Foundations for Growth and Competitiveness 2026

Netherlands

Modest GDP per capita growth over the past decade has been largely driven by increasing labour participation, but productivity per hour worked has lagged peer countries. Business investment has been subdued, slowing capital deepening, while total factor productivity growth has remained low. The Netherlands’ long-term prosperity is held back by labour shortages, weak investment, and sluggish productivity growth.

Increasing labour supply while also strengthening productivity growth is essential. Labour participation is high, but average hours worked are low compared to peer OECD countries, especially for second earners. Addressing persistent skill shortages through a stronger culture of lifelong learning could help boost human capital. Streamlining the complex tax system and reducing its distortive incentives could support productivity growth.

Economic performance

Gaps to the average of the upper half of the OECD countries

Source: Panel A: OECD, Economic Outlook database; Panel B: OECD, Labour Force Statistics database; Panel C: OECD, Economic Outlook and Productivity databases; Panel D: OECD, Economic Outlook and Annual National accounts, GFCF by assets databases.

Selected policy gaps

Source: OECD calculations based on the Foundations for Growth and Competitiveness database.

Employment: Increase incentives to work more hours

Labour force participation is high, but the average number of hours worked remains relatively low. Differences in taxation and regulation across employment types contribute to a dual labour market and distort work incentives. The complexity of means-tested benefit schemes discourages working more, for fear of losing benefits. In particular, high effective taxation on increasing hours worked reduces work incentives for middle-income mothers, compounding cultural norms regarding childcare responsibilities. Housing supply has been held back by a complex regulatory framework governing housing development not only weighing on housing affordability, but also reducing labour mobility.

Recommendations

✓ Streamline existing income-dependent benefits into a system of fewer allowances and tax credits based on a limited number of household characteristics.

✓ Keep lowering the effective tax rate on moving from part-time to full-time employment while delivering on the childcare overhaul.

✓ Continue harmonising taxation and regulation across forms of employment, including by increasing the flexibility of regular employment.

✓ Streamline the planning process by expanding the use of parallel planning, allowing infrastructure and housing development to run simultaneously.

Human capital: Strengthen adult learning

Persistent labour shortages are constraining economic growth and are aggravated by growing demand for technical skills due to the digital and green transitions. Spending on lifelong learning falls short of estimated needs given massive skill demand related to these transitions. The individualised training scheme has been cancelled after two years in 2023 after concerns of misuse and of quality standards.

Recommendations

✓ Shift the composition of active labour market policies towards training, especially to meet the growing demand for workers in jobs with a high content of green and digital tasks.

✓ Ensure quality control of lifelong learning programmes and provide stronger incentives for co-financing by employers.

Taxation: Reduce complexities in the tax system

The complex tax system creates loopholes for tax planning, distorting investment and labour supply decisions. Owner-occupied housing enjoys favourable tax treatment compared to alternative investments including housing for the rental market. The tax system also features many tax exemptions, reductions and reduced rate, which in some cases have been found to be ineffective, unjustified, or excessively complex.

Recommendations

✓ Align the tax treatment of owner-occupied housing with other types of investment.

✓ Streamline tax expenditure prioritising inefficient exemptions, reductions and reduced rates.

✓ Remove disparities between different types of capital income to prevent tax arbitrage and reduce economic distortions.

✓ Increase the minimum share of business income that must be paid as salary to reduce tax arbitrage and abolish the reduced CIT rate while considering a moderate reduction in the statutory rate.

Public governance: Increase the transparency of lobbying activities

The Netherlands lacks a mandatory lobbyist register covering all branches of government. The only existing register, for MPs in the Lower Chamber, lacks essential information, and the lobbying register for MPs does not contain detailed information. There are also no mechanisms to track post-office movements of officials into industries they used to regulate, even though the 2022 code of conduct for cabinet members requires that meetings schedules have to be published. These weaknesses in transparency risk undermining institutional trust and may discourage investment, limiting the Netherlands’ long-term competitiveness.

Recommendation

✓ Establish a publicly accessible and detailed lobbying register for all branches of government and implement the OECD-aligned rules to regulate the movement of officials into private sector roles.

Business dynamism: Further streamline the insolvency framework

Despite lean product market regulation, business dynamism has declined since the COVID-19 pandemic. Business creation rates are lower than for international peers. In parallel, while the Netherlands’ regulatory framework is generally conducive to competition, the administrative requirements for setting up new businesses remain relatively high. Despite recent improvements to the insolvency framework, exit rates are still low hindering the efficient reallocation of resources.

Recommendations

✓ Strengthen the early warning system for struggling businesses to enable timely intervention and restructuring.

✓ Reduce administrative burdens for business creation by factoring in regulatory costs assessments for new policies.

✓ Implement simpler business registration processes to encourage entrepreneurship.

Recent progress on structural reforms

The Netherlands has taken steps to reduce differences between workers with secure permanent contracts and those in temporary or self-employed work. Following the 2020 report by the Independent Commission on the Regulation of Work, reforms have included phasing out tax benefits for the self-employed (from 2021), introducing mandatory disability insurance (planned for 2025), replacing zero-hour contracts with basic contracts guaranteeing hours (proposed in 2023), and extending paid parental leave (in 2022). Since 2024, the government has also been working on simplifying the benefit system and evaluating inefficiencies in the tax system.