Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the Netherlands and delivering a Council opinion on the 2019 Stability Programme of the Netherlands
Date: 2019-06-05
Institutions: European Commission, Secretariat-General
Subjects: Netherlands, economic policy, economic reform, housing policy, investment, pension scheme, self-employed person, stability pact, stability programme, tax system

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   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 519 final  Recommendation for a COUNCIL RECOMMENDATION on the 2019 National Reform Programme of the Netherlands and delivering a Council opinion on the 2019 Stability Programme of the Netherlands    
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2019 National Reform Programme of the Netherlands and delivering a Council 
opinion on the 2019 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 Commission, 

Having regard to the resolutions of the European Parliament, 

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 21 November 2018, the Commission adopted the Annual Growth Survey, marking 
the start of the 2019 European Semester for 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  21  March 
2019.  On  21  November  2018,  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 date, the Commission also adopted a recommendation for a 
Council recommendation on the economic policy of the euro area, which was endorsed 
by the European Council on 21 March 2019. On 9 April 2019, the Council adopted the 

1 
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OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 

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(2) 

(3) 

(4) 

(5) 

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 for the euro area, as 
reflected  in  recommendations  (1)  and  (3)  below.  In  particular,  investment  measures 
and  measures  supporting  wage  growth  will  help  address  the  first  euro  area 
recommendation as regards euro area rebalancing, tax measures will help address the 
second euro area recommendation as regards fight against aggressive tax planning, and 
reducing  the  debt  bias  for  households  will  help  address  the  fourth  euro  area 
recommendation as regards reducing the debt bias in taxation.  
The 2019 country report for the Netherlands3 was published on 27 February 2019. It 
assessed 
country-specific 
recommendations adopted by the Council on 13 July 2018, the follow-up given to the 
recommendations adopted in previous years and the Netherlands's 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  27 
February 20194. The Commission’s analysis led it to conclude that the Netherlands is 
experiencing macroeconomic imbalances. In particular, the high stock of private debt 
and  the  large  current  account  surplus  constitute  sources  of  imbalances,  with  cross-
border  relevance.  Supported  by  economic  growth,  the  private  debt-to-GDP  ratio  has 
continued its downward trend both for corporate and households debts, although it is 
still elevated. Nevertheless, nominal household debt is slowly increasing on the back 
of rising house prices.  

the  Netherlands’s  progress 

addressing 

the 

in 

On  29  April  2019,  the  Netherlands  submitted  its  2019  National  Reform  Programme 
and its 2019 Stability Programme. In order 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  ('ESI  Funds')  for  the  2014-2020 
period.  As  provided  for  in  Article  23  of  Regulation  (EU)  No  1303/2013  of  the 
European  Parliament  and  of  the  Council5,  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 ESI Funds to sound economic governance6.  

(6) 

The Netherlands is currently in the preventive arm of the Stability and Growth Pact. In 
its  2019  Stability  Programme,  the  government  plans  a  decrease  in  the  general 
government surplus from 1.5% of GDP in 2018 to 0.0% of GDP in 2022. Based on the 

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SWD(2019) 1018 final. 
COM(2019) 150 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. 

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recalculated structural balance7, the medium-term budgetary objective — a structural 
deficit  of  0.5%  of  GDP  —  continues  to  be  overachieved  throughout  the  programme 
period. According to the 2019 Stability Programme, the government debt-to-GDP ratio 
is  projected  to  fall  from  52.4%  of  GDP  in  2018  to  44.6%  of  GDP  in  2022.  The 
macroeconomic scenario underpinning those budgetary projections is plausible. Based 
on the Commission 2019 spring forecast, the structural balance is projected to decline 
from a surplus of 0.8% of GDP in 2018 to 0.7% of GDP in 2019 and 0.2% of GDP in 
2020,  above  the  medium-term  budgetary  objective.  General  government  debt  is 
forecast to remain on a firm downward path. Overall, the Council is of the opinion that 
the Netherlands is projected to comply with the provisions of the Stability and Growth 
Pact in 2019 and 2020. At the same time, while respecting the medium-term budgetary 
objective,  it  would  be  important  to  use  fiscal  and  structural  policies  to  support  an 
upward trend in investment. 

