Daniela Glocker
OECD
Nicolas Gonne
OECD
OECD Economic Surveys: Netherlands 2025
Abstract
The Dutch economy has shown resilience but faces headwinds. Inflation remains elevated, reflecting persistent wage pressures and supply constraints. Significant uncertainty surrounds the growth outlook, largely due to rising geopolitical tensions and global trade fragmentation. The fiscal stance has shifted to expansion, driven by increased spending on healthcare, housing, and defence, as well as reductions in personal, corporate, and environmental taxes. While spending cuts on education, research and development, and climate policy partially offset the fiscal cost, they undermine long-term growth prospects and the transition to net zero. More prudent budgetary policy is necessary to sustain the recovery and maintain strong public finances. Fiscal adjustments are needed to tackle long-term spending pressures, including through streamlining tax expenditures, containing rising long-term care costs, and further strengthening the fiscal framework. Enhancing tax efficiency would support productivity, by aligning taxation across forms of employment, removing the tax preference for illiquid wealth, and addressing arbitrage between capital and labour income taxation. Further tax reforms could support labour supply and growth potential, notably by simplifying the tax-benefits system.
1.1.1. Growth picked up again
Following a strong post-pandemic recovery, GDP stagnated due to the energy crisis, before picking up from the second quarter of 2024 (Figure 1.1, Panel A). Since then, growth has been converging towards its pre-pandemic trend, in contrast to several other Euro area economies (OECD, 2024[1]). Consumer price inflation eased significantly from mid-2023, owing to falling energy prices (Figure 1.1, Panel B). GDP and price developments largely reflect changes in the Euro area monetary stance, as tighter financial conditions raised borrowing costs and slowed credit growth over 2023, before successive cuts in the policy rate contributed to an easing of the overall economic environment.
Note: “EA17” refers to the average of OECD Euro area countries. Panel B: Figures refer to the Harmonised Index of Consumer Prices for the Netherlands and for the average of OECD Euro area countries, and to the Consumer Price Index for the OECD average; series for the Netherlands include a methodological break in June 2023.
Source: OECD Economic Outlook: Statistics and Projections (database).
Government consumption supported the economy at the height of the energy crisis, when private consumption plummeted due to falling purchasing power (Figure 1.2, Panel A). Over the same time, net exports contributed increasingly positively to GDP growth as global trade improved, while the contribution of investment remained depressed, reflecting tighter financial conditions. Then, from the second half of 2024, private consumption strengthened, reflecting rising real incomes and improving consumer confidence as price pressures eased (Figure 1.2, Panel B). Investment picked up at the same moment, largely owing to monetary easing, while international trade continued supporting the Dutch small open economy.
Source: OECD Economic Outlook: Statistics and Projections (database); and OECD Main Economic Indicators (database).
1.1.2. The labour market remains tight
The unemployment rate at 3.8% in the first quarter of 2025 is relatively low and the job vacancy rate remains high, although below its post-pandemic peak (Figure 1.3, Panel A). Enduring labour shortages weigh on economic activity across sectors, with about one third of businesses reporting a lack of staff as the main obstacle to carrying out operations at the beginning of the second quarter of 2025 (Statistics Netherlands, 2025[2]). While labour market tightness over 2021-22 was largely due to the unprecedented speed of the post-pandemic recovery, later developments appear mostly driven by long-standing structural factors, including population ageing and low average hours worked. Even though the overall employment rate is one of the highest in the OECD, widespread part-time work, especially for women, and lower participation among certain groups, like the foreign-born, further exacerbate labour shortages, as analysed in depth in the previous Economic Survey of the Netherlands (OECD, 2023[3]). The government has been seeking to address labour market tightness (SWZ, 2024[4]), albeit with little success.
The outward shift in the Beveridge curve, which captures the negative relationship between vacancies and unemployment, points to a decline in matching efficiency between firms and workers (Figure 1.3, Panel B). The digital and low-carbon transitions contribute to disparities between the type of skills increasingly sought by employers and those possessed by workers. Green skills are in particularly high demand, given the country’s ambitious climate goals (Chapter 2), while more STEM and ICT graduates are needed to maintain trade competitiveness through continued digitalisation (Chapter 4). Ageing also contributes to skills mismatch, both because older workers’ skills become obsolete and due to rising labour needs in care industries.
Note: Panel A: Figures refer to the ratio of job vacancies (s.a.) to the unemployed (s.a.) aged 15 and over; job vacancies comprise newly created, unoccupied and about to become vacant paid positions, except for Australia, Switzerland, the United Kingdom and the United States, where job vacancies refer to an estimate of unfilled vacancies, and for Japan, where job vacancies refer to active job openings.
