The following is the Executive Summary of the OECD assessment and recommendations, taken from the Economic Survey of the Netherlands 2005 published on 15 December 2005.
After five years of sluggishness, an economic recovery finally appears in the offing in the Netherlands. The financial imbalances that contributed to the downturn at the start of the decade have been corrected, thanks to well-tailored policies for the most part, and exports have already rebounded. The severity of the downturn the output gap stands at -3% in 2005 partly reflects an unusual succession of adverse shocks. Even so, other OECD economies have rebounded more quickly in similar conditions, suggesting an intrinsic difficulty to return to trend – a lack of resilience. The present Survey examines why the Netherlands lacks resilience and what could be done to avoid the recurrence of such difficulties. It also reviews how the re emergence of large fiscal imbalances could be avoided, while making progress towards sustainability in a context of population ageing. As well, the Survey examines what could be done to raise trend growth through a combination of higher labour utilisation and stronger productivity growth.
Increasing resilience.
Like several other European countries, the Dutch economy is slow to return to trend. Traditional re-equilibrating forces appear weak, notably the reaction of unit labour costs to slack, thus holding up these costs, eroding international competitiveness and limiting the extent to which inflation falls. One of the reasons for such behaviour of unit labour costs is that firms face obstacles to adjust employment to bring down these costs. To improve the economy’s capacity to return to trend quickly, future reforms should further reduce the strictness of EPL.
Putting public finances on a sustainable path.
Following the large deterioration in public finances over 2000‑03, consolidation measures have successfully cut the budget deficit to 1.8% of GDP in 2005. Continued efforts at consolidation will be needed over the next few years so as to achieve a sustainable fiscal position. The present fiscal rule (ceilings on public spending over the legislature) is appropriate, but could be strengthened to avoid that cyclical and unexpected revenue windfalls are spent. The amount
Increasing labour utilisation.
The Netherlands has initiated a very substantial programme of reforms of its labour market and social security institutions, including health care. These reforms will shift people from social benefit dependence into employment and contribute to structural growth and budget consolidation. In the future, more needs to be done to reduce incentives for early retirement. This would entail monitoring access to publicly subsidised routes to early retirement and indexing the future official retirement age to life expectancy. To ease the trade off between women's participation in the labour force and family responsibilities, marginal effective tax rates should be lowered further, possibly by reducing further the taper rate at which childcare subsidies are progressively withdrawn as household income rises.
Removing barriers to competition and enhancing innovation activity to raise productivity growth.
The Netherlands has not experienced the surge in productivity growth observed outside the European Union, particularly in retail and financial services. To do so, it will be necessary to go further in removing barriers to competition in these key ICT using service sectors and in further eliminating disincentives to entrepreneurship. Innovation activity (the subject of the in depth chapter) will benefit from the reforms in framework conditions (e.g., creating an attractive business climate) and tertiary education, as well as from the rationalisation of the various forms of government support to innovation, all of which will make the Netherlands more attractive for both domestic and inward R&D spending.
__________________________
Return to the Economic Survey of the Netherlands 2005
A printer-friendly Policy Brief (pdf format) can also be downloaded. It contains the OECD assessment and recommendations, but not all of the charts included on the above pages.
To access the full version of the OECD Economic Survey of the Netherlands:
-
Readers at subscribing institutions can go to
SourceOECD, our online library.
-
Non-subscribers can purchase the PDF e-book and/or printed book at our
Online Bookshop.
-
Government officials can go to
OLISnet's Publication Locator.
-
For further information please contact the Netherlands Desk at the OECD Economics Department at webmaster@oecd.org. The OECD Secretariat's report was prepared by David Carey, Ekkehard Ernst, Jelte Theisens and Rebecca Oyomopito under the supervision of Patrick Lenain.
_______________________
Follow us
E-mail Alerts Blogs