taxes  (European  Commission,  2015a).  In  2014, 
environmental  taxes  accounted  for  9.0 %  of  total 
security 
revenues 
contributions (EU-28 average: 6.3 %). This places 
the Netherlands in the top 25 % of Member States 
as regards revenues from environmental taxation. 

social 

taxes 

from 

and 

Some of the Netherlands’ tax rules may be used 
in structures of aggressive tax planning (9). The 

(9)  Aggressive tax planning consists in taking advantage of the 
technicalities  of  a  tax  system  or  of  mismatches  between 
two  or  more  tax  systems  for  the  purpose  of  reducing  tax 
liability  (source:  Commission  Recommendation  of  6 
December 
planning 
(2012/772/EU)).  For  an  overview  of  the  most  common 
structures of aggressive tax planning and the provisions (or 
lack  thereof)  necessary  for  these  structures  to  work,  see 
Ramboll  Management  Consulting  and  Corit  Advisory 
(2016). It should be noted that country-specific information 

aggressive 

2012 

tax 

on 

19 

0102030405060BENLITATDEHUFRFISKSECZLVSIPTLTEEPLESHRLUELRODKBGUKIEMT% of total labour costIncome taxEmployee contributionEmployer contributionNon-tax payments 
 
                                                           
 
                                                           
4.1. Public finances and taxation 

Graph 4.1.2:  Cross-border interest payments (2015) 

Most of the EU member states have interest payments 
between 0 % and 0.5 % and are not included in the graph to 
increase readability.  
Source: European Commission 

amended 

The Netherlands has taken steps to adjust some 
of 
its  tax  rules  facilitating  aggressive  tax 
the 
planning.  The  Netherlands 
‘innovation  box’  regime,  which  grants  a  5  % 
effective  corporate tax  rate,  in  order  to  bring  it  in 
line  with  Action  5  of  the  Base  Erosion  and  Profit 
Shifting  project  (see  OECD,  2015b),  as  endorsed 
by  the  Code  of  Conduct  for  Business  Taxation.  It 
also 
deduction 
limitations  to  address  certain  artificial  corporate 
structures. 

amended 

specific 

interest 

absence  of  certain  anti-abuse  rules (10)  and  the 
absence  of  withholding  taxes  on  interest  and 
royalties  vis-à-vis  third  countries  are  features  of 
the tax system which may facilitate aggressive tax 
planning.  In  that  respect,  the  very  high  level  of 
inward  and  outward  foreign  direct  investments 
(FDI),  the  share  of  those  FDI  held  by  so-called 
‘special  purpose  entities’ (11)  (SPE),  but  also  the 
high 
interest 
level  of  dividend,  royalty  and 
payments (see  Graph  4.1.2)  as  a  percentage  of 
GDP  suggest  that the  country’s  tax  rules  are  used 
by  companies  that  engage  in  aggressive  tax 
planning (12). Within this context, it is important to 
note that EU corporate tax initiatives (for example, 
the amendments to the Parent-Subsidiary Directive 
and the Anti-Tax Avoidance Directive) strengthen 
Member  States'  anti-abuse  frameworks  and  boost 
tax 
the 
automatic  exchange  of  information  on  tax  rulings 
or on country-by-country reports.  

for  example 

transparency, 

through 

provided  in  the  study  gives  the  state  of  play  by  May/June 
2015. 

(10)  For more details, see European Commission (2016a). 
(11)  A special purpose entity is a legal entity that has little or no 
employment,  operations  or  physical  presence 
the 
jurisdiction  where  it  is  located.  It  is  related  to  another 
corporation, often as its subsidiary, and is typically located 
in another jurisdiction.  

in 

(12)  In  2015,  the  level  of  inward  and  outward  foreign  direct 
investment  amounted  respectively  to  535 %  and  636 %  of 
GDP.  Around  80 %  of  in-  and  outward  FDI  are  held  by 
SPE. The dividends paid and received amounted to 14.8 % 
and 19.9 % of GDP whereas royalties paid and received in 
2015 stood at to 5.6 % of GDP and 6.6 % of GDP 

The Netherlands' tax system offers incentives to 
retain  earnings.  An  example  is  the  case  of 
director-major  shareholders  (Directeur-Grootaan-
deelhouder, DGA) (13), who are both employees of 
and  shareholders  in  their  own  company,  thus 
facing  corporate, 
taxes. 
According  to  a  CPB  study  (Bettendorf  et  al., 
2016),  DGAs  react  strongly  to  fiscal  incentives, 
optimising over different tax brackets and shifting 
income over time. Compared to companies without 
a  director-major  shareholder,  DGAs  distribute 
relatively  little  of  their  profits  and  thus  contribute 
to the Netherlands’ savings surplus (14). DGAs are 

labour  and  capital 

(13)  A  DGA  is  self-employed  and  owns  at  least  5 %  of  the 

corporation. See Bettendorf et al., 2015. 

(14)  An  in-depth  analysis  for  2010  reveals  that  while  DGAs 
reported  taxable  profits  of  EUR  13.5  bln  (2.1 %  of GDP),  
only 27 % or EUR 3.7 bln (0.6 % of GDP) were distributed 

20 

-2%0%2%4%6%8%10%12%14%16%18%20%22%24%LUNLBEDKSEATFIFRSI% of GDPInterests  PaidInterests  Receivedbelow 1% of GDP 
                                                                                   
 
                                                           
not obliged to participate in the second pillar of the 
pension  system  and  can  instead  build  up  pension 
savings within their corporations. The government 
plans to abolish this possibility in 2017, including 
a  temporary  tax  abatement  to  incentivise  the 
withdrawal  of  these  savings.  This  might  lead  to 
somewhat  lower  corporate  savings  with  potential 
positive  effects  on  domestic  demand.  However, 
uncertainties  around  the  exact  implementation 
remain. 

4.1.2.  LONG-TERM SUSTAINABILITY OF PUBLIC 

FINANCES 

to  44.7 %  of  GDP 

The  debt-to-GDP  ratio  continues  to  decline. 
Government  debt  in  the  Netherlands,  which  stood 
at  65.1 %  of  GDP  in  2015,  is  expected  to  fall 
below  the  Stability  and  Growth  Pact  threshold  of 
60 % in 2018 (58.3 % of GDP). The Commission’s 
debt  sustainability  analysis (15)  projects  a  further 
in  2027  (final 
decrease 
projection  year)  under 
a  no-policy-change 
assumption,  driven  by  both  nominal  GDP  growth 
and primary surpluses. This places the Netherlands 
in  the  low-risk  category  over  the  medium  term 
according  to  an  overall  assessment.  The  low-risk 
assessment 
is  confirmed  by  alternative  debt 
scenarios,  for  example  an  enhanced  positive 
interest  rate  shock  (Graph  4.1.3),  which  implies  a 
sufficient margin to the 60 % threshold at the end 
of the horizon. 

as  dividends.  This  is  substantially  lower  than  what  is 
common  among  other  NFCs.  If  DGA  companies  had  the 
same  pay-out  ratio,  their  savings  would  be  0.5 %  of  GDP 
lower.  See  Commissie  inkomstenbelasting  en  toeslagen 
(2013).  

(15)  This  is  a  mechanical  projection  based  on  the  current 
primary  balance  and  assumptions  on  nominal  growth  and 
interest  rates.  Subsequently  an  equilibrium  debt  level  and 
equilibrium interest services can be calculated. 

4.1. Public finances and taxation 

Graph 4.1.3:  Debt profile (2012-2027) 

Source: European Commission 

In  recent  years,  the  Netherlands  has  adopted 
substantial  first  pillar  pension  and  long-term 
care  reforms.  To  address  the  sustainability  risk 
stemming  from  an  ageing  society,  the  statutory 
retirement  age  is  gradually  being  increased  to  67 
by  2021,  and  linked  to  life  expectancy  thereafter. 
According  to  this  new  law  and  the  most  recent 
population  projections  by  Statistics  Netherlands 
(CBS),  the  government  announced  in  October 
2016 that the retirement age will be increased to 67 
years and 3 months by 2022. In addition, the long-
term  care  system  has  undergone  a  major  reform. 
Public expenditure on long-term care stands out as 
the highest in the EU with 4.1 % of GDP in 2013 
(European  Commission,  2015b).  This  is  largely 
linked to the high share of institutional care (87 %) 
in  the  Netherlands,  which  is  relatively  costly.  In 
order  to  counter  the  strong  projected  increase  in 
the  number  of  long-term  care  recipients  over  the 
next 
reforms  were 
substantial 
implemented.  Large  parts  of  the  non-residential 
to 
long-term  care  sector  have  been  shifted 
municipalities in 2015, and more emphasis is being 
to  greater 
put  on 
responsibilities  by 
family 
members.  While  the  transitional  phase  of  the 
reform  process  has  been  completed  successfully, 
including  implementation  at  municipal  level,  it  is 
too  early 
impact. 
Nevertheless,  long-term  care  expenditure  in  terms 
of  GDP  is  currently  projected  to  increase  by  3.0 
pps  between  2013  and  2060,  compared  to  an  EU 
average  of  1.1  pps  (European  Commission, 

the  full  reform 

informal  care, 

individuals 

to  assess 

decades, 

leading 

and 

21 

40455055606570% of GDPBaseline no-policy change scenarioStandardized (permanent) negative shock (-1p.p.) to theshort- and long-term interest rates on newly issued androlled over debtEnhanced (permanent) positive shock (+2p.p./+1p.p) tothe short- and long-term interest rates on newly issuedand rolled over debt 
                                                                                   
 
4.1. Public finances and taxation 

4.1.4.  QUALITY OF PUBLIC FINANCES 

(gross 

investment 

Public  expenditure  in  growth-enhancing  areas 
is  low  compared  to  peer  countries.  Within  the 
budgetary scope, it is important to use government 
resources  efficiently,  in  order  to  promote  long-
term  growth  and  employment.  Some  expenditure 
categories are regarded as growth-enhancing, such 
as  public 
fixed  capital 
formation), which accounted for 3.5 % of GDP in 
2015, above the EU average of 2.9 % (EA 2.7 % of 
GDP).  Moreover,  in  2014  the  Netherlands  spent 
5.4 % of GDP on education, which is less than the 
top-performing  peer  countries  such  as  Finland, 
Sweden or Denmark (see section 4.3.3). Similarly, 
public  R&D  intensity  (0.9 %  of  GDP)  remains 
innovative  European 
lower 
economies. Looking forward, direct public support 
for R&D is projected to decline between 2016 and 
2020 (see section 4.5.1).  

in  most 

than 

2015b),  pointing 
to  a  possible  sustainability 
challenge  in  the  medium  and  long  term.  A 
comprehensive  evaluation  of  the  reform  by  the 
Netherlands’ authorities will be published in 2018.  

4.1.3.  FISCAL FRAMEWORK 

the 

stabilisation.  At 

The  Netherlands  has  a  well-established  fiscal 
framework  that  serves  as  a  good  practice 
example  (Ayuso  i  Casals,  2012;  and  European 
Commission, 2010). The framework builds on the 
principal  of  trend-based  budgetary  policy  and 
automatic 
start  of  a 
government’s  term,  based  on  the  independent 
macroeconomic  projection  by  the  Netherlands 
Bureau  for  Economic  Policy  Analysis  (CPB),  the 
coalition 
annual 
expenditure ceilings for the main budgetary areas, 
aiming for a budgetary objective at the end of the 
term.  While  the  government  needs  to  adhere  to 
these  ceilings,  as  anchored  in  the  Wet  Houdbare 
Overheidsfinanciën (WetHOF), the revenue side of 
the  budget  is  allowed  to  fluctuate  within  certain 
limits. Compliance with the numerical fiscal rule is 
monitored by the Advisory Division of the Council 
of State. 

agreement 

defines 

real 

Despite its good track record, the Netherlands is 
exploring  how  its  national  fiscal  framework 
could be further improved. A dedicated advisory 
group of high-level civil servants has reviewed the 
framework  ahead  of  the  2017  elections.  The 
advisory group, (which gives general advice on the 
budgetary guidelines for the upcoming government 
term) has identified possibilities to better align the 
system  of  ceilings  with  the  European  framework 
and  to  increase  automatic  stabilisation  on  the 
expenditure 
group 
side.  Specifically, 
recommended  including  interest  expenditure  and 
natural  gas  production  under  the  ceilings,  but 
excluding  cyclical  expenditure  items  such  as 
unemployment  benefit  expenditure.  Nevertheless, 
tax  expenditures  are  not  covered  by  the  ceilings 
and therefore not subject to the same high level of 
oversight, although they account for a large part of 
the budget. Mortgage interest rate deductibility and 
the  deductibility  of  pension  contributions  alone 
added up to more than EUR 21 billion in 2016, or 
roughly 3 % of GDP. 

the 

22 

 
4.2.  FINANCIAL SECTOR 

4.2.1.  BANKING SECTOR 

In relative terms, banks are the most important 
financial  intermediaries  in  the  Netherlands. 
Banks' assets in the Netherlands stood at 380 % of 
GDP  in  August  2016,  about  the  same  as  in 
Denmark,  Ireland,  France  and  the  UK.  Market 
concentration  is  high;  the  combined  market  share 
of the top 5 players is among the highest in the EU. 
The five largest banks have a market share of 85 % 
in terms of total assets (ECB, 2016a). 

