Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of the Netherlands and delivering a Council opinion on the 2018 Stability Programme of the Netherlands
Date: 2018-05-23
Institutions: European Commission, Secretariat-General
Subjects: Netherlands, budget deficit, economic policy, economic reform, employment policy, housing, innovation, investment, research and development, stability programme

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   EUROPEAN COMMISSION  Brussels, 23.5.2018 COM(2018) 418 final  Recommendation for a COUNCIL RECOMMENDATION on the 2018 National Reform Programme of the Netherlands  and delivering a Council opinion on the 2018 Stability Programme of the Netherlands  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2018 National Reform Programme of the Netherlands 

and delivering a Council opinion on the 2018 Stability Programme of the Netherlands 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 
Having regard to the recommendation of the European Commission3, 
Having regard to the resolutions of the European Parliament4, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On 22 November 2017, the Commission adopted the Annual Growth Survey, marking 
the start of the 2018 European Semester of economic policy coordination. It took due 
account  of  the  European  Pillar  of  Social  Rights,  proclaimed  by  the  European 
Parliament, the Council and the Commission on 17 November 2017. The priorities of 
the  Annual  Growth  Survey  were  endorsed  by  the  European  Council  on  22  March 
2018.  On  22  November  2017,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the 
Commission  also  adopted  the  Alert  Mechanism  Report,  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 

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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
COM(2018) 418 final. 
P8_TA(2018)0077 and P8_TA(2018)0078. 

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Council recommendation on the economic policy of the euro area, which was endorsed 
by the European Council on 22 March 2018. On 14 May 2018 the Council adopted the 
recommendation  on  the  economic  policy  of  the  euro  area  (‘recommendation  for  the 
euro area’). 

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, the Netherlands should 
ensure  the  full  and  timely  implementation  of  the  recommendation  on  the  economic 
policy for the euro area, as reflected in recommendations (1) to (2) below.  
The  2018  country  report  for  the  Netherlands5  was  published  on  7  March  2018.  It 
assessed  some  progress  in  addressing  the  country-specific  recommendations  adopted 
by the Council on 11 July 2017, 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  7  March  20186.  The 
Commission’s  analysis  leads  it  to  conclude  that  the  Netherlands  is  experiencing 
macroeconomic imbalances. In particular, the Netherlands shows the largest three-year 
average current account surplus in terms of GDP among euro area Member States. The 
surplus  suggests  a  suboptimal  allocation  of  resources,  leaving  opportunities  for 
increased growth and welfare. Private debt is high, specifically the stock of household 
mortgages  and  multinational  enterprises'  debt.  The  long  household  balance  sheets 
increase the vulnerability to financial shocks.  

On  30  April  2018,  the  Netherlands  submitted  its  2018  National  Reform  Programme 
and  on  26  April  2018  its  2018  Stability  Programme.  To  take  account  of  their 
interlinkages, the two programmes have been assessed at the same time. 

Relevant country-specific recommendations have been addressed in the programming 
of  the  European  Structural  and  Investment  Funds  for  the  2014-2020  period.  As 
foreseen in Article 23 of Regulation (EU) No 1303/2013 of the European Parliament 
and  of  the  Council7,  where  it  is  necessary  to  support  the  implementation  of  relevant 
Council  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and propose amendments to its Partnership Agreement and relevant programmes. The 
Commission has provided further details on how it would make use of that provision 
in  guidelines  on  the  application  of  the  measures  linking  the  effectiveness  of  the 
European Structural and Investment Funds to sound economic governance8.  