Source: OECD Labour Force Statistics (database); Eurostat Job Vacancy Statistics; Japan Institute for Labour Policy; and Statistics Canada.
1.1.3. Strong wage growth sustains inflation
After slowing significantly from mid-2023 thanks to base effects from energy prices, consumer price inflation edged up in the second half of 2024, with the headline rate at 3.3% in the first quarter of 2025 (Statistics Netherlands, 2025[5]). Core inflation converged to the headline rate, as nominal pay eventually rose from early 2023 after sluggishly reacting to the inflationary shock in 2022 (Figure 1.4, Panel A). Nominal wages continued to grow steadily after catching up with falling consumer price inflation from mid-2023, partly reflecting labour market tightness, with annual growth in collectively negotiated wages reaching 6.6% in 2024 (Statistics Netherlands, 2024[6]).
Labour costs per unit of output have been increasing relatively fast and catching up with previous growth in unit profits (OECD, 2024[7]), pushing up the cost of labour-intensive services and maintaining strong price pressures (Figure 1.4, Panel B). Yet, the risk of second round effects remains limited, thanks to strongly institutionalised collective wage bargaining, which tends to favour wage moderation to support competitiveness. Moreover, increases in the statutory minimum wage (on which many collective labour agreements are indexed) were limited in 2024, and real wages in the first quarter of 2024 remained close to their level from the last quarter of 2019 (OECD, 2024[8]). However, strong wage moderation also supports labour demand, which can slow labour market clearing through prices and maintain labour market tightness (OECD, 2023[3]).
Note: Panel B: Figures refer to the Harmonised Index of Consumer Prices; series include a methodological break in June 2023.
Source: Statistics Netherlands (CBS); and OECD Eurostat Harmonised Index of Consumer Prices (database).
1.1.4. Trade integration is deep
The substantial and persistent current account surplus reflects high competitiveness and significant re-export activities. Net exports, including re-exports and the increasing share of services exports, accounted for more than 12% of GDP in 2024 (Figure 1.5, Panel A), despite the overall slowdown in economic activity in that year. The trade surplus was little affected by the sharp deterioration in the terms of trade in 2022, pointing to strong non-price competitiveness (Figure 1.5, Panel B). The country’s strong external position also reflects the country’s role as a hub for multinational enterprises’ headquarters and subsidiaries, as their foreign direct investment (FDI) income is recorded as retained earnings in the Dutch primary income balance.
Source: Central Bank of the Netherlands (DNB); and OECD Economic Outlook: Statistics and Projections (database).
As a small and very open economy, with one of the highest trade intensities in the world, the Netherlands is exposed to rising trade tensions and tariffs, including through supply chains and external dependencies (Chapter 4). Despite increasing diversification, the country remains particularly dependent on its main trading partners (Figure 1.6, Panels A and B), within the European Union (mostly Germany and Belgium) and outside (mostly the United States and China).
While the overall direct impact of US tariffs on Dutch trade might be limited, as the United States only accounts for approximatively 6% of the Netherlands’ total exports (and 5% of goods exports) in 2023, certain sectors are more vulnerable due to their higher dependence on exports to the US (Box 1.1). Moreover, the country plays a crucial role in the global semiconductor supply chain, as the world’s leading supplier of extreme ultraviolet lithography machines. In addition, indirect effects could be significant, given the country’s position as a global trading hub, as shown by the sharp fall in transit trade to the United Kingdom since Brexit (Figure 1.6, Panel C). The rapidly deteriorating global trade landscape urgently calls for strategies to lower trade costs, enhance resilience by diversifying trade partners, and boost competitiveness through non-tariff measures (Chapter 4).
Note: Panels A and B: Figures refer to total exports of goods and services. Panel C: Figures refer to goods exports only.
Source: UN Comtrade; and Statistics Netherlands (CBS).
As of early June, the average effective tariff rate faced by Dutch goods exporters on US markets overall is estimated to have increased by about 7.5 percentage points since the beginning of the year (OECD, 2025[9]). This reflects new tariffs of 25% on cars and car parts, 25% on steel and aluminium, and 10% on all other goods exports to the United States other than exempted items, such as semiconductor and pharmaceutical products. While the European Commission detailed plans for retaliatory tariffs, implementation is pending while negotiations are underway.
The US market was the destination of about 5% of Dutch goods exports in 2023 and the Netherlands is highly integrated in global value chains (Chapter 4). Therefore, the effect of US tariffs would not only be direct, but also indirect. OECD Trade in Value Added data show the share of domestic inputs that are directly (face value) and indirectly (hidden exposure) exposed to a demand shock (Figure 1.7, Panel A), as well as the share of domestic value added within these sectors (Figure 1.7, Panel B).