The banking sector has improved its robustness 
since the crisis. Capital ratios have doubled since 
the 2008 financial crisis collapse and the European 
Banking  Authority’s  (EBA)  stress  test  underlined 
that  banks  are  able  to  withstand  considerable 
adverse circumstances. Return on equity and return 
on  assets  have  been  positive  and  above  euro  area 
average  since  2010  (ECB  Consolidated  Banking 
Data). In June 2016 the domestic loan/deposit ratio 
was  126 %,  compared  to  a  euro  area  average  of 
100 %.  As  fiscal  incentives  discourage  repaying 
mortgage  debt  and  saving  too  much  with  banks, 
the  latter  need  to  fill  a  sizeable  funding  gap  by 
issuing residential mortgage-backed securities and 
chasing  deposits  abroad,  notably  in  Germany. 
Consequently,  banks'  dependence  on  market 
funding  remains  high  by  international  standards, 
due  to  comparatively  low  bank  savings,  since 
obligatory  savings  within  pension  funds  are  high 
(see Section 4.4 on household savings). 

Despite the boom and bust cycle the real estate 
market has seen during the past 10 years, non-
performing  loans  never  exceeded  3 %  and 
reached  2.3 %  in  June  2016,  the  EU's  fifth 
lowest.  A  national  mortgage  guarantee  scheme 
(NHG)  for  loans  below  EUR  245 000,  a  very 
creditor-friendly insolvency regime, but also loan-
to-income caps at four times annual gross income 
(excluding  mortgage  interest  deductibility)  have 
prevented high default rates. 

4.2.2.  ACCESS TO FINANCE 

loans 

The  mark-up  on  small  business 
is 
relatively  high  in  the  Netherlands.  Loans below 
the 
EUR  1  million  are  more  expensive 
Netherlands  than  the  euro  area  average,  whereas 
loans  beyond  that  threshold  are  cheaper  than  in 
peer  countries.  The  mark-up  for  small  loans 

in 

increased  substantially  during  the  financial  crisis 
and  has  not  reverted  to  pre-crisis  levels  since  (as 
visible  in  Graph  4.2.1).  This  can  be  linked  to  the 
the 
highly  concentrated  banking 
Netherlands  and  the  behaviour  of  small  and 
medium-sized 
are 
particularly  reluctant  to  switch  banks  (see  ACM, 
2015). 

enterprises 

(SMEs) 

sector 

that 

in 

Graph 4.2.1:  Interest rate spread between small and large 

loans (monthly data) 

Interest rate spread in pps between loans up to EUR 1 million 
and above EUR 1 million at floating rate and up to 1 year 
initial rate fixation. 
Source: European Central Bank 

Loan  demand,  especially  for  small  loans  is 
recovering  slowly  after  a  prolonged  period  of 
decline.  The  bank  lending  survey  (ECB,  2016b) 
indicates  a  declining  demand  for  loans  by  SMEs 
between  2008  and  mid-2015.  Since  then,  demand 
has slowly picked up and, according to the survey, 
this  trend  is  likely  to  be  maintained  into  2017 
(DNB, 2016a).  

as 

the 

Measures have been taken to facilitate access to 
finance for SMEs. These include better provision 
of  general  information  on  funding  sources (16),  as 
well 
platform 
'Financieringslink'  (Fink).  These  initiatives  also 
aim  at  reducing  information  asymmetry,  which  is 
recognised  as  a  major  problem  in  SME  financing 
markets.  Notably,  the  current  non-standardised 
credit  information  sharing  can  cause  adverse 

financing 

SME 

(16)  Specifically,  this  includes  the  online  platform  'Nationale 
Financieringswijzer' and the 'Financieringsdesk' hotline by 
the chamber of commerce. 

23 

-0.50.00.51.01.52.02.50304050607080910111213141516in pps.BEDEFRNL 
 
 
                                                           
4.2. Financial sector 

estimates of fundamental values, although price-to-
income  and  price-to-rent  ratios  are  still  below 
long-term averages (Graph 4.2.2).  

Graph 4.2.2:  House price valuation 

Valuation gap estimated as an average of the 
price/income, price/rent and fundamental model valuation 
gaps. Long-term values for the price/income and price/rent 
ratios are computed over 1995-2015. For the model-based 
valuation gaps, a Vector Error Correction Model has been 
estimated for a panel of 21 EU countries, using a system of 
five fundamental variables; the relative house price, total 
population, real housing investment, real disposable income 
per capita and real long-term interest rate.  
Source: European Commission 

which 

private 

explains 

rental  market 

The 
remains 
underdeveloped.  New  dwellings  are  mostly 
constructed for subsidised segments of the housing 
market. The owner-occupied market profits from a 
relatively generous mortgage interest deductibility 
(MID),  while  rents  in  the  social  sector  are 
indirectly subsidised. Only the private rental sector 
implicit  or  direct  subsides 
does  not  receive 
(including  MID), 
the 
underdeveloped  private  rental  market.  Although  a 
large  supply  of  social  housing  has  advantages  in 
affordability,  the  crowding  out  effects  on  other 
segments  of  the  rental  market  have  repercussions 
on  the  functioning  of  the  housing  market  as  a 
whole. The absence of a strong middle segment on 
the  rental  market  pushes  middle  incomes  into  the 
owner-occupied market prematurely and increases 
financial vulnerability (see European Commission, 
2016a).  This  concerns  particularly  young  middle 
income  families,  leading  to  a  relatively  young 
average  age  of  house  ownership  and  relatively 
high debt-to-income ratios. Indeed, the percentage 
of homeowners facing higher debt than the current 

improved, 

standardised 

selection  and  increases  the  cost  of  assessing  loan 
applications  from  the  lender's  perspective  (see 
IMF,  2014)  The  goal  of  the  Fink  initiative  is  to 
to 
provide 
information  on  the  creditworthiness  of  SMEs (17). 
A related roadmap foresees the implementation of 
open  standards  and  a  public  register  of  financiers 
complying with basic transparency requirements in 
the first half of 2017, with progress to be reported 
by mid-2017. 

access 

and  by 

involving 

(NLII)  aims 

The  Netherlands  is  further  developing  the 
financing landscape through a national fund-of-
funds(18) 
institutional 
investors,  but  alternative 
funding  sources 
remain scarce. So far, pension funds and insurers 
have  been  largely  inactive  on  the  venture  capital 
market  and  in  SME  financing.  The  Nederlandse 
Investeringsinstelling 
to  attract 
institutional investors by creating funds that bundle 
the  financing  needs  of  smaller  companies.  NLII 
focuses  on  financing  solutions  within  various 
investment  categories,  including  SME  lending. 
The  NLII  has  created  a  business  loan  fund 
(Bedrijfsleningen  Fonds)  and  a  subordinated  loan 
fund  (Achtergestelde  Leningen  Fonds).  Other 
funding sources (crowd funding, FinTech) are still 
scarce,  but  could  provide  an  alternative 
to 
traditional loans, specifically for high risk SMEs. 

4.2.3.  HOUSING MARKET DEVELOPMENTS AND 

HOUSEHOLD DEBT* 

The  recovery  on  the  housing  market  continues 
but the speed varies across regions. The housing 
market  in  the  Netherlands  experienced  a  severe 
negative  price  shock  during  the  financial  crisis. 
Since  2013  prices  have  been  recovering,  but  the 
speed  varies  substantially  across  regions  (see 
European  Commission,  2016a).  The  highest 
large  cities  such  as 
growth  concentrates  on 
Amsterdam,  where  prices  are  already  well  above 
pre-crisis  level.  Economy-wide,  model  estimates 
suggest  that  house  prices  are  roughly  around 

(17)  This follows good practices in the UK (referral obligations 
on  banks  refusing  a  credit),  Spain  (specific 
legal 
information  rights  to  SMEs)  and  France  and  Italy  (SME 
financing platforms similar to Fink).  

(18)  Dutch Venture Initiative (DVI-II), managed by the EIF and 
Participatiemaatschappij  Oost  Nederland  ((PPM  Oost), 
supported by the Ministry of Economic Affairs 

24 

-40-30-20-10010203019951997199920012003200520072009201120132015Model-based valuations gapPrice to income vs. hist. avg.Price to rent vs. hist. avg. 
                                                           
 
 
4.2. Financial sector 

duurzame  groei')  proposed  acceleration  for  the 
next  government  term  (see  Rijksoverheid,  2016a, 
p.32).  

for 

increases 

scheefhuurders; 

The  impact  of  recent  policy  measures  on  the 
overall  functioning  of  the  rental  market  is  not 
yet clear. Recent measures aimed at improving the 
functioning of the rental market include (i) higher 
rent 
(ii) 
simplification  of  the  method  for  determining  the 
monthly  rent;  (iii)  a  (legal  or  accounting)  split  of 
social housing corporations into services of general 
economic  interest  and  other  services;  and  (iv) 
(legal)  measures  allowing  for  more  short-term 
rental contracts. Although some measures, such as 
higher  rent  increases  for  scheefhuurders,  are 
the 
the  overall  policy 
promising, 
package 
is  being 
largely  unknown  as 
is 
implemented in the current period, e.g. the formal 
split of the housing corporations between services 
of general economic interest and other services has 
to be implemented by 1 January 2017.  

impact  of 

it 

in 

corporate 

the  Netherlands 

As  discussed  in  the  MIP  matrix,  both  private 
sector  debt  and 
non-financial 
household  debt  are  substantially  above  EU-28 
averages  and  the  scoreboard  benchmark.  In 
2015,  the  (consolidated)  private  sector  debt-to-
GDP ratio stood at 229 % of GDP, with 118 % of 
GDP  corporate  non-financial  sector  debt  and 
111 %  of  GDP  household  debt.  Corporate  sector 
debt 
is  relatively  small 
compared to corporate assets and corporate income 
streams 
(see  European  Commission,  2015c, 
p.22-23). Although the ratio gross household debt-
to-household assetsdoes not stand out compared to 
other  peer  countries,  it  is  high  in  terms  of  GDP 
(almost  twice  as  high  as  the  EU-28  average)  as 
well  as  in  terms  of  disposable  income  (232 %). 
Also,  the  European  Systemic  Risk  board  issued  a 
warning  to  the  Netherlands,  in  view  of  increasing 
house prices and debt levels (ESRB, 2016). 