The Netherlands is currently in the preventive arm of the Stability and Growth Pact. In 
its  2018  Stability  Programme,  the  government  plans  a  decrease  in  the  general 
government  surplus  from  1.1 %  of  GDP  in  2017  to  0.3 %  of  GDP  in  2021.  The 
medium-term budgetary objective — a structural deficit of 0.5 % of GDP — continues 
to  be  met  throughout  the  programme  period.  According  to  the  2018  Stability 
Programme, the government debt-to-GDP ratio is projected to fall to 44.0 % of GDP 

SWD(2018) 217 final. 
COM(2018) 120 final. 
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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(7) 

(8) 

(9) 

in  2021.  The  macroeconomic  scenario  underpinning  those  budgetary  projections  is 
plausible.  Based  on  the  Commission  2018  spring  forecast,  the  structural  balance  is 
projected to decline from a surplus of 0.5 % of GDP in 2017 to a deficit of 0.1 % of 
GDP in 2018 and 0.3 % of GDP in 2019, above the medium-term budgetary objective. 
General government debt is forecast to remain on a firm downward path and below the 
Treaty reference value. Overall, the Council is of the opinion that the Netherlands is 
projected to comply with the provisions of the Stability and Growth Pact in 2018 and 
2019.  At  the  same  time,  while  respecting  the  medium-term  objective,  there  remains 
scope  to  use  fiscal  and  structural  policies  to  raise  public  and  private  investment  in 
research, development and innovation. 

The  Netherlands  has  an  efficient  research  and  development  sector  and  the  country’s 
high-performing  education  system  and  scientific  base  provide  a  sound  basis  for 
boosting  innovation  and  growth  capacity  through  education  and  research  and 
development  activities.  Substantial  additional  investment  has  been  announced  which 
could help to stabilise public and private research and development intensity. Whether 
the Netherlands will reach its Europe 2020, targets notably on investment in research 
and development and renewable energy, remains uncertain. 

A key challenge in addressing high household indebtedness lies in the housing market, 
where the rigidities and distortive incentives that have built up over decades shape the 
patterns  of  housing  financing  and  sectoral  savings.  Since  2012,  a  series  of  measures 
has  been  implemented  that  partly  address  this.  In  2017,  the  government  announced 
plans to accelerate the reduction in mortgage interest tax deductibility starting in 2020. 
Yet,  the  lack  of  a  well-functioning  middle  segment  on  the  rental  market  encourages 
households to buy rather than rent, leading to high debt-to-income ratios and financial 
vulnerability  at  a  young  age.  The  social  housing  sector  is  one  of  the  largest  in  the 
Union,  but  housing  is  not  always  occupied  by  those  really  in  need.  High-income 
households  stay  in  social  housing,  given  that  social  housing  corporations  do  not 
increase rents  as  fast  as they legally could. While the government has  announced its 
intention  to  support  the  supply  of  affordable  housing  on  the  private  rental  market, 
concrete plans for such support have not been communicated yet. 

As  indicated  in  the  2018  euro  area  recommendation,  the  fight  against  aggressive  tax 
planning  strategies  is  essential  to  impede  distortions  of  competition  between  firms, 
provide fair treatment of taxpayers and safeguard public finances. Spill-over effects of 
taxpayer's  aggressive  planning  strategies  between  Member  States  call  for  a 
coordinated action of national policies to complement EU legislation. The high level 
of  dividend,  royalty  and  interest  payments  made  via  the  Netherlands  continue  to 
suggest that the country’s tax rules are  used by companies that engage in aggressive 
tax  planning.  A  large  proportion  of  the  foreign  direct  investment  stock  is  held  by 
‘special purpose entities’. The absence of withholding taxes on outbound (i.e. from EU 
residents to third country residents) royalties and interest payments may lead to those 
payments  escaping  tax  altogether,  if  they  are  also  not  subject  to  tax  in  the  recipient 
jurisdiction. The lack of some anti-abuse rules, especially in the case of hybrid entities, 
may  also  facilitate  aggressive  tax  planning.  The  Commission  acknowledges  the 
Netherland's  commitment  to  fight  aggressive  tax  planning  as  set  out  in  the  reform 
agenda  on  taxation,  including  withholding  taxes  on  royalty,  interest  and  dividend 
payments  in  case  of  abuse  or  payments  to  low-tax  jurisdictions,  is  a  positive  step  to 
decrease  aggressive  tax  planning  and  should  be  implemented  swiftly  and  monitored 
closely.  Based  on  recent  exchanges,  the  Commission  will  continue  its  constructive 
dialogue to fight against taxpayers aggressive planning strategies. 

