Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of the Netherlands and delivering a Council opinion on the 2017 Stability Programme of the Netherlands
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Netherlands, economic policy, economic reform, employment policy, fiscal policy, housing, investment policy, real estate credit, research and development, stability programme

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 518 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of the Netherlands  and delivering a Council opinion on the 2017 Stability Programme of the Netherlands  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of the Netherlands 

and delivering a Council opinion on the 2017 Stability Programme of the Netherlands 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies,1 and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No 1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16 November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances,2 and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission,3 
Having regard to the resolutions of the European Parliament,4 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,5 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,6  in  which  it 
identified the Netherlands as one of the Member States for which an in-depth review 
would  be  carried  out.  On  the  same  day,  the  Commission  also  adopted  a 
recommendation for a Council Recommendation on the economic policy of the euro 

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6 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2017) 518 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 

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area. That Recommendation was endorsed by the European Council on 9-10 March 
2017 and adopted by the Council on 21 March7.  

in 

the 

addressing 

the  Netherlands’  progress 

As  a  country  whose  currency  is  the  euro  and  in  view  of  the  close  interlinkages 
between the economies in the economic and monetary union, the Netherlands should 
ensure the full and timely implementation of the Recommendations for the euro area 
which is reflected in recommendations 1 to 3 below. 
The 2017 country report for the Netherlands8 was published on 22 February 2017. It 
country-specific 
assessed 
recommendations adopted by the Council on 12 July 2016, the follow-up given to the 
recommendations  adopted  in  previous  years  and  the  Netherlands’  progress  towards 
its national Europe 2020 targets. It also included an in-depth review under Article 5 
of  Regulation  (EU)  No 1176/2011,  the  results  of  which  were  also  published  on 
22 February  2017.9  The  Commission’s  analysis  leads  it  to  conclude  that  the 
Netherlands is experiencing macroeconomic imbalances. 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  need  for  action  to  reduce 
the risk of adverse effects on the Dutch economy and, given its size and cross-border 
relevance, on the economic and monetary union, is particularly important. 

On 26 April 2017, the Netherlands submitted its 2017 National Reform Programme 
and  its  2017 Stability  Programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States' programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,10 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.11  

The Netherlands is currently in the preventive arm of the Stability and Growth Pact 
and subject to the debt rule. In its 2017 stability programme, the government plans an 
increase  in  the  general  government  surplus  from  0.5%  of  GDP  in  2017  to  1.3%  of 
GDP in 2020. The medium-term budgetary objective — a structural deficit of 0.5% 

2017/C92/01 
SWD(2017) 84 final. 
COM(2017) 90 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 

(2) 

(3) 

(4) 

(5) 

(6) 

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of  GDP  —  continues  to  be  met  with  a  margin  throughout  the  programme  period. 
According to the stability programme, the government debt-to-GDP ratio is projected 
to  fall  to  58.5%  in  2017,  below  the  Treaty  reference  value  of  60%  of  GDP.  The 
government plans a further decline in the government debt ratio to 49.3% of GDP in 
2020.  The  macroeconomic  scenario  underpinning  these  budgetary  projections  is 
plausible.  Based  on  the  Commission  2017  spring  forecast,  the  structural  balance  is 
projected  to  increase  from  a  surplus  of  0.2%  of  GDP  in  2017  to  0.4%  of  GDP  in 
2018,  above  the  medium-term  budgetary  objective.  General  government  debt  is 
forecast  to  remain  on  a  firm  downward  path  beyond  the  requirements  of  the  debt 
rule.  Overall,  the  Council  is  of  the  opinion  that  the  Netherlands  is  projected  to 
comply  with  the  provisions  of  the Stability and  Growth  Pact  in  2017 and  2018. At 
the  same  time,  there  remains  scope  to  support  domestic  demand  by  using  fiscal 
policy,  notably  to  foster  investment  in  research  and  development,  and  by  creating 
conditions for higher real wage growth, in view of persistent external imbalances. 