Active  deleveraging  of  households  turned  into 
passive deleveraging. Although between 2012 and 
2014  nominal  debt  levels  declined,  by  the  end  of 
2014  mortgage  debt  has  started  to  grow  again  in 
nominal 
terms,  albeit  at  a  moderate  pace. 
However,  as  nominal  GDP  increases  faster,  the 
mortgage  debt  in  terms  of  GDP  continued  to 
decline in terms of GDP (passive deleveraging) 

value  of  their  house  (underwater  mortgages) 
stands  at  17.6 %  (2016  Q3,  DNB  data)  and  is 
heavily  skewed  towards  the  younger  age  groups. 
Other  drawbacks  relate  to  inefficient  mechanisms 
for  social  housing  allocation,  which  causes  long 
waiting  lists  in  cities,  and  the  phenomenon  of 
people with incomes above the relevant thresholds 
(the 
living 
‘scheefhuurders’). On  the positive  side,  according 
to  the  authorities,  the  number  of  ‘scheefhuurders’ 
fell  between  2009  and  2015  from  28 %  to  18 % 
(Ministry  of  the  Interior  and  Kingdom  Relations, 
2016, p. 58 f.). 

dwellings 

sector 

social 

in 

Graph 4.2.3:  Housing market in the Netherlands (2015) 

Source: Statistics Netherlands 

Starting  in  2013,  a  number  of  policies  to 
improve  the  functioning  of  the  owner-occupied 
housing market have been put into practice. The 
taken  a  number  of 
current  government  has 
measures  to  reduce  household  debt  and  improve 
the  functioning  of  the  housing  market.  Loan-to-
value  and  loan-to-income  requirements  have  been 
tightened  and  the  tax  subsidy  in  the  owner-
occupied  market  is  gradually  being  reduced (19). 
The  impact  of  policy  seems  to  be  fairly  limited, 
given  the  rather  slow  speed  of  the  mortgage 
interest  deductibility 
tapering  (See  European 
Commission,  2016a).  The  non-partisan  study 
('studiegroep 
sustainable  growth 
group  on 

for  mortgage 

(19)  Households are obliged to repay on the principal in order to 
the 
qualify 
maximum  rate  of  mortgage  interest  deductibilityis  being 
gradually  reduced  (with  0.5  pps  per  year,  from  52 %  to 
38 % by 2041) 

interest  deductibility  and 

25 

56%30%13%1%HomeownershipSocial housing cooperationsPrivate rentalOwnership unknown 
 
                                                           
4.2. Financial sector 

Graph 4.2.4:  Household debt 

Graph 4.2.5:  Change in mortgage debt and house prices 

Source: European Commission (Eurostat) 

New regulations and voluntary repayments may 
weaken  the 
link  between  housing  market 
developments  and  debt  developments,  but  the 
housing  market  recovery  and  the  low  interest 
rate  environment  provide  an  opportunity  to 
further reduce policy distortions. In recent years 
growth  in  household  debt  has  stayed  well  below 
the  sharp  rise  in  housing  market  prices  and 
transactions. Also, continued voluntary repayments 
the  growth  of  mortgage  debt. 
are  reducing 
According  to  surveys  and  data  from  the  central 
bank,  households  are  increasingly  paying  back 
their outstanding mortgages to make use of interest 
arbitrage  possibilities  (see  DNB,  2015b).  The 
continuing  recovery  of  the  economy  and  housing 
market could be used to further increase the shock 
resilience  of  households.  Measures  discussed  in 
the Netherlands include an accelerated tapering of 
mortgage  interest  tax  relief  introduced  in  January 
2014  and  further  lowering  of  the  maximum  loan-
to-value ratio after 2018 (20). 

(20)  See the respective advice of the non-partisan studygroup on 
the 
Stability 

(Rijksoverheid,  2016a),  and 
committee 

(Financial 

sustainable  growth 
financial 
stability 
Committee, 2015) 

Source: Statistics Netherlands 

4.2.4.  PENSIONS* 

of 

terms 

effective 

Although 
fiscal 
in 
sustainability  and  adequacy,  the  three-pillar 
pension  system  has  drawbacks  in  terms  of 
coverage,  transparency  and  flexibility  over  the 
life  cycle.  The  high  pension  contributions  to  the 
second  pillar  of  the  pension  system  weigh  on 
disposable income. Moreover, the financing of the 
system  limits  the  possibility  for  consumption 
smoothening over a person’s lifetime. The pressure 
on  disposable  income  for  those  in  the  early  years 
of working life comes from two sides: the housing 
market where households are pushed into buying a 
house, taking up a large mortgage and repaying on 
the principal, and from high pension contributions. 
This  contrasts  with  the  perspective  at  old  age, 
where  households  on  average  have  large  pension 
incomes  and  little  or  no  housing  or  child-related 
expenses. 

few  years  have  exposed 

The  past 
the 
vulnerabilities of the existing pension system. At 
present,  challenges  continue  to  be  related  to  the 
second  pillar, where defined-benefit contracts still 
dominate (>90 % of all participants in the pension 
system).  These  challenges  stem  mainly  from  the 
low  interest  rate  environment,  and  population 
ageing.  The  low  interest  rate  combined  with 
defined benefits raise future liabilities leading to a 
situation  of  under-coverage  for  many  pension 
funds.  

26 

010020030040050060070080090002040608010012014000010203040506070809101112131415EUR bn.% of GDPDebt / GDP, householdsTotal financial liabilities, households-202468101996-20052006-20132014-2016% yoyMortgage loans (% of GDP)House prices 
 
                                                           
 
4.2. Financial sector 

2.  actuarial  fairness:  a  shift  to  a  more  actuarially 
fair system of accruing pension rights;  

transparency:  moving 
3. 
transparent and simple pension;  

towards  a  more 

4.  flexibility:  more  space  for  customised  solutions 
and  options  (including  more  focus  on  aligning 
compulsory pension savings to one's life situation).  

These reform 'directions' have promising potential 
as  they  could  lead  to  lower  and  more  stable 
pension  contributions,  while  respecting  pension 
adequacy. In particular, it could lead to more stable 
developments in domestic demand through a more 
generationally  fair  distribution  of  the  balance  of 
risks  in  the  second  pension  pillar.  However  with 
the upcoming elections in spring 2017, substantial 
reforms are left to a future government. 

lead 

Ad  hoc  adjustments 
to  pro-cyclical 
macroeconomic shocks and entail the risk of an 
unintended  intergenerational  transfer  at  the 
expense  of  current  younger  generations.  The 
pension  system  has  a  pro-cyclical  character:  in 
times  of  crisis,  contributions  have  to  be  increased 
in  order  to  deliver  on  the  defined  benefits.  As 
lower  pension  pay-outs  are  a  last  resort,  the 
balance  of  risks  is  geared  towards  active  and 
young  generations.  Arguably,  trust  in  the  system 
has  declined  in  recent  years,  not  only  because  of 
actual measures, but also because of potential new 
measures  which  may  be  needed  to  improve  the 
coverage ratios.  

the  origin  of 

the  corresponding  pension 

Some  capital  funded  occupational  pension 
funds  have  moved  from  a  defined  benefit  to  a 
defined  contribution  scheme  in  recent  years. 
Fully-funded schemes tend naturally to be defined-
contribution:  money  is  contributed,  earns  a  yield, 
is  calculated 
and 
afterwards. Many occupational pension schemes in 
the  Netherlands,  however,  are  defined-benefit. 
This  combination 
the 
is  at 
discretionary  adjustments  of  the  contributions, 
indexations or – as last resort – a reduction of the 
benefit.  These  ad  hoc  adjustments  imply  that  the 
pension  system  is  in  practice  not  a  ‘defined-
benefit’ in the strict sense. The younger age groups 
may  see  their  contributions  raised  today  but  with 
no  increased  benefit  guaranteed  tomorrow.  While 
rendering  the  pension  system  less  foreseeable  for 
contributors compared to defined-benefit schemes, 
defined-contribution 
greater 
transparency, while limiting the risk of significant 
In  addition, 
transfers  between  generations. 
defined-contribution 
usually 
are 
actuarially fair. This means that contributions earn 
the  same  pension  rights  whatever  the  moment  in 
the life of the worker. The central bank called for a 
major  overhaul  of  the  pension  system,  including 
system, 
the  average  contribution 
reforming 
introducing  more  individually  tailored  pension 
accumulation 
investment 
policies (see DNB, 2016b).  

age-dependent 

schemes 

systems 

imply 

and 

On  8 July  2016  the  government  proposed  a 
roadmap  which  should  lead  to  an  overhaul  of 
the second pillar of the pension system by 2020. 
The reform effort is concentrated on four themes:  

1.  coverage:  an  adequate  pension  for  all  working 
people including self-employed;  

27 

 
4.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

4.3.1.  RECENT DEVELOPMENTS ON THE LABOUR 

Graph 4.3.2:  Trends in labour costs and components 

MARKET 

labour  market  situation  continues  to 
The 
improve.  The  unemployment  rate  declined  to 
5.4 %  in  December  2016  and  labour  market 
participation (81.7 % in 2016Q3) and employment 
(77.4 %  in  2016Q2)  continued  to  increase  (Graph 
4.3.1).  Nominal  wages  grew  a  modest  0.4%  in 
2015,  which  is  below  the  level  that  could  be 
predicted  based  on  economic  fundamentals,  such 
as  developments  in  prices,  unemployment  and 
productivity (21).  Wage  growth  was  outpaced  by 
moderate productivity gains, resulting in a decline 
in  the  nominal  unit  labour  cost  of  0.6 %  in  2015 
(Graph  4.3.2).  However,  starting  in  2016  nominal 
wage growth is expected to push unit labour costs 
up to almost 2 % (see also Graph 4.4.13). 

Graph 4.3.1:  Main labour market developments 

Source: European Commission (Eurostat) 

(21)  Based on the methodology of Arpaia and Kiss (2015) 

Source: European Commission 

While the overall participation rate is very high, 
some groups are lagging behind in employment; 
in particular the situation of those born outside 
the  EU  remains  an  important  challenge.  The 
employment  rate  for  non-EU  born  migrants  stood 
at  58.5 %  in  2015  and  is  20 pps  lower  than  for 
people  born  in  the  Netherlands.  The  gap  is 
particularly high for non-EU born women (25 pps 
lower  than  women  born  in  the  Netherlands).  In 
addition,  non-EU-born  migrants  face  a  higher 
unemployment rate (13.3 %) than those born in the 
Netherlands  (6.2 %).  In  particular  among  young 
people  (15-25)  the  unemployment  rate  stood  at 
23.4 % in 2015 or 12.8 pps higher than for young 
people born in the Netherlands. The differences in 
labour market outcomes for non-EU-born migrants 
can  be  partially  explained  by  differences  in  age 
and  educational  achievement,  but  even  after 
controlling  for  these  elements  more  than  83%  of 
the  employment  gap  remains  unexplained (22). 
This suggests that other factors such as the formal 
or informal recognition of qualifications, language 
skills  or  discrimination  may  play  a  role .  In 
addition,  the  labour  market  outcomes  of  second-
generation  immigrants  are  also  precarious.  Young 
people  (aged  15-24)  with  a  migrant  background 
in 
experience  a  higher  unemployment 

rate, 

(22)  Commission calculations based the 2014 EU-Labour force 
survey microdata. The analysis  makes a breakdown of the 
employment  gap  using  a  Blinder-Oaxaca  decomposition, 
controlling  for  differences  in  age,  gender  and  educational 
level  between  non-EU-born  citizens  and  natives.  OECD 
(2015a)  also  finds  a  substantial  adjusted  employment  gap 
between foreign born and natives.  

28 

024681012141665676971737577798105Q105Q406Q307Q208Q108Q409Q310Q211Q111Q412Q313Q214Q114Q415Q316Q2% of labour force% of populationEmployment rate 20-64 (lhs)Unemployment rate 15-74 (rhs)Long-term unemployment rate 15-74 (rhs)Youth unemployment rate 15-24 (rhs)-4-3-2-10123456701020304050607080910111213141516*17*18*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real compensation per employeeProductivity contribution (negative sign)Nominal unit labour costUnit labour cost in Euro Area 
 
 
 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

particularly  when  both  parents  are  foreign-born 
(26 %  in  2013  compared  to  7.6 %  for  young 
people with both parents born in the Netherlands). 

choices  regarding  the  work/life  balance,  but  may 
also be incentivised by institutions and policies. 

Graph 4.3.4:  Employment gap (2015) 

A  high  activity  rate  of  older  workers 
is 
accompanied  by  a  relatively  high  level  of  long-
term  unemployment.  Long-term  unemployment 
among  older  workers  (aged  50-74)  increased 
between 2009 and 2015 and remains high, despite 
recent  improvements  (Graph  4.3.3.  While  this 
difference  can  be  partially  explained  by  the  high 
activity  rate  of  older  workers  in  the  Netherlands 
(52.4 %)  as  compared  to  other  EU  countries  (on 
average 47.5 %), it may also be related to the high 
financial  costs  employers  face  when  hiring  older 
workers (see European Commission, 2016a, p. 47). 
The  government,  in  cooperation  with  the  social 
partners, presented a comprehensive action plan to 
increase  the  labour  market  position  of  older 
workers  (50+)  to  be  implemented  in  2017  and 
2018 (see Ministry of Social Affairs 2016a). 

Graph 4.3.3:  Long-term unemployment  by age (2005-

2016Q3) 

Source: European Commission (Eurostat). Non-seasonally 
adjusted data. 