(7)  With  respect  to  fiscal  sustainability,  the  projected  increase  in  public  expenditure  on 
long  term  care  points  to  medium  risks  in  long-term  sustainability.  In  2015  the 
government moved a large part of the long-term care system to the municipal domain 
to improve its efficiency and lower public expenditures. The impact of this reform on 
fiscal sustainability needs to be monitored.  

(8) 

(9) 

As of November 2018, the funds of the Deposit Guarantee Fund, an independent legal 
entity,  have  been  moved  from  a  segregated  account  in  the  Dutch  central  bank  to  an 
account  with  the  Treasury.  The  Dutch  Deposit  Guarantee  Fund  was  being  built  up 
gradually and had so far accumulated around EUR 1 billion, with an additional EUR 4 
billion to be paid by banks by 2024, which should have been invested in a diversified 
portfolio of low-risk assets in line with the Deposit Guarantee Scheme Directive. The 
transfer of the account of the fund reduces the gross debt level, but has no effect on the 
public deficit. Following this transfer, the Treasury will be able to use the funds for the 
financing  of  government  expenditures,  but  will  have  to  make  the  funds  available  in 
case  there  is  a  need  to  make  pay-outs  to  depositors  or  finance  interventions  in 
accordance with its legal mandate, which may have an impact on financial stability. 

Dutch  households  combine  large  illiquid  assets  in  housing  and  pensions  with  high 
household  debt.  Long  balance  sheets  make  households  vulnerable  to  financial  and 
economic  shocks.  High  household  debt  is  explained  by  generous  tax  relief  on 
mortgage interest payments, but also by a lack of a well-functioning middle segment 
on  the  rental  market  and  high  compulsory  pension  savings.  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 addresses this. The announced acceleration of the reduction in 
mortgage interest tax deductibility has been put into law and will start in 2020. Despite 
this, the tax relief on mortgage payments remains generous and continues to result in a 
substantial debt bias for households. At the same time, the private rental market, as the 
only  non-subsidised  segment,  remains  underdeveloped  accounting  for  13%  of  total 
dwellings.  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 

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Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

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(10)  While the pension system performs well on pension adequacy and fiscal sustainability, 
it has drawbacks in terms of intergenerational fairness, transparency of pension rights 
and  flexibility.  Moreover,  occupational  pension  contributions  are  high  and  fluctuate 
depending on how pension funds perform. As such it may affect household spending 
in a pro-cyclical way. A reform of the pension system could, over the life cycle, lead 
to  lower  compulsory  pension  contributions  and  more  stable  consumption  (or 
‘consumption  smoothing’).  The  government  has  the  intention  to  substantially  reform 
the second pension pillar in order to improve coverage and create a more transparent, 
more flexible and actuarially fairer system. A simultaneous reform of housing market 
institutions  and  the  pension  system  has  the  potential  to  shorten  household  balance 
sheets,  and  make  the  household  sector  less  vulnerable  to  financial  and  economic 
shocks with beneficial effects for macro-economic resilience and economic growth. 

(11)  Despite low unemployment, high job vacancy rates and growing shortage of workers, 
nominal wage growth has remained moderate so far (1.1% in 2017and 2.4% in 2018). 
Wages in  collective agreements increased on average by 2.1% in  2018,  while public 
wages increased at a faster rate (by 3% in the second half of 2018). Furthermore, wage 
agreements were reached leading to a nominal increase of 7% in 2 years for all civil 
servants in central government. Additional funding has been provided to increase the 
salaries of primary school teachers. In addition, the government adopted several fiscal 
measures which reduce the tax burden on labour and aim to increase the net disposable 
household income of those who work. Further boosting disposable household income 
by  strengthening  the  conditions  that  support  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  help  to  rebalance  the 
euro area. 