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(10)  Despite  low  unemployment  and  high  job  vacancy  rates,  nominal  wage  growth  was 
moderate  at  1.5 %  in  2017.  This  is  below  the  level  that  could  be  expected  based  on 
inflation, productivity and unemployment. Moderate wage growth can be partly linked 
to slow increases in productivity, remaining labour market slack and increased labour 
market segmentation. In 2017, the government adopted several fiscal measures, which 
reduce  the  tax  burden  on  labour  and  aim  at  increasing  the  net  disposable  household 
income  of  those  who  work.  Further  boosting  net  disposable  household  income  by 
creating the conditions to promote wage growth and reforming the second pillar of the 
pension  system  to  make  it  more  transparent,  inter-generationally  fairer  and  more 
resilient  to  shocks  would  support  domestic  demand  and  contribute  to  euro  area 
rebalancing. 

(11)  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  and  additional  ones 
have  recently  been  announced,  some  of  these  factors  still  create  financial  incentives 
for  employees  to  start  working  as  self-employed  or  favour  hiring  them  under  a 
temporary  contract.  In  addition,  the  enforcement  of  measures  to  tackle  bogus  self-
employment  has  been  suspended  until  2020.  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. 

(12)  Despite  a  labour  market  that  performs  well  overall,  there  is  still  untapped  labour 
potential.  In  particular  the  high  number  of  part-time  working  women  and  the 
employment  situation  of  people  with  a  migrant  background  remain  an  important 
challenge.  The  employment rate  for non-EU-born  migrants  is  20.6  percentage  points 
lower  than  for  people  born  in  the  Netherlands  with  an  even  larger  gap  for  non-EU-
born women.  

(13)  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 has confirmed its 
intention  to  substantially  reform  the  second  pension  pillar  in  order  to  improve  the 
coverage and to create a more transparent, more flexible and actuarially fairer system. 
With respect to fiscal sustainability, the 2018 Ageing Report points to a medium risk 
to fiscal sustainability in the long term, as long-term care expenditures are projected to 
increase from 3.5 % to 6.0 % of GDP by 2070. 

(14) 

In  the  context  of  the  2018  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  the  Netherlands’  economic  policy  and  published  it  in  the 
2018 country report9. It has also assessed the 2018 Stability Programme and the 2018 
National  Reform  Programme  and  the  follow-up  given  to  the  recommendations 
addressed  to  the  Netherlands  in  previous  years.  The  Commission  has  taken  into 
account not only their relevance for sustainable fiscal and socioeconomic policy in the 

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https://ec.europa.eu/info/sites/info/files/2018-european-semester-country-report-netherland-en.pdf 

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Netherlands but also the extent to which they comply with Union rules and guidance, 
given  the  need  to  strengthen  the  Union’s  overall  economic  governance  by  providing 
Union-level input into future national decisions.  

(15) 

(16) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  2018  Stability 
Programme  and  its  opinion10  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  under  Article  6  of  Regulation  (EU)  No  1176/2011  are  reflected  in 
recommendations 1 and 2 below. 

HEREBY RECOMMENDS that the Netherlands take action in 2018 and 2019 to: 

1. 

2. 

While  respecting  the  medium-term  objective,  use  fiscal  and  structural  policies  to 
raise  public  and  private  investment  in  research,  development  and  innovation.  Take 
measures to reduce the debt bias for households and the remaining distortions in the 
housing  market,  in  particular  by  supporting  the  development  of  the  private  rental 
sector. 

Reduce  the  incentives  to  use  temporary  contracts  and  self-employed  without 
employees,  while  promoting  adequate  social  protection  for  the  self-employed,  and 
tackle  bogus  self-employment.  Create  conditions  to  promote  higher  wage  growth, 
respecting the role of the social partners. Ensure that the second pillar of the pension 
system is more transparent, inter-generationally fairer and more resilient to shocks. 

Done at Brussels, 

For the Council 
The President 

10 

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

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