While  women  are  actively  participating  in  the 
labour  market,  two  thirds  are  working  part-
time.  The  gap  between  the  employment  rate  for 
men and women continued to narrow in the last six 
years and is in line with the EU average (11 pps in 
2015).  However,  in  full-time  equivalents,  the 
employment  gap  between  men  and  women  is  one 
of  the  highest  in  the  EU  (27 pps  in  2015,  Graph 
4.3.4).  This  is  explained  by  fewer  working  hours, 
which  is  to  a  large  extent  the  result  of  voluntary 

FTER is the difference in the employment rate of men and 
women in full-time equivalents.  ER gap is the difference in 
the employment rate of men and women.  
Source: European Commission (Eurostat) 

for 

decentralised 

responsibility 

labour  market 
The 
integration  was 
the 
to 
municipalities in 2015. With the Participation Act 
in force as of 2015, the responsibility for groups at 
the margin of the labour market lies primarily with 
the  municipalities.  Municipalities  offer  broad 
support  to  remove  barriers  to  entering  the  labour 
market,  such  as  language  courses,  childcare  and 
adequate  housing  facilities.  Only  preliminary 
assessments are available as to the effectiveness of 
the  implemented  active  labour  market  policies.  In 
2016, two reports by the Ministry of Social Affairs 
and Employment show only a limited impact of the 
Participation  Act.  The  rise  in  social  assistance 
beneficiaries  is  partly  due  to  new  groups,  namely 
young disabled people and the increased inflow of 
refugees.  In  October  2016  the  Ministry  of  Social 
Affairs 
that 
municipalities  would  be  able  to  experiment  with 
the  Participation  Act:  municipalities  will  have  a 
two-year  period  within  which  to  implement  the 
social  assistance  rules  in  a  different  manner, 
adapted to the respective local situations. 

and  Employment 

announced 

Poverty  figures  remain  low  despite  a  recent 
increase.  The  at-risk-of-poverty  rate  rose  from 
10.4 % in 2013 (EU-28 16.7 %) to 11.6 % in 2015 
(EU-28 17.3 %). The number of households with a 
low income increased slightly from 10.3 % in 2013 
to 10.4 % in 2014 (see CBS, 2015b). The number 

29 

01234562005Q12006Q12007Q12008Q12009Q12010Q12011Q12012Q12013Q12014Q12015Q12016Q1Long-term unemployment (%)15-2425-4950-7405101520253035MTNLITDEATUKCZELIELUROESBEPLSKHUDKFRSIHREESECYPTBGLVFILTEmploy-ment gap (pps)FTER (men-women)ER gap (men-women) 
 
 
of  households  living  at  risk  of  long-term  poverty 
increased from 2.9 % in 2013 to 3.3 % in 2014(23). 
The  share  of  people  living  in  low  work  intensity 
households  (age  group  0-59)  shows  an  increase 
from  9.3 %  (2013)  to  10.2 %  (2015).  Based  on 
estimates  by  the  Netherlands  Institute  for  Social 
Research  poverty  is  expected  to  decrease  in  the 
coming years among all groups. Social policies in 
the  Netherlands  emphasise  work  as  the  primary 
remedy  against  poverty.  In  2016,  the  government 
decided 
structural 
EUR 100 million  as  of  2017  on  a  yearly  basis  to 
tackle  child  poverty.  This  budget  is  solely  meant 
for  children  living  in  households  with  a  low 
income.  To  ensure  that  this  extra  budget  reaches 
the children, it will be provided in kind for goods 
or services.  

invest  an  additional 

to 

4.3.2.  LABOUR MARKET SEGMENTATION 

Flexible employment constitutes a relative large 
and increasing share of the labour market. Both 
temporary employment as well as self-employment 
without  employees  increased  substantially  in  the 
past  10  years  in  the  Netherlands  (Graph  4.3.6). 
This  can  be  explained  by  macroeconomic  and 
institutional  factors, 
tax 
treatment  (for  self-employed  without  employees) 
and  large  differences  in  employment  protection 
legislation  between  permanent  and 
temporary 
contracts  (see  European  Commission,  2016a,  p. 
46-49).  

including  favourable 

(23)  Long-term  is  defined  as  a  period  of  at  least  four  years 

successively.  

4.3. Labour market, education and social policies 

Graph 4.3.5:  Flexibility increase on the labour market 

Source: European Commission (Eurostat).  

to 

be 

largely 

attributed 

Labour  market  indicators  point  to  risks  of 
segmentation. The recent increase in employment 
can 
temporary 
employment.  In  addition,  the  share  of  temporary 
employment (already among the highest in the EU) 
continues to rise in the Netherlands and transitions 
between  temporary  and  permanent  contracts  have 
remained rather constant over the last years. There 
is  a  substantial  difference  between  the  average 
wage  of  an  employee  with  a  permanent  contract 
and  an  employee  with  a  temporary  contract.  In 
2014,  the  unadjusted  wage  gap  was  32 %,  one  of 
the  highest 
the  EU.  (Graph  4.3.6)  This 
difference can be partially explained by differences 
in individual and job characteristics, but even after 
controlling  for  these  elements,  the  wage  gap 
remains  16 % (24).  Furthermore, 
the  share  of 
involuntary temporary employment increased from 
33.9 % 
in  2015.  These 
to  54.6 % 
developments  point  to  a  risk  of  labour  market 
segmentation and increasing job insecurity.  

in  2010 

in 

(24)  Based  on  the  average  difference  in  the  hourly  wages 
between permanent and temporary employees with similar 
characteristics 
terms  of  age,  gender,  occupation, 
educational level, sector and type of employment (full-time 
vs. part-time).  

in 

30 

BEBGCZDKDEEEIEELESFRHRITCYLVLTLUHUMTNLATPLPTROSISKFISEUK-8-6-4-20246-10-50510Percentage point change in the share of self-employed without employees in employment (2005-2015)Percentage point change in the share of temporary employees as proportion of the total number of employees (2005-2015) 
                                                           
 
                                                           
4.3. Labour market, education and social policies 

Graph 4.3.6:  Unadjusted wage gap between employees 

with permanent and temporary contracts 
(2014) 

Source: European Commission (Eurostat) 

A  major  reform  aimed  at  reducing  differences 
between  temporary  and  permanent  contracts 
took place in 2015(25), but given that the reform 
will be implemented gradually, it is too early to 
evaluate  it.  For  permanent  contracts  dismissal 
rules  and  procedures  were 
simplified  and 
severance  payments  were  decreased.  In  addition, 
with  the  objective  of  reducing  the  differences 
between  permanent  and  temporary  contracts,  the 
rights  of  flexible  workers  were  enhanced:  the 
number  of  temporary  contracts  was  limited  to 
three, with a maximum total duration of two years. 
The  waiting  time  for  renewal  of  a  temporary 
contract  after  three  contracts  or  two  years  of 
employment  in  total  was  raised  from  three  to  six 
months.  Some  preliminary  evaluation  studies  (see 
Bennaars  et  al.,  2016;  Houweling  et  al.,  2016) 
indicate that the reforms appear to have had mixed 
results.  While  severance  payments  decreased  as 
was  intended  by  the  legislator,  employers  claim 
that they have to follow longer and more difficult 
procedures  with  higher  uncertainties  when  laying 
off  employees.  There  is  no  reliable  evidence  on 
whether  transitions  from  temporary  to  permanent 
contracts are increasing as a result of the adoption 
of the Work Security Act.  

(25)  Work  Security  Act  ('Wet  Werk  en  Zekerheid')  which 
follows  upon  the  Social  Agreement  struck  with  social 
partners on 11 April 2013. 

employees. 

The  number  of  self-employed,  in  particular 
those  without  employees,  increased  further  in 
2015, but seems to have stabilised in 2016. Self-
employment  without  employees  accounted  for 
11.5 %  of  total  employment  in  2015,  up  by  more 
than 4 pps since 2005 (see European Commission, 
2016a,  p.  47,  Graph  3.2.7).  The  group  of  self-
employed  is  very  heterogeneous.  Changes  in 
industrial  production  with  employment  shifting 
towards  those  sectors  that  are  more  prone  to  self-
employment  have  only  played  a  small  role  in 
explaining  the  recent  shift  towards  more  self-
employment  without  employees.  On  the  contrary, 
particular institutional factors related to a different 
tax  and  social  security  treatment  as  well  as 
applicable labour regulations and labour protection 
rules appear to be at the origin of the rapid rise in 
self-employment 
A 
without 
government  study  (Ministry  of  Finance,  2015) 
suggests  that  the  tax  incentives  for  the  self-
employed do not lead to substantial additional job 
creation  and  that  most  self-employed  are  not,  or 
only  partly,  insured  against  the  risks  of  sickness, 
labour  disability,  unemployment  and  old  age (26). 
The  study  also  finds  no  correlation  between  self-
employment  and  innovation.  The  latter  factors 
point to rigidities in the formal employment sector. 
In  addition,  the  favourable  tax  treatment  for  self-
employed without employees and the possibility of 
paying lower social security contributions (if any) 
creates additional risks and challenges in particular 
incomes  (see  European 
for 
the 
Commission, 
Employment Relationships Deregulation Act (Wet 
DBA) the government proposed a mechanism that 
should  reduce  the  incentives  for  employers  to 
replace  employees  with  bogus  self-employed. 
However, the enforcement of this law has recently 
been  suspended  until  at  least  the  beginning  of 
2018. 

p.47-48).  With 

low 
2016a, 

those  with 

4.3.3.  EDUCATION 

Despite an overall good performance, there has 
been a decline in basic skills and an increase in 
educational inequality. 2015 average PISA scores 
in  science,  mathematics  and  reading  were  lower 
than in the previous 2012 round. The share of top 
performers  decreased  slightly  in  mathematics  and 

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

without employees were insured against disability 

31 

-10-50510152025303540LUPTPLNLDECZSIIEHUSKESITUKFRBECYFIMTLTBGRODKATEELVUnadjusted wage gap berween permanent and temporary contracts (% of permanent wage) 
 
                                                           
                                                           
4.3. Labour market, education and social policies 

residence  permits  to  enter  education  before  they 
have  completed 
integration  process.  The 
ministry  is  furthermore  working  on  improving 
communication, accelerating the asylum procedure 
and the matching education to employment. 

the 

in 

all 

than 

fields.  The 

science,  but  increased  in  reading.  The  proportion 
of  low  achievers  in  PISA  2015  is  lower  in  the 
the  EU  average,  but  has 
Netherlands 
impact  of 
increased 
socioeconomic  background  on  performance  is 
relatively high. Also the Inspectorate of Education 
signalled an increase in educational inequality. In a 
sample  of  students  with  average  cognitive 
performance,  55 %  of  students  with  highly 
educated  parents  completed  higher  education, 
compared  to  26 %  of  students  with  low-educated 
parents (Inspectorate of Education, 2016). 

is 

lower 

General  government  expenditure  on  education 
as  a  proportion  of  GDP  is  above  EU  average, 
but  below  that  of  top  performers.  In  2014  the 
Netherlands  spent  5.4 %  of  GDP  on  education, 
which 
than  Finland,  Sweden  and 
Denmark,  with  respectively  6.4 %,  6.6 %  and 
7.2 %  of  GDP.  Evidence  shows  a  strong 
correlation  between  teacher  quality  and  education 
outcomes  (European  Commission,  2012;  OECD, 
2016f).  In  line  with  the  2013-2020  Teachers 
Agenda, 
has 
implemented  measures  to  improve  the  quality  of 
teaching,  teacher  training  and  career  prospects 
(European  Commission,  2015e).  Measures 
to 
improve  the  quality  of  teacher  training  and  better 
to  more 
career  prospects  have  not  yet 
led 
enrolments 
(Ministry  of 
training 
Education, 2016a). 