(12)  The  fight  against  aggressive  tax  planning  is  essential  to  make  tax  systems  more 
efficient  and  fair  as  acknowledged  in  the  2019  euro  area  recommendation.  Spillover 
effects of taxpayers' aggressive tax planning strategies between Member States call for 
a  coordinated  action  of  national  policies  to  complement  EU  legislation.  The 
Netherlands has taken measures against aggressive tax planning, but the high level of 
dividend,  royalty  and  interest  payments  made  via  the  Netherlands  suggests  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 announcement of the reform agenda on taxation, including withholding taxes on 
royalty, and interest payments in case of abuse or payments to low-tax jurisdictions, is 
a positive step to decrease aggressive tax planning and should be monitored closely. 

(13)  Growth in employment in recent years has mainly been due to temporary employment 
and  self-employment,  although  job  growth  for  employees  with  permanent  contracts 
has recently outpaced job growth for temporary employment. Nevertheless, the share 
of flexible employment remains high and represents a substantial share of the labour 
market.  The  high  percentage  of  temporary  contracts  and  the  rapid  increase  in  self-
employment  without  employees  is  observed  in  great  differences  in  applicable  labour 
regulations,  labour  protection,  and  in  the  differences  in  tax  and  social  security 
legislation. A package of measures was adopted by the government (draft bill labour 
market in balance, 'Wet Arbeidsmarkt in Balans') to make it easier to hire permanent 
employees and make flexible contracts less flexible. Once adopted by Parliament, the 

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implementation  of these measures (which should enter into force in  2020) should be 
closely monitored. Moreover, measures have been announced to ease the obligation of 
employers  to  continue  to  pay  salaries  for  two  years  in  case  of  illness.  However,  no 
other  concrete  measures  have  been  adopted  so  far.  Therefore,  some  of  these 
institutional factors still create financial incentives for employees to  start  working as 
self-employed  or  favour  the  use  the  status  of  self-employed  without  employees.  The 
self-employed 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. 
In  addition,  the  enforcement  of  measures  to  tackle  bogus  self-employment  has  been 
suspended until 2020. 

(14)  Despite a labour market that is performing well overall, fostering equal opportunities 
regarding  employment  and  active  inclusion  remains  an  important  challenge,  in 
particular for people with a migrant background, for those operating at the margins of 
the  labour  market  and  for  those  who  are  economically  inactive.  In  addition,  there  is 
still  untapped  labour  potential,  in  particular  among  the  high  number  of  part-time 
working women. 

(15)  Technical  and  digital  skills  and  qualified  professionals  are  crucial  for  the  Dutch 
economy’s capacity to innovate and for productivity growth. This points to the need to 
invest  more  in  training,  including  training  in  digital  skills,  and  to  promote  flexible 
upskilling and reskilling opportunities.  Improving society’s capacity to  innovate also 
requires  investments  to  support  education  in  science,  technology,  engineering  and 
mathematics.  Moreover,  increased  investment  in  skills,  education  and  training  is 
crucial to improving access to the labour market and the employability of those at the 
margins of the labour market, while fostering equal opportunities and active inclusion. 

(16)  While the research and development investment intensity for the Netherlands rose to 
over 2%, it is still well below the 2.5% national target and the level of top performers. 
In  terms  of  productivity,  the  Netherlands  is  one  of  the  best  performing  countries  in 
many  sectors.  Continued  productivity  growth  is  therefore  highly  dependent  on 
innovation.  Additional  investment  in  research  and  development,  and  innovation, 
especially in the private sector, would support this. 

