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The Netherlands is gradually emerging from a protracted recession. The authorities have implemented, or are going to put in place, significant structural reforms in the labour market, health care and the pension system to ease the reallocation of resources and help the economy to recover. Significant fiscal consolidation has also been achieved and the budget deficit lowered to below 3% of GDP. However, the banking sector is large and remains vulnerable to high household indebtedness. Small and medium-sized enterprises (SMEs) face major credit constraints.
Fiscal policy has accomplished a major structural adjustment over the recent past and long-term fiscal sustainability has been strengthened by reducing ageing-related pressures on public budgets. The fiscal framework is robust, but Dutch commitments to the European Union have led to a suspension of automatic stabilisation on the revenue side, induced frequent revisions of consolidation plans and made fiscal policy pro-cyclical. A specific international tax issue is tax planning strategies of foreign multinational firms.
Banking sector and household debt
The Dutch banking sector is large compared to the size of the country and remains vulnerable to domestic risks. Regulatory ratios of total and Tier 1 capital to risk-weighted assets and unweighted measures of capital ratios (leverage ratios) are not comparatively strong on a Basel II basis. However, banks have made progress to meet all Basel III standards. The amount of non-performing loans not covered by loan loss provisions is high in relation to bank capital. Banks’ dependence on international capital markets is extensive and they are highly exposed to the property market. Some structural reforms have been implemented to improve the housing market. Nominal house prices have dropped by 20% since their 2008 peak and around 40% of households with mortgage debt have negative home equity. Moreover, the majority of the mortgage portfolio is not amortized regularly. Households have significant assets on average, but their composition and distribution suggest that they might not be available to repay the full principal once it falls due.
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Small and medium-sized enterprises
SMEs play an important role in the Dutch economy but have been hit hard by the crisis. Dutch banks have been tightening credit conditions and few alternative sources of financing are available. At the same time, not all public guarantees for loans are being used. Restrictive labour regulations are another barrier for the development of dynamic SMEs and could also raise the incidence of last-resort self-employment. The authorities intend to increase the protection of employees on temporary contracts and simultaneously both reduce the protection of those on permanent contracts and restrict access to unemployment benefits. The number of SMEs engaging in collaboration on innovation is comparatively low. Tax policies could have encouraged the growth of self-employment. Regulatory barriers to entrepreneurship are low but the licence and permits system is stricter and some compliance costs are higher than in the best performing OECD countries.
For further information please contact the Netherlands Desk at the OECD Economics Department.
The Secretariat’s draft report was prepared for the Committee by Rafał Kierzenkowski under the supervision of Pierre Beynet. Research assistance was provided by Gabor Fulop. Chapter 1 benefited from external consultancy work done by Olena Havrylchyk. Chapter 2 benefited from the co-operation of Jochebed Kastaneer, seconded from the Netherlands Ministry of Economic Affairs.