of  Education 

the  Ministry 

teacher 

in 

to 

Science, 

several  challenges 

2016b).  Municipalities 

The inflow of asylum seekers in 2015, including 
minors,  posed 
the 
education  system.  Until  2013,  asylum  seekers 
made  up  an  average  of  approximately  2 400  new 
pupils  per  year  in  compulsory  education.  The 
intake significantly increased to 4 900 in 2014 and 
12 700  in  2015  (Ministry  of  Education,  Culture 
and 
are 
responsible  for  the  education  provided  to  asylum 
seekers,  and work  with schools to  deliver on  this. 
A  challenge  linked  to  people  with  a  migrant 
background,  including  refugees,  wishing  to  enrol 
in  vocational  education  and  training  or  in  higher 
their 
education  has  been 
qualifications.  It  can  take  up  to  two  years  to  pass 
the  National  Diploma/State  Exam  II,  the  entry 
requirement  to  higher  education.  The  Ministry  of 
Education  is  currently  working  on  combined 
trajectories  where  asylum  seekers  can  combine 
vocational  and  educational 
the 
integration  process.  This  should  allow  holders  of 

the  recognition  of 

training  and 

32 

 
4.4. INVESTMENT 

33 

 Box 4.4.1: Investment challenges and reforms in the NetherlandsSection 1. Macroeconomic perspective Investment activity in the Netherlands declined relatively sharply during the crisis years. This was mostly driven by a drop of construction investment related to the housing market slump. Since 2014, total investment is growing again and has taken over as the main driver of GDP growth in 2015 (see section 1). Looking ahead, private investment is expected to continue to grow, albeit at somewhat lower rates. The housing market recovery supports construction investment, whereas industrial production and positive readings of business confidence indicators signal growing investment in equipment. However, external risks stemming from lower growth in export markets remain. Public investment peaked at 4.3 % of GDP in 2009 and declined to 3.5 % in 2016 and is expected to further decline to 3.3% of GDP in 2018, according to the European Commission 2017 winter forecast.  Section 2. Assessment of barriers to investment and ongoing reforms  Overall, the Netherlands faces relatively few regulatory barriers to investment, as confirmed by the European Commission assessment (see European Commission, 2015d). Nevertheless, in particular compared to corporate savings, investment is relatively low. As discussed in section 4.4 retained earnings from foreign investment activities by large multinational enterprises explain a substantial part of the savings surplus. Main barriers to investment and priority actions underway 1. Public and private expenditure on research and development remains low compared to top performers. Moreover, public R&D support is set to decline over the coming years (see section 4.5.1). As R&D expenditure is closely related to the innovative capacity of a country, investment in R&D has the potential to increase productivity growth. In 2016, the government merged two policy instruments, the WBSO tax credit and the R&D allowance, which potentially increases the accessibility of public R&D support.  2. Some specific sectoral regulations may create obstacles to investment. Procedures to obtain building permits are relatively lengthy. The World Bank Doing Business indicators point to a worsening situation concerning dealing with construction permits, as the Netherlands fell 6 places and is now in position 87 in dealing with construction permits. In addition, conditions for mobilising investment in renewable energy sources by the private sector have potential for improvement, specifically regarding regulatory and policy clarity and planning perspective. The costs of equity and debt are higher for onshore wind projects than for offshore projects. The Netherlands' Energy Outlook (ECN, 2016, p. 77) indicates that the duration of project preparation remains a barrier to timely onshore wind deployment. For offshore wind projects, however, recent tenders have seen far lower prices than expected, suggesting that the government has successfully addressed planning certainty in the offshore wind sector (see also Box 4.5.1).  Regulatory/administrative burdenTaxationPublic administrationAccess to financePublic procurement/PPPsCooperation of academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services/regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital economy/telecomEducation EnergyLegend:TransportNo barriers to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education 
 
 
 
 
 
 
4.4. Investment 

4.4.1.  THE SAVING AND INVESTMENT 

Graph 4.4.2:  Domestic and foreign investment 

IMBALANCE* 

sector, 

specifically 

The Netherlands continues to be a net lender to 
the  rest  of  the  world,  which  is  reflected  in  its 
large current account surplus. Five-year average 
of net lending stood at 7.9 % of GDP in 2015. As 
visible  in  Graph  4.4.1,  the  high  net  lending 
position since 2001 is largely accounted for by the 
corporate 
non-financial 
corporations (NFCs). In the period 2010-2013, the 
decline  in  net  lending  by  NFCs  was  more  than 
offset  by  the  deleveraging  of  households  and  the 
fiscal  consolidation  by  the  government.  However, 
as  household  deleveraging  has  slowed  down  and 
net  lending  by  the  corporate  sector  continues  to 
fall, total net lending to the rest of the world is now 
projected  to  decrease  very  gradually  over  the 
coming years(27). 

Graph 4.4.1:  Net lending/borrowing by sector 

Source: European Commission (Eurostat) 

Recent  investment  dynamics  have  been  driven 
by  residential  investments.  In  line  with  the 
ongoing  housing  market  recovery,  household 
investment  has  now  been  increasing  for  two 
consecutive  years  as  a  proportion  of  GDP  (see 
Graph  4.4.3).  The 
resilience  of  corporate 
investment  may  be  partly  explained  by  somewhat 
more  favourable  credit  conditions  for  corporate 
borrowers, particularly for larger corporations and 
multinational enterprises 

Graph 4.4.3:  Gross fixed capital formation by sector 

Source: European Commission (Eurostat) 

is 

The  high  level  of  net  lending  reflects  an  excess 
of  domestic  savings  which  are  not  absorbed  by 
domestic  investments.  Total  domestic  saving, 
which 
the  sum  of  domestic  and  foreign 
investment,  is  relatively  stable  in  GDP  terms  (see 
Graph 4.4.2), but the share of domestic investment 
relative  to  total  savings  has  declined  (Rojas-
Romagosa and van der Horst, 2015). 

Source: European Commission (Eurostat) 

(27)  The sharp decline in corporate net lending in 2015 is linked 
to a one-time inflow of intellectual property rights into the 
Netherlands  of  EUR  32  billion,  accompanied  by  inward 
foreign direct investment flows (DNB, 2015d). 

Non-financial  corporations  (NFCs)  have  a 
persistently high saving rate and a comparably 
low  investment  rate.  On  average,  NFC  savings 
stood  at  18 %  of  GDP  between  2010  and  2015, 

34 

-10-50510150102030405060708091011121314151617*18*% of GDPHouseholds and NPISHGeneral governmentCorporationsTotal economy0510152025303519951997199920012003200520072009201120132015% of GDPDomestic investmentInvestment abroad051015202500010203040506070809101112131415% of GDPNon-financial corporatesFinancial corporatesHouseholdsGovernment 
 
                                                           
 
 
4.4. Investment 

while  investment  averaged  10 %  of  GDP.  When 
compared to the EU average (12 % of GDP), NFC 
savings stand out as exceptionally large (see Graph 
4.4.4). The same is true when compared to the euro 
area  average  or  specifically  Germany  as  another 
surplus  country.  By  contrast,  the  investment-to-
GDP  ratio  is  only  slightly  below  the  EU  average 
(11 % of GDP). As a consequence, net lending by 
NFCs as a share of GDP is six times as high as the 
EU average and three times as high as in Germany. 

Graph 4.4.4:  NFC net lending compared to other countries 

(average 2010-2015) 

central  bank  study  came  to  a  similar  conclusion 
(see Eggelte et al., 2014). To a certain extent, low 
profit  distribution  is  linked  to  tax  incentives  for 
director-major shareholders to retain earnings (see 
Section 4.1), and more importantly to the relatively 
high  number  of  multinational  enterprises  with 
headquarters in the Netherlands. 

Graph 4.4.5:  Net distributed income ratios (average 2012-

2015) 

Source: European Commission (Eurostat) 

Compared  with  other  European  Member 
States,  NFCs  in  the  Netherlands  distribute  a 
relatively low share of profits. The net distributed 
income  by  NFCs  as  a  percentage  of  gross  value 
added  is  below  the  EU  average,  and  substantially 
lower than the German average (See Graph 4.4.5). 
A  detailed  look  at  the  income  statement  by  NFCs 
reveals  that  the  difference  in  net  lending  between 
NFCs  in  Germany  and  the  Netherlands  is  fully 
accounted  for  by  the  differences  in  the  net 
distributed  income,  principally  dividend  payments 
(see  European  Commission  2016a,  p.  16). 
Corporate net lending in 2015 would have been 5.7 
pps of GDP lower if NFCs distributed net income 
at  the  euro  area  weighted  average  of  52 %  of  net 
operating surplus. The corresponding effect on the 
current  account  would  have  been  smaller  (almost 
3 %  of  GDP),  but  still  substantial (28).  A  Dutch 

(28)  This is based on the assumption that MNEs account for two 
thirds  of  net  operating  surplus,  and  that  three  quarters  of 
foreign  shareholders. 
their  dividends  end  up  with 

Source: European Commission (Eurostat) 

Multinational  enterprises  (MNEs)  and  related 
capital  flows  are  the  main  determinants  of  the 
savings  surplus.  Multinational  enterprises  feature 
prominently  in  the  corporate  landscape.  While 
only  about  2 %  of  all  companies  active  in  the 
Netherlands  are  classified  as  multinationals,  they 
account for 40 % of private sector employment and 
around two thirds of private sector turnover (CBS, 
2015a).  An  analysis  of  NFCs  by  size  and  cross-
border activity reveals the importance of MNEs for 
the  economy.  Graph  4.4.6  plots  corporate  savings 
in  terms  of  GDP  for  three  types  of  NFCs:  Large 
MNEs,  large  domestic  corporations,  and  small 
corporations 
largely 
determined by multinationals. In 2015, the ten-year 
average savings of MNEs stood at 5.9 % of GDP, 
accounting  for  more  than  half  of  total  NFC 

(29).  NFC  savings  are 

According  to  a  DNB  study,  75 %  of  the  shares  of  Dutch 
MNEs are held by foreigners; see Eggelte et al. (2014). 
(29)  MNEs  and  large  domestic  NFCs  are  defined  to  have  a 
balance sheet of minimum EUR 40 million, and MNEs also 
have  foreign  subsidiaries.  Small  corporations  are  all 
companies with a balance sheet below EUR 40 million.  

35 

02468101214161820EAEUDENL% of GDPSavingInvestmentNet lending0102030405060708090NLESSKEESIFILVFRCYPTATBELTEADEIT% of net operating surplus 
 
                                                           
 
                                                                                   
4.4. Investment 

savings.  Thus,  MNE  savings  in  the  Netherlands 
roughly account for the difference in NFCs savings 
with  the  EU  average  (see  Graph  4.4.5)  (30).  The 
average savings by large domestic (1.5 % of GDP) 
and  small  corporations  (3.0 %  of  GDP)  are 
comparably low and much more stable. 

Graph 4.4.6:  Net savings by type of corporation 

slightly below the profit of large domestic firms in 
terms of gross value added. 

Graph 4.4.7:  Savings by MNEs 

Source: Statistics Netherlands, based on Jansen and Ligthart 
(2014) 

Source: Statistics Netherlands, based on Jansen and Ligthart 
(2014) 

Graph 4.4.8:  Savings by large domestic enterprises 

and 

between  MNEs 

Profits  from  foreign  subsidiaries  influence  net 
lending in the Netherlands. Looking at corporate 
income sheets by type of corporation reveals major 
differences 
domestic 
enterprises.  High  savings  by  MNEs  in  terms  of 
gross value added (GVA) are mostly explained by 
the  high  share  of  profit  from  foreign  subsidiaries 
(see  Graph  4.4.7).  This  also  includes  retained 
earnings  abroad.  If  profits  are  retained  within  a 
subsidiary, these retained earnings are assigned to 
the  parent  company,  i.e.  to  the  multinational 
headquarters  in  the  Netherlands  (31).  While  this 
also  applies  to  European  headquarters  in  the 
Netherlands  that  are  ultimately  controlled  by 
foreign  entities,  the  net  effect  on  net  lending  is 
positive  and  substantial.  In  contrast  to  earnings 
from  abroad,  operating  profit  from  domestic 
activities  by  MNEs  is  relatively  stable  and  even 

(30)  It should be noted that the underlying data in Graph  4.4.6 
stem  from  corporate  financial  accounts,  and  do  not  fully 
match national accounts definitions.  

(31)  This  only  applies  to  the  case  of  FDI  equivalent  to  more 
than  10 %  of  the  subsidiaries  shares.  Otherwise,  it  is 
considered  portfolio  investment  and  retained  earnings  are 
not assigned to the shareholder. 