(17)  The  energy  transition  and  the  reduction  of  greenhouse  gas  emissions  requires 
substantial investments to ensure a more sustainable and resource efficient economic 
development. The Netherlands is likely to overachieve its 2020 targets in the field of 
greenhouse  gas  reductions,  while  reaching  the  2030  targets  will  require  additional 
measures. The 2020 primary energy efficiency and renewable energy targets will not 
be  reached  without  additional  measures.  The  Dutch  target  for  renewable  energy  by 
2023  as  defined  by  their  Energy  Agreement  target  should  be  within  reach  thanks  to 
investments in off-shore wind farms. By the end of 2019, the Dutch government aims 
at adopting a National Energy and Climate Plan which will provide an overview of its 
investment  needs  until  2030  for  the  different  dimensions  of  the  Energy  Union, 
including  renewable  energy,  energy  efficiency,  security  of  supply,  and  climate 
mitigation and adaptation. 

(18)  Congestion  remains  a  challenge  in  the  Netherlands,  which  is  a  dense  and  well 
equipped  country  and  a  key  player  in  EU  logistics  with  the  biggest  EU  port  in 
Rotterdam  and one of the biggest  airports  in  Schiphol. The issue has been alleviated 
with additional infrastructure works but it still remains an issue with high social costs 
and hours wasted stuck in traffic. 

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(19)  The programming of EU funds for the period 2021-2027 could help address some of 
the  needs  identified  in  the  recommendations,  in  particular  in  the  areas  covered  by 
Annex D to the country report8. This would allow the Netherlands to make the best use 
of those funds in respect of the identified sectors.  

(20) 

(21) 

(22) 

In  the  context  of  the  2019  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of the Netherlands’s economic policy and published it in the 
2019 country report. It has also assessed the 2019 Stability Programme and the 2019 
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 socio-economic policy in the Netherlands, but also 
their compliance with Union rules and guidance. This reflects the need to strengthen 
the Union’s  overall economic governance by providing Union-level  input into future 
national decisions.  

In  the  light  of  this  assessment,  the  Council  has  examined  the  2019  Stability 
Programme and is of the opinion9 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  2019  National  Reform  Programme  and  the  2019  Stability  Programme. 
Its recommendations under Article 6 of Regulation (EU) No 1176/2011  are reflected 
in recommendation (1) and (3) below. Those recommendations also contribute to the 
implementation  of  the  Recommendation  for  the  euro  area,  in  particular  the  first  and 
fourth  euro  area  recommendation.  Fiscal  policies  referred  to  in  recommendation  (3) 
contribute inter-alia to addressing imbalances linked to the current account surplus. 

HEREBY RECOMMENDS that the Netherlands take action in 2019 and 2020 to: 

1. 

2. 

Reduce  the  debt  bias  for  households  and  the  distortions  in  the  housing  market, 
including by supporting the development of the private rental sector. Ensure that the 
second  pillar  of  the  pension  system  is  more  transparent,  inter-generationally  fairer 
and  more  resilient  to  shocks.  Implement  policies  to  increase  household  disposable 
income, including by strengthening  the  conditions  that support  wage  growth, while 
respecting  the  role  of  social  partners.  Address  features  of  the  tax  system  that  may 
facilitate  aggressive  tax  planning,  in  particular  by  means  of  outbound  payments, 
notably by implementing the announced measures. 

Reduce  the  incentives  for  the  self-employed  without  employees,  while  promoting 
adequate social protection for the self-employed, and tackle bogus self-employment. 
Strengthen  comprehensive  life-long  learning  and  upgrade  skills  notably  of  those  at 
the margins of the labour market and the inactive.  

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SWD(2019) 1018 final. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

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3. 

While  respecting  the  medium-term  budgetary  objective,  use  fiscal  and  structural 
policies  to  support  an  upward  trend  in  investment.  Focus  investment-related 
economic policy on research and development in particular in the private sector, on 
renewable  energy,  energy  efficiency  and  greenhouse  gas  emissions  reduction 
strategies and on addressing transport bottlenecks.  

Done at Brussels, 

 For the Council 
The President 

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