The  recent  growth  in  employment  can  be  largely  attributed  to  an  increase  in  the 
number  of  people  employed  on  temporary  contracts  and  of  the  self-employed.  The 
high and increasing percentage of temporary contracts as well as the rapid increase in 
self-employment without employees is observed in the context of great differences in 
applicable  labour  regulations,  labour  protection,  as  well  as  differences  in  tax  and 
social security legislation. Although some measures have been taken, some of these 
factors  still  create  a  financial  incentive  for  employees  to  start  working  as  self-
employed  or  favours  hiring  them  under  a  temporary  contract.  This  may  have 
particularly  distortive  effects  at  the  margin  of  the  labour  market  and  may  have 
contributed  to  the  observed  moderation  in  aggregate  real  wage  growth.  Self-
employed  are  more  often  under-insured  against  disability,  unemployment  and  old 
age. This could affect the sustainability of the social security system in the long run. 
The  enforcement  of  measures  to  tackle  bogus  self-employment  is  suspended  until 
2018.  The  employment  situation  of  people  with  a  migrant  background  remains  an 
important  challenge.  The  employment  rate  for  non-EU  born  migrants  is  20 
percentage points lower than for people born in the Netherlands, only a small part of 
which is explained by differences in age and educational achievement. 

The rise in recent years in the household saving rate was partly due to higher saving 
in  the  second  pillar  of  the  pension  system  (mandatory  supplementary  private 
schemes),  to  which  the  regulatory  environment  contributed.  An  appropriate  intra- 
and  inter-generational  distribution  of  costs  and  risks  beyond  the  adopted  rules  on 
indexation  and  financial  buffers  (financial  assessment  framework)  would  help 
households  to  allocate  their  financial  means  in  more  growth-friendly  ways.  The 
government announced its intention to substantially reform the second pension pillar 
in  order  to  improve  the  coverage,  create  a  more  transparent,  more  flexible  and 
actuarially fairer system. 

Rigidities  and  distortive  incentives  that  have  built  up  over  decades  shape  house 
financing  and  sectoral  savings  patterns.  Households’  tendency  to  leverage  up  gross 
mortgage debt against housing wealth largely reflects long-standing fiscal incentives, 
in particular the full tax deductibility of mortgage interest. Despite the strengthening 
of the economic recovery, no further measures have been taken to address this since 
2012. 

(7) 

(8) 

(9) 

(10) 

Investment declined strongly during the crisis and has recovered only partially since. 
The  weakness  in  economy-wide  investment  appears  to  have  a  strong  cyclical 
character,  and  was  driven  by  a  downturn  in  the  housing  market  as  well  as  fiscal 

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consolidation choices. While barriers to investment seem to be minor, procedures to 
obtain building permits are relatively lengthy. Low investment in renewable energy 
appears  linked  to  past  market  dynamics,  market  uncertainty  and  regulatory  factors. 
Public  and  private  expenditure  on  R&D  is  low  given  the  educational  attainment, 
academic achievement and the level of economic development compared to the top 
performing Member States. Government expenditure in this area has stagnated since 
2014, while private R&D spending remains low. No progress has been made on the 
related recommendation. 

In  the  context  of  the  European  Semester  the  Commission  has  carried  out  a 
comprehensive analysis of the Netherlands’ economic policy and published it in the 
2017  country  report.  It has  also  assessed  the  Stability  Programme  and  the  National 
Reform  Programme  and  the  follow-up  given  to  the  recommendations  addressed  to 
the Netherlands in previous years. It has taken into account not only their relevance 
for  sustainable  fiscal  and  socioeconomic  policy  in  the  Netherlands,  but  also  their 
compliance  with  EU  rules  and  guidance,  given  the  need  to  strengthen  the  EU’s 
overall  economic  governance  by  providing  EU-level  input  into  future  national 
decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and is of the opinion12 that the Netherlands is expected to comply with the Stability 
and Growth Pact. 

In  the  light  of  the  Commission’s  in-depth  review  and  this  assessment,  the  Council 
has  examined  the  National  Reform  Programme  and  the  Stability  Programme.  Its 
recommendations  made  under  Article  6  of  Regulation  (EU)  No 1176/2011  are 
reflected in recommendation 1 and 3 to the Netherlands below, 

(11) 

(12) 

(13) 

HEREBY RECOMMENDS that the Netherlands take action in 2017 and 2018 to: 

1.  

2. 

Use fiscal policy to support domestic demand, including investment in research and 
development.  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. 

Tackle  remaining  barriers  to  hiring  staff  on  permanent  contracts.  Address  the  high 
increase  in  the  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. Based on 
the  broad  preparatory  process  already  launched,  make  the  second  pillar  of  the 
pension  system  more  transparent,  inter-generationally  fairer  and  more  resilient  to 
shocks. Create conditions to promote higher real wage growth, respecting the role of 
the social partners. 

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

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Done at Brussels, 

For the Council 
The President 

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