Source: Statistics Netherlands, based on Jansen and Ligthart 
(2014) 

The  corporate  tax  burden  can  be  lower  for 
MNEs compared to domestic companies. While 
the top statutory corporate income tax rate of 25 % 
is average compared to the euro area, the effective 
tax rate paid by multinationals can be lower due to 
a  rather  generous  application  of  the  participation 
exemption (European Commission, 2016e), which 
allows  dividends  and  capital  gains  from  foreign 

36 

0246810121416182000200120022003200420052006200720082009201020112012201320142015% of GDPSmallLarge domesticMNE-80-60-40-200204060801001201402000200120022003200420052006200720082009201020112012201320142015% of GVAOperating profitDepreciationsNet interestInvestment incomeOtherCorporate taxesDividend paidSavings-60-40-200204060802000200120022003200420052006200720082009201020112012201320142015% of GVAOperating profitDepreciationsNet interestInvestment incomeOtherCorporate taxesDividend paidSavings 
 
                                                           
 
 
 
4.4. Investment 

securities  other  than  shares.  A  breakdown  of 
pension  fund  assets  is  given  in  Graph  4.4.10. 
Direct  investment  in  domestic  investment  funds 
makes  up  the  largest  part  of  total  assets  (45 %). 
When  taking  into  account  these  mutual  funds’ 
investment  portfolios  (i.e.  adopting  a  ‘look-
through’  approach), 
that  a 
substantially  larger  share  of  pension  savings  is 
ultimately channelled abroad (79 %). 

it  becomes  clear 

Graph 4.4.10: Asset holdings by pension funds (2016Q2) 

subsidiaries 
taxation. 

to  be  exempted  from  corporate 

Multinationals  use  savings  mostly  to  increase 
their  participations  abroad.  Compared  to  the 
relatively  volatile 
from  subsidiaries, 
income 
distributed  income  by  MNEs  to  shareholders  is 
more stable, albeit at a lower level. This is in line 
with  a  steady  dividend  policy  followed  by  many 
MNEs that dominate the corporate sector. In recent 
years,  excess  savings  have  been  channelled  into 
share buybacks and the acquisition of equity assets 
(see  also  European  Commission,  2016a).  This  is 
visible  in  Graph  4.4.9,  which  plots  trends  in 
balance  sheet  assets  by  MNEs  since  2000. 
Between  2005  and  2015,  MNEs  increased  their 
equity holdings abroad by around 50 pps of GDP. 
This is equivalent to an increase from 26 % to 43% 
of  total  assets.  MNEs’  tendency  to  retain  rather 
than distribute earnings is a significant explanation 
the 
for 
Netherlands 

the  high  corporate  net 

lending 

in 

Graph 4.4.9:  Assets held by MNEs 

Source: DNB, European Commission 

The  strong  international  diversification  in  the 
pension  savings  portfolio  is  a  key  factor  in 
explaining  the  high  savings  surplus.  Compared 
to  other  euro  area  investors,  investors  from  the 
Netherlands  hold  a  relatively 
low  share  of 
domestic  asset  (Boermans  and  Vermeulen,  2016). 
Only  38 %  of  their  bond  portfolios  are  invested 
domestically. In the euro area, the average share of 
home  country  bonds 
is  59 %.  For  equity 
investment, the difference is even greater (8 % for 
investors from the Netherlands, compared to 43 % 
in  euro  area).  In  addition,  pension  funds  show  a 
higher domestic share than other types of investors 
in  the  euro  area  over  both  asset  classes.  As  such, 
the  savings  surplus  is  also  an  outcome  of  less 
diversified  portfolios  by  foreign  investors,  who 
invest  relatively  little  in  the  Netherlands,  while 
domestic 
investors  show  a  high  degree  of 
international  risk  diversification.  Overall,  pension 
funds  shift  relatively  large  amounts  of  capital  to 
other  countries,  which  entails  both  opportunities 
and risks for the creditor and debtor countries and 
lowers  the  domestic  investment  base.  A  recent 
government 
increasing 
investment  opportunities  by  pension  funds  and 
insurers in the domestic economy (see section 4.2 
on access to finance).  

is  aimed  at 

initiative 

Source: Statistics Netherlands 

4.4.2.  INVESTMENT BY PENSION FUNDS* 

funds  hold 

largest  share  of 
Pension 
the 
household  savings,  and 
in 
invest  mainly 
securities  and  mostly  abroad.  Total  assets  held 
by pension funds have increased substantially over 
the  last  10  years,  from  117 %  of  GDP  in  2005  to 
185 %  of  GDP  in  2015.  Most  of  the  pension 
savings  are  invested  in  shares,  and  equity  and 

37 

0204060801001201401601802000200120022003200420052006200720082009201020112012201320142015% of GDPNon-financial assetsReceivablesCash & equivalentsDomestic equityForeign equityOther14%Securities other than shares (domestic)5%Securities other than shares (foreign)20%Shares and other equity (foreign)17%foreign37%domestic7%Dutch mutual funds 
 
 
4.4. Investment 

Graph 4.4.11: Investment home bias (2014) 

Graph 4.4.12: Current account breakdown 

Source: Based on Boermans and Vermeulen (2016), ESCB 
Security Holdings Statistics 

4.4.3.  TRADE PERSPECTIVE ON THE CURRENT 

Source: European Commission ( Eurostat) 

ACCOUNT* 

Graph 4.4.13: Nominal unit labour cost (per hour worked) 

Source: European Commission (Eurostat) 

declining, 

Cost  competitiveness  continues  to  improve. 
Since  2013 unit  labour  costs  in  open  sectors  have 
been 
price 
competitiveness  of  exports.  The  real  effective 
exchange rate remained well above the average of 
the  EU,  indicating  a  comparative  advantage  in 
prices over other EU Member states. 

supporting 

the 

trade 

flows 

linked 

to 
the 

location  and 

into  and  out  of 
the 

The large and positive trade surplus in goods is 
the  main  driver  behind  the  current  account 
surplus  from  a  net  trade  perspective.  The 
the 
sizeable 
favourable 
Netherlands  are 
geographical 
large  port  of 
Rotterdam.  About  half  of  all  incoming  goods  are 
either transit trade or re-exports. The latter account 
for  roughly  45 %  of  total  goods  exports.  Large 
contributions  to  the  positive  trade  balance  come 
from  chemicals  and  manufactured  goods  where 
exports  have  doubled  since  2000.  The  lower 
production  and  therefore  export  of  gas  led  to  a 
slowdown  in  trade  balance  growth,  but  not  to  a 
change in the overall trend.  

Net services exports are negative. This is driven 
by  a  net  deficit  in  services  trade  outside  the  euro 
area.  Within  the  euro  area,  the  net  service  trade 
balance is positive. 

in 

The export market share continues its declining 
trend, 
line  with  other  European  peer 
countries.  In  2015,  the  Netherlands  lost  market 
share  in  the  intra-EU  trade,  while  remaining 
constant  in  non-EU  markets.  From  an  industry 
perspective,  the  decline  in  export  market  share  is 
driven  by  a  loss  in  goods  trade,  while  the 
contribution of services has been positive but small 
since 2013.  

38 

010203040506070% of home-country assets in total portfolioEquityBondsBytype of investorBy investor home country-10-505101599'00'01'02'03'040506070809101112131415% of GDPCapital account (KA)Secondary income balancePrimary income balance  Trade balance - services  Trade balance - goodsTrade balanceCurrent account balance (CA)Net lending/borrowing (CA+KA)90951001051101151201250506070809101112131415index, 2005=100EA 19BelgiumGermanyFranceNetherlands 
 
 
 
 
4.5. SECTORAL POLICIES 

4.5.1.  PRODUCTIVITY DEVELOPMENTS AND ITS 

KEY DRIVERS 

Productivity  in  the  Netherlands  is  generally 
high,  but  productivity  growth  remains  below 
pre-crisis  averages.  In  2015,  aggregate  labour 
productivity  in  the  Netherlands  was  almost  27 % 
above  the  EU  average  but  the  declining  trend  in 
growth  rates  remains.  Despite  small  fluctuations 
annual growth of GDP per hour worked remained 
relatively low at 1.5 % in 2015 (see Graph 4.5.1). 
There  are  several  potential  explanations  for  the 
slow growth, such as a low investment in R&D or 
low 
the 
levels  of  knowledge  diffusion.  As 
contribution  of  labour  supply  to  output  growth  is 
limited,  labour  productivity  and  skills  will  be 
for  overall  economic 
increasingly 
growth. 

important 

Graph 4.5.1:  GDP per hour worked (constant prices, year-

on-year growth) 

0.90 %  in  2015  is  lower  than  in  the  most 
innovative  European  economies.  Moreover,  total 
public  R&D  support,  including  both  direct  and 
indirect  fiscal  instruments,  is  projected  to  decline 
from 0.94 % of GDP in 2016 to 0.82 % of GDP in 
2021  (Vennekens  and  van  Steen,  2017).  Applied 
research  institutes  are  required  to  compensate  for 
this decrease in public funding by obtaining more 
private  funding.  Nevertheless,  while  closer  links 
between  public 
industry  are 
important,  a  generally  high  quality  of  public 
research 
is  a  precondition  for  public-private 
cooperation. 

research  and 

Graph 4.5.2:  R&D expenditure by sector (2015) 

Source: European Commission (Ameco) 

the  economy.  Although 

Public  and  private  R&D  spending  is  relatively 
low  in  the  Netherlands,  limiting  the  growth 
potential  of 
the 
Netherlands  is  currently  an  'innovation  leader' 
(European  Commission  2016c),  the  total  R&D 
intensity  of  2.01 %  of  GDP  in  2015  is  still 
significantly  below  the  Europe  2020  target  of 
2.5 %.  Private  R&D  intensity  (1.12 %  of  GDP) 
remains 
innovation 
leaders(32). Similarly, the public R&D intensity of 

low  compared 

to  other 

(32)  These include Denmark (1.87 % of GDP), Germany (1.95 
% of GDP), Finland (2.94 % of GDP) and Sweden (2.27 % 
of GDP). 

Source: European Commission (Eurostat) 

There  is  scope  to  transform  the  Netherlands’ 
world-class science base into a more innovation-
intensive  economy,  including  more  investment 
in  knowledge-based  capital.  The  science  base  is 
one  of  the  best  in  the  world,  with  14.5 %  of 
scientific publications among the 10 % most-cited 
worldwide,  which  is  the  best  performance  in  the 
EU. The openness and attractiveness of the science 
system  in  the  Netherlands  is  notably  reflected  in 
the  high  proportion  of  international  scientific 
publications,  strong  public-private  collaborations 
and  a  high  share  of  foreign  doctoral  students 
(European Commission, 2016c).  

Also,  labour  market  institutions  have  potential 
negative  implications  for  productivity  growth 
innovation  performance.  Framework 
and 

39 

-3-2-10123456770737679828588919497000306091215% yoy0.00.51.01.52.02.53.03.5SEATDKFIDEBESIFREA19EU28NLCZUKEEHUITLUPTESSKLTPLELBGHRMTLVROCY% of GDPPrivate non-profit sectorGovernment sectorHigher education sectorBusiness enterprise sector 
 
 
                                                           
 
conditions,  such  as  a  high-quality  educational 
system  and  well-functioning  product  and  labour 
markets,  are  vital  for  productivity  growth.  The 
relatively  stringent  employment  protection  for 
permanent  contracts  may  hinder  productivity 
growth  via  its  impact  on  labour  turnover  rates. 
According to Andrews, Criscuolo and Gal (2015), 
potential  labour  productivity  in  the  Netherlands 
could  be  increased  substantially  by  reducing  the 
stringency of employment protection. 

The  Netherlands  has  a  strong  and  highly 
educated  workforce  for  innovation,  but  has 
faced challenges responding to emerging labour 
market needs. The population with a tertiary level 
of  education  is  high,  in  comparison  to  the  EU 
average.  However,  the  share  of  graduates  in 
science,  technology,  engineering  and  mathematics 
(STEM)  fields  is  low,  at  only  14.7 %(33),  notably 
because  STEM  fields  attract  a  low  share  of 
women.  The  share  of  women  graduating  in  these 
fields is only 25 %, one of the lowest shares in the 
EU.  The  Technology  Pact  2020,  which  targets  all 
levels  of  education,  was  recently  updated  for  the 
2016-2020  period,  and  the  human  capital  agendas 
for  the  top  sectors,  are  designed  to  increase  the 
number of skilled workers(34). 

from 

Moreover, the Netherlands continues to develop 
to  attract  highly-skilled 
effective  policies 
workers 
knowledge 
abroad.  The 
immigration  scheme  in  place  since  2014  has 
become  the  largest  channel  of  non-EU  labour 
migration  to  the  Netherlands  and  is  popular  with 
employers  (OECD,  2016a).  It  facilitates 
the 
recruitment  of 
some  12 000  highly-skilled 
migrants  per  year.  As  of  October  2015,  the 
administrative procedure for obtaining a residence 
permit  has  been  streamlined  for  researchers, 
students  and  skilled  migrants 
(Ministry  of 
Education, Culture and Science, 2016).  

(33)  Based  on  Eurostat  data,  tertiary  education  levels  for 
science,  mathematics  and  computing,  and  engineering, 
manufacturing and construction.  

(34)  The  focus  of 

the  Techniekpact  broadly  covers  all 
‘technical’ professions. See Ministry of Economics (2016), 
for comprehensive data.  

4.5. Sectoral policies 

4.5.2.  COMPETITION IN PRODUCT AND 

SERVICES MARKETS 

for 

the 

and 

true 

legal, 
architectural 

Regulatory  barriers  in  services  markets,  retail 
and  regulated  professions  in  the  Netherlands 
remain  among  the  lowest  in  the  EU,  with  the 
exception  of  the  construction  sector.  This  holds 
accounting, 
especially 
engineering 
professions 
(European  Commission,  2017).  These  low  levels 
of 
the 
regulatory  barriers  notwithstanding, 
government  identified  further  necessary  action  in 
its national regulated professions action plan which 
it  submitted  to  the  European  Commission  in 
December 2015 (Rijksoverheid, 2015). It proposes 
in particular the development of a new instrument 
for  the  proportionality  assessment  of  every  new 
legal  act  aiming  at  additional  occupational 
regulation. 

4.5.3.  ENERGY AND SUSTAINABILITY 

sources, 

although 

The  Netherlands  missed  its  interim  target  for 
the  share  of  renewable  energy  and  is  not  on 
track  to  meets  its  2020  target  for  energy  from 
renewable 
positive 
developments  have  recently  emerged.  The 
Netherlands achieved a renewable energy share of 
5.5 %  in  2014  and  therefore  did  not  meet  its 
interim  target.  Furthermore,  the  Netherlands  is 
expected  to  miss  its  target  of  14 %  by  2020,  with 
the  National  Energy  Outlook  2016  estimating  a 
renewable  energy  share  by  2020  of  only  12.5 %. 
However, there are also a number of positive signs 
for renewable energy. The Netherlands organised a 
successful  tender  for  offshore  wind  (see  Box 
4.6.1), which is likely to contribute to the share of 
renewable  energy  production.  In  addition,  it  has 
strengthened its main support scheme, ‘SDE+’, for 
renewable energy deployment; it has opened a new 
support scheme for renewable heat projects and it 
has published a long-term energy vision to provide 
continuity.  Furthermore, 
the  Netherlands  has 
evaluated  its  national  energy  agreement  and  is 
proposing  a  number  of  additional  instruments  to 
accelerate  renewable  energy  deployment  in  the 
coming  years.  In  June  2016,  the  Netherlands 
signed 
the  political  declaration  on  energy 
cooperation  between  the  North  Sea  countries, 
which  aims  at  facilitating 
the  cost-effective 
deployment  of  offshore  renewable  energy  as  well 

40 

 
                                                           
4.5. Sectoral policies 

as  further  market 
interconnection. 

integration 

through  better 

economy  uses  material  resources 
to  produce 
wealth),  with  3.44  EUR/kg  in  2015  (EU  average 
2.0).  

Good progress has also been made with regard 
to  national  greenhouse  gas  reduction  and 
energy  efficiency  targets.  Under  the  EU  2020 
strategy,  the  Netherlands  committed  to  a  non- 
emission  trading  system  greenhouse  gas  emission 
target  of  a  16 %  reduction  in  emissions  by  2020 
compared  to  2005  levels.  According  to  national 
projections,  the  Netherlands  expects  that  it  will 
reduce  its  non-emission  trading  system  emissions 
by 25 % by 2020 compared to 2005, implying that 
it  is  on  track  to  meet  its  greenhouse  gas  targets. 
The  Netherlands  is  also  on  track  to  meet  its  2020 
energy efficiency target. Final energy consumption 
is  estimated  to  be  47.4  million  tonnes  of  oil 
equivalent  (Mtoe)  in  2020,  below  the  target  of 
52.2 Mtoe (Energieonderzoek Centrum Nederland, 
2016). Nevertheless, in the context of the national 
‘Energy  Agreement  for  sustainable  growth’  the 
Netherlands  has  taken  additional  measures  to 
further  improve  energy  efficiency.  While  some  of 
the  agreed  measures  have  been  translated  into 
legislation,  others  are  non-binding  meaning  that 
their  contribution  to  meeting  the  targets  is  not 
guaranteed. 

Although  currently  comparatively  low,  energy 
import dependency is expected to increase. With 
net  imports  amounting  to  33.8 %  of  domestic 
demand, the Netherlands has a low overall energy 
import  dependency.  Nevertheless  the  Netherlands 
is highly dependent on imports of crude oil, natural 
gas  liquids  and  coal  that  it  receives  from  a 
decreasing  number  of  suppliers.  Gas  production 
has  started  to  decrease  and  will  continue  to  do  so 
in  the  coming  years  as  a  result  of  production 
ceilings  set  for  the  Groningen  field  (due  to 
earthquakes)  and  lower  production  levels  at  other 
small  gas  fields.  According  to  the  International 
Energy  Agency,  the  Netherlands  is  expected  to 
become a net importer of gas by 2025. 

to  produce 

The  Netherlands  is  one  of  the  first  European 
countries  to  present  a  long-term  strategy  for  a 
more circular economy. It was one of the first EU 
countries 
economy 
programme  (2014),  followed  in  2016  by  a  long-
term strategy to 2050 (Rijksoverheid, 2016b). The 
leading role of the Netherlands is illustrated by the 
fact that it is one of the best performers in the EU 
in terms of resource productivity (how efficient the 

circular 

a 

41 

 
4.6. PUBLIC ADMINISTRATION 

standards 

to  become 

international 

The  quality  and  effectiveness  of  the  public 
administration 
the  business 
is  high  and 
environment  largely  favourable,  both  by  EU 
(European 
and 
Commission,  2016a).  Satisfaction  rates  with  the 
quality of transport infrastructure are the highest in 
the  EU  (OECD,  2016c)  According  to  the  World 
Economic  Forum  (2016),  the  Netherlands  has 
the  most  competitive 
moved  up 
economy 
the  fourth  most 
competitive  economy  in  the  world.  According  to 
the same source, it is among the top 10 countries in 
the  world  for  competitiveness  in  infrastructure, 
health  and  primary  education,  higher  education 
and 
efficiency, 
technological  readiness,  business  sophistication, 
research  and 
and 
cooperation  between  universities  and  the  private 
sector the Netherlands is among the top five. 

innovation.  For  scientific 

goods  market 

the  EU,  and 

training, 

in 

As  regards  public  procurement,  the  number  of 
tenders  published  under  EU 
rules  has 
continued  to  improve  for  the  third  year  in  a 
row,  in  contrast  to  an  overall  EU  trend  of 
decreasing  publication  rates.  While  remaining 
relatively  low  in  comparison  with  other  Member 
States,  the  publication  rate increased  to  10.4 % of 
total  public  procurement  expenditure  in  2015 
(2.0 %  of  GDP),  up  from  8.8 %  (1.8 %  of  GDP), 
the  previous  year.  The  share  of  procurement 
contracts published at EU level, including utilities 
and  defence  contracts, 
increased  even  more 
significantly,  to  reach  20 %  in  2015.  However, 
despite  these  improvements,  the  publication  rate 
remains particularly low for public procurement in 
certain sectors such as healthcare (at just 0.5 % of 
the total public expenditure).  

Strategic  public  procurement  aims  to  facilitate 
SME access to procurement markets, but SME 
participation  in  public  procurement  remains 
comparatively  weak  (European  Commission, 
2016c).  First  evaluations  of  the  new  Procurement 
Act  of  2013  indicate  large  satisfaction  of  SMEs 
with  the  measures  designed  to  improve  access  of 
SMEs to public procurement markets. In addition, 
the  evaluation  studies  find  that  small  businesses 
have  an  equal  chance  of  being  awarded  a 
government  contract,  though at  much  lower  value 
the  share  of  SMEs 
on  average.  However, 
participating  in  public  tenders  dropped  further  to 
17 %, down from 21 % the previous year. 

42 

 
 
4.6. Public administration 

43 

 Box 4.6.1: Selected highlight: Offshore wind farms in the NetherlandsWith a net installed capacity of 691 MW of offshore wind turbines in 2016, the Netherlands has now a total installed capacity of 1118 MW. In 2016, the Dutch government also held two tenders for offshore wind farms in the Borssele Wind Farm Zone. This resulted in additional capacity-building of 1380 MW (for a price of 72.7 EURO/MWh and 54.5 EURO/MWh for about each half of the capacity). The prices resulting from these auctions are significantly lower than those achieved elsewhere recently, reducing the overall cost of achieving the 2030 objectives and Dutch contributions thereto. Even though this will likely not prevent missing the EU 2020 renewable energy target for the Netherlands, the capacity development of renewable energy combined with significant and sustainable price reductions for renewable energy merit an assessment as good practice.  These tenders followed the 'one stop shop' model pioneered by Denmark, whereby a single entity - The Netherlands Enterprise Agency - provides all permits to the winning bidder. Each tender had a maximum auction price, a guaranteed price for 15 years, and a 30-year permit to build and operate the wind farm and then decommission it. The Dutch government took on the cost of site investigations. The offshore grid, the grid connections and two offshore substations to connect the farms are paid through a levy on all electricity consumers.  The tenders are part of a long-term plan agreed with both energy and social stakeholders in the 2013 Energy Agreement for Sustainable Growth to deploy 4450 MW of offshore wind by 2023 (of which 2498 MW have now been achieved including installed capacity and the recent tenders). This plan foresees yearly tenders up to 2019 to ensure that all farms are operational by 2023. As part of this long-term plan, the Dutch government designated offshore wind farm zones in its National Structural Vision in 2014. Within each of the zones, the Dutch government identified wind farm sites, commissioned environmental impact assessments for the sites, measured site data on the soil-wind and water condition, and made this data publically available. For the time beyond 2023, the Dutch government published in December 2016 its energy vision for 2030 in which it proposes to develop two roadmaps for offshore wind over the period 2023-2030 and over the period 2030-2050. Their long term energy vision also includes a soft commitment to a steady growth of installed offshore wind capacity of 1000 MW per year post-2023.  
 
 
 
 
 
ANNEX A 

Overview table 

Commitments 

Summary assessment (35) 

2016 Country-specific recommendations (CSRs) 

CSR 1: 

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 
towards 
supporting more investment in research and 
development. 

expenditure 

The  Netherlands  has  made  no  progress  in 
addressing the fiscal-structural part of CSR 1(36) 

No progress has been made in prioritising public 
supporting  more 
towards 
expenditure 
investment in research and development.  

(35)  The  following  categories  are  used  to  assess  progress  in  implementing  the  2016  country-specific  recommendations: 
No progress: The Member State has not credibly announced nor adopted any measures  to address the CSR. Below a number of 
non-exhaustive typical situations that could be covered under this, to be interpreted on a case by case basis taking into account 
country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or  setting  up  a  study  group  to 
analyse possible measures that would need to be taken (unless the CSR explicitly asks for orientations or exploratory actions), 
while clearly-specified measure(s) to address the CSR has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the CSR to a limited extent; 
   and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the CSR will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the CSR. 
Some progress: The Member State has adopted measures that partly address the CSR  
and/or the Member State has adopted measures that address the CSR, but a fair amount of work is still needed to fully address the 
CSR  as  only  a  few  of  the  adopted  measures  have  been  implemented.  For  instance:  adopted  by  national  parliament;  by 
ministerial decision; but no implementing decisions are in place. 

Substantial progress: The Member State has adopted measures that go a long way in addressing the CSR and most of which have 

been implemented. 

Full implementation: The Member State has implemented all measures needed to address the CSR appropriately. 
(36)  This overall assessment of CSR1 does not include an assessment of compliance with the Stability and Growth Pact 

44 

 
 
                                                           
A. Overview table 

CSR 2: 

The  Netherlands  has  made  limited  progress  in 
addressing CSR 2: 

Tackle  remaining  barriers  to  hiring  staff  on 
facilitate  the 
permanent  contracts  and 
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. 

CSR 3: 

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

mortgage 

interest 

No (further) progress has been made in tackling 
in 
remaining  barriers 
facilitating 
to 
transition 
permanent contracts. 

to  hiring  staff  or 
temporary 

from 

No  progress  has  been  made  in  reducing  tax 
distortions 
self-employment  or 
increasing  the  social  protection  coverage  of 
self-employed.  

favouring 

Limited  progress  has  been  made  in  addressing 
the  increase  in  using  self-employed  without 
employees. With the Employment Relationships 
Deregulation  Act  (Wet  DBA)  the  Netherlands 
have  implemented  a  mechanism  that  reduces 
replace 
the 
employees  by  bogus  self-employed.  But  the 
enforcement  of  this  law  has  recently  been 
postponed until at least the beginning of 2018. 

for  employers 

incentives 

to 

the 

Perspectives  Memorandum 

In 
the 
government  developed  a  vision  for  a  possible 
reform  of  the  pension  system  that  may  also 
include  the  coverage  of  self-employed  under 
the  second  pillar  of  the  pension  system  on  a 
voluntary basis.  

The  Netherlands  has  made  limited  progress  in 
addressing CSR 3: 

the  Perspectives 
Limited  progress:  With 
Memorandum,  the  government  announced  its 
ambition  to  reform  the  second  pillar  of  the 
pensions system, but the development and the 
implementation  of  a  reform  is  left  to  the  next 
government. This points to limited progress.  

No  progress  has  been  made  regarding  the 
distortions  in  the  housing  market,  since  no 
additional reforms have been implemented and 
the  mortgage  interest  tax  deductibility  has  not 
been reduced further.  

Europe 2020 (national targets and progress) 

45 

 
A. Overview table 

Employment  rate  target  set  in  the  2016 
NRP: 80 %. 

Labour  market  participation  stood  at  81.7 %  in 
2016Q2  and  employment  at  77 %  in  2016Q2. 
The target is in reach. 

R&D  target  set  in  the  2016  NRP:  2.5 %  of 
GDP  

Greenhouse gas emissions, national target:  

  -16 %  in  2020  compared  to  2005  (in 
sectors  not  covered  by  the  EU  emission 
trading scheme).  

  Non-ETS 2015 target: -7 %.   

2020 Renewable energy target:  

  Energy  from  renewable  sources  is  14  % 
of  gross  final  energy  consumption  by 
2020. 

  2013-2014 Interim target is 5.9% 

Energy efficiency target:  

  60.7  Mtoe 
consumption  

in 

primary 

energy 

  52.2 Mtoe in final energy consumption 

In  2015,  total  R&D  expenditure  amounted  to 
2.01%  of  GDP.  The  average  yearly  growth  rate 
of  1.4%  since  2011  would  need  to  increase 
substantially to reach the target by 2020. 

Public  expenditure  on  R&D  stood  at  0.9  %  of 
GDP  in  2015,  which  is  lower  than  in  the  most 
innovative European economies. 

2020  target:  According  to  the  latest  national 
projections  and  taking  into  account  existing 
measures,  non-ETS  emissions  will  decrease  by 
20.5  %  between  2005  and  2020.  The  target  is 
consequently expected to be met with a margin 
of 4.5 pps. 

Non-ETS 2015 target: Based on proxy data, the 
non-ETS  greenhouse  gas  emissions  between 
2005 and 2015 decreased by 20%; which means 
13 pps  below  the  2015  target  set  by  the  Effort 
Sharing Decision. 

With  reaching  5.5 %  of  energy  consumption 
from  renewable  sources, 
the  Netherlands 
missed its  interim  target and  is  not  on track to 
meets its 2020 target (National Energy Outlook 
2016  estimating  a  renewable  energy  share  by 
2020  of  only  12.5 %).  Positive  developments 
have however emerged recently. 

The  Netherlands  increased  its  primary  energy 
consumption by 2.7 % from 62.66 Mtoe in 2014 
to  64.33  Mtoe 
in  2015.  Final  energy 
consumption increased by 3 % from 47.28 Mtoe 
in 2014 to 48.49 Mtoe in 2015. 

The  Netherlands  has  to  increase  its  effort  to 
its  primary  energy  consumption 
decrease 
further in order to achieve its indicative primary 
energy  consumption  2020  target  (60.7  Mtoe) 
final  energy 
and 
consumption below its final energy 2020 target 
(52.2 Mtoe). 

to  keep 

current 

its 

46 

 
A. Overview table 

Early school leaving (ESL) target: <8.0 %. 

Tertiary education target: >40 %. 

ESL  has  been  on  a  downward  trend  for  years 
and with 8.2 % in 2015 the Netherlands is very 
close to the national target. 

The rate has increased to 46.3 % in 2015, which 
is well above the target 

Target  for  reducing  the  number  of  people 
living  in  households  with  very  low  work 
intensity  in  number  of  people:  - 100 000 
(aged 0-64) 

in  2010  with  1 595 000  people 
Starting 
belonging  to  this  group  the  number  has 
increased  to  1 653 000  in  2015,  and  remained 
stable in 2016.Thus, the target is not in reach. 

47 

 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP Scoreboard for the Netherlands 

Flags: b: break in time series. p: provisional. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund 

48 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%5.97.18.79.69.79.1-35%11.220.427.031.057.863.9Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% -1.5-2.4-6.00.40.7-0.6Export market share - % of world exports5 years % change-6%-7.9-7.9-12.2-10.7-10.8-8.3Nominal unit labour cost index (2010=100)3 years % change9% & 12% 7.64.82.35.24.1p0.2p6%-2.7-4.0-8.0-8.20.03.614%2.83.62.12.1-1.7-1.6p133%229.5228.1229.1226.9229.6228.8p60%59.361.666.467.767.965.1Unemployment rate3 year average10%4.44.85.36.06.87.216.5%5.99.15.4-2.48.73.2p-0.2%-0.3b-1.2b-0.71.20.90.60.5%0.00.71.11.31.31.12%1.71.41.52.12.7-0.4Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
 
ANNEX C 

Standard tables 

Table C.1: 

Financial market indicators 

1) Latest data Q2 2016. 
2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

49 

201120122013201420152016Total assets of the banking sector (% of GDP)372.1379.9336.6364.0359.3369.0Share of assets of the five largest banks (% of total assets)83.682.183.885.084.6-Foreign ownership of banking system (% of total assets)13.311.28.37.07.5-Financial soundness indicators:1)              - non-performing loans (% of total loans)2.42.72.73.02.42.3              - capital adequacy ratio (%)13.714.515.318.420.621.2              - return on equity (%)2)6.04.15.03.37.03.8Bank loans to the private sector (year-on-year % change)4.14.0-1.11.1-2.01.0Lending for house purchase (year-on-year % change)3.34.3-0.11.35.43.6Loan to deposit ratio119.5119.2117.8113.9113.2112.5Central Bank liquidity as % of liabilities0.81.50.70.60.70.6Private debt (% of GDP)228.1229.1226.9229.6228.8-Gross external debt (% of GDP)1) - public35.736.338.441.236.134.7    - private295.3304.5320.5329.3329.2339.3Long-term interest rate spread versus Bund (basis points)*38.143.839.229.019.520.4Credit default swap spreads for sovereign securities (5-year)*66.086.449.028.216.123.4 
 
 
 
 
 
C. Standard tables 

Table C.2: 

Labour market and social indicators 

1 The unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within 2 weeks. 
2 Long-term unemployed are those who have been unemployed for at least 12 months. 
3 Not in education employment or training. 
4 Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.   
Source: European Commission (EU Labour Force Survey) 

50 

201120122013201420152016 4Employment rate(% of population aged 20-64)76.476.675.975.476.476.9Employment growth (% change from previous year)0.9-0.2-1.2-0.20.91.0Employment rate of women(% of female population aged 20-64)70.471.070.669.770.871.4Employment rate of men (% of male population aged 20-64)82.482.381.181.181.982.5Employment rate of older workers (% of population aged 55-64)55.257.659.259.961.763.2Part-time employment (% of total employment, aged 15-64)48.349.049.849.650.049.8Fixed-term employment (% of employees with a fixed term contract, aged 15-64)18.119.220.221.120.020.4Transitions from temporary to permanent employment20.816.512.319.935.2:Unemployment rate1 (% active population, age group 15-74)5.05.87.37.46.96.0Long-term unemployment rate2 (% of labour force)1.61.92.52.93.02.6Youth unemployment rate (% active population aged 15-24)10.011.713.212.711.310.8Youth NEET3 rate (% of population aged 15-24)4.34.95.65.54.7:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)9.28.99.38.78.2:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)41.242.243.244.846.3:Formal childcare (30 hours or over; % of population aged less than 3 years)6.07.06.06.0:: 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.3: 

Labour market and social indicators (continued) 

1 People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.  
2 At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the ntional 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 = 100 in 2006 (2007 
survey refers to 2006 incomes) 
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC. 

51 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare10.010.110.410.210.0:Disability2.42.32.32.32.2:Old age and survivors11.211.612.012.212.3:Family/children1.21.11.01.00.9:Unemployment1.31.31.41.61.6:Housing0.40.40.40.40.4:Social exclusion n.e.c.1.31.41.41.51.4:Total27.728.228.929.228.9:of which: means-tested benefits3.63.73.83.93.8:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)15.115.715.015.916.516.4Children at risk of poverty or social exclusion  (% of people aged 0-17)16.918.016.917.017.116.8At-risk-of-poverty  rate2 (% of total population)10.311.010.110.411.611.6Severe material deprivation rate3  (% of total population)2.22.52.32.53.22.6Proportion of people living in low work intensity households4 (% of people aged 0-59)8.48.98.99.310.210.2In-work at-risk-of-poverty rate (% of persons employed)5.15.44.64.55.35.0Impact of social transfers (excluding pensions) on reducing poverty51.247.451.050.045.548.0Poverty thresholds, expressed in national currency at constant prices5116131151611378112151096211136Gross disposable income (households; growth %)0.52.30.41.00.23.2Inequality of income distribution (S80/S20 income quintile share ratio)3.73.83.63.63.83.8GINI coefficient before taxes and transfers45.846.646.546.448.048.6GINI coefficient after taxes and transfers25.625.825.425.126.226.4 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.4: 

Product market performance and policy indicators 

1 The methodologies, including the assumptions, for this indicator are shown in detail at: 
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 scored 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 if the outcome is not known. 
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 at :  http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm   
6 Aggregate OECD indicators of regulation in energy, transport and communications. 
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). 

52 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry6.951.230.431.50-1.73-1.76Labour productivity in construction-5.77-0.04-4.78-0.165.709.29Labour productivity in market services2.271.330.550.781.471.25Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-10.891.612.630.074.202.54ULC in construction9.67-0.827.82-2.36-7.98-10.81ULC in market services-2.690.271.781.05-1.39-0.92Business environment201020112012201320142015Time needed to enforce contracts1 (days)514.0514.0514.0514.0514.0514.0Time needed to start a business1 (days)8.08.05.04.04.04.0Outcome of applications by SMEs for bank loans21.431.251.801.581.641.30Research and innovation201020112012201320142015R&D intensity1.721.901.941.952.002.01Total public expenditure on education as % of GDP, for all levels of education combined5.985.935.896.06nanaNumber of science & technology people employed as % of total employment454546474748Population having completed tertiary education3282829293031Young people with upper secondary education4787879787980Trade balance of high technology products as % of GDP1.711.982.862.262.751.54Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna0.960.92OECD PMR5, retail1.470.910.91OECD PMR5, professional services1.571.281.23OECD PMR5, network industries62.061.711.57 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard tables 

Table C.5:  Green growth 

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 excluding refining : 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.   
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP 
Proportion of GHG emissions covered by EU Emissions Trading System (ETS) (excluding aviation): 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: GHG 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 

53 

Green growth performance201020112012201320142015MacroeconomicEnergy intensity kgoe / €0.140.130.130.130.120.12Carbon intensity kg / €0.370.340.330.330.32-Resource intensity (reciprocal of resource productivity)kg / €0.330.320.310.290.290.32Waste intensity kg / €0.21-0.21-0.23-Energy balance of trade % GDP-2.7-3.5-5.0-4.0-3.4-Weighting of energy in HICP%10.3011.3211.2811.6611.699.77Difference between energy price change and inflation %-8.83.43.60.0-1.5-2.9Real unit of energy cost% of value added11.213.013.611.611.1-Ratio of environmental taxes to labour taxesratio0.180.170.160.160.16-Environmental taxes% GDP3.53.53.33.33.4-Sectoral Industry energy intensity kgoe / € 0.170.170.160.160.160.16Real unit energy cost for manufacturing industry excl. refining% of value added20.423.123.518.017.2-Share of energy-intensive industries in the economy% GDP9.719.529.509.458.938.53Electricity prices for medium-sized industrial users€ / kWh0.100.100.100.090.090.09Gas prices for medium-sized industrial users€ / kWh0.030.030.040.040.040.04Public R&D for energy % GDP0.020.010.020.020.010.02Public R&D for environmental protection% GDP0.000.010.010.010.000.00Municipal waste recycling rate%49.249.149.449.850.951.7Share of GHG emissions covered by ETS*%40.440.839.944.647.648.0Transport energy intensitykgoe / €0.560.550.520.520.490.49Transport carbon intensitykg / €1.301.261.191.171.06-Security of energy supplyEnergy import dependency%30.330.130.626.133.851.9Aggregated supplier concentration indexHHI11.714.615.815.317.0-Diversification of energy mixHHI0.370.360.340.350.33- 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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