Source: OECD Trade in Value Added 2023 edition (database).
However, the total effect on the Dutch economy would also depend on tariffs on other trading partners and possible retaliation. While not affecting Dutch exports directly, these may be passed through global supply chains and raise Dutch import costs. Tariffs and retaliatory measures could also affect the Netherlands indirectly by displacing trade flows, given the country’s position as a global trading hub, or by limiting access to critical imports.
According to an early assessment by the Netherlands Bureau for Economic Policy Analysis (CPB), US tariffs are expected to reduce Dutch GDP growth by one percentage point cumulatively over 2025-26, mostly reflecting lower exports and lower investment (CPB, 2025[10]). The CPB assessment assumes tariffs as announced on 2 April, which were later reduced. In the longer run, the analysis suggests that tariffs entail lower trade intensity and significant cross-industry reallocation in the Netherlands, with a contraction of manufacturing and an expansion of services.
1.1.5. Investment and productivity growth are sluggish
The large current account surplus mirrors a significant domestic savings-investment gap, pointing to both large savings, mostly by corporations, and to relatively low domestic investment as a share of GDP (Figure 1.8, Panel A). Both business and government investments are held back by labour shortages (OECD, 2023[3]), congestion on the electricity grid (Chapter 2), and the adverse and disproportionate knock-on impact of the nitrogen crisis (Box 1.2). Moreover, private housing development incentives are relatively weak, given the increasingly small size of the private (not rent-controlled) rental segment of the housing market (Chapter 3).
Low investment is a key impediment to productivity growth (Figure 1.8, Panel B), adding to compositional effects due to the expansion of low-productivity sectors (Herken, 2024[11]). The government has long recognised the issue, and implemented several investment programmes and funds to support productivity. These were spearheaded by the National Growth Fund, which subsidises projects in the areas of research, development, and innovation with a budget of EUR 4 billion per year, a policy praised in past Economic Surveys of the Netherlands (OECD, 2023[3]; 2021[12]). However, the government recently reduced spending on such programmes, including by phasing out the National Growth Fund, a decision that may widen external imbalances, weigh on productivity (Chapter 4), and slow the low-carbon transition (Chapter 2).
Note: Panel A: Datapoints for the first two quarters of 2015 are not reported for the Netherlands, due to volatility reflecting the timing and accounting of a large foreign direct investment by a multinational enterprise. Panel B: Figures refer to GDP per hour worked; OECD refers to the simple average of 30 OECD member countries with available data.
Source: OECD Economic Outlook: Statistics and Projections (database); and OECD Productivity (database).
Excessive nitrogen deposition in nature conservation areas and emissions in their proximity continues to severely limit the available space for much-needed infrastructure and housing development. Recent rulings by the Council of State (December 2024) and the District Court of The Hague (January 2025) stalled permitting, created uncertainty around past approvals, and ordered the government to take stronger action to reduce nitrogen deposition. The ensuing slowdown in new investment projects is causing adverse and disproportionate knock-on effects on the entire economy.
In January 2025, the government established the Ministerial Committee on the Economy and Nature Restoration to explore a range of legal and regulatory changes, as well as actions to reduce nitrogen emissions and deposition. In April, the committee announced an initial package to re-enable permitting and restore nature, with EUR 2.2 billion earmarked. Measures aimed at reducing nitrogen emissions at the source include a voluntary buy-out scheme, support to extensive farming, and steps towards introducing binding emission goals at company level. The package also introduces spatial differentiation, specifically for regions where the issue is most pressing, namely De Peel and De Veluwe. The committee also intends to explore additional regulations and restrictions in the vicinity of Natura 2000 areas where the critical deposition load is exceeded. The government further stated its intention to review various aspects of the permitting framework, while the draft Climate Plan for 2025-35 includes sectoral emission targets, including for the agriculture sector (Chapter 2).
Background
Nitrogen pollution in the Netherlands primarily originates from two sources: fossil fuel combustion in energy and transport (nitrogen oxides) and manure from livestock farming (ammonia and nitrous oxide). Of the Netherlands’ 162 Natura 2000 areas protected under the EU Habitats Directive, covering approximately 15% of its land, 129 are nitrogen-sensitive, and 118 exceeded critical nitrogen deposition limits as of 2018.
In May 2019, the Council of State ruled that the existing nitrogen policy framework (programma aanpak stikstof, PAS) failed to guarantee that nitrogen deposition would not harm Natura 2000 sites, making it incompatible with EU law. The court also determined that many mitigation measures in the PAS were essential to meeting legal conservation obligations and, therefore, could not be used to offset new nitrogen emissions. As a result, project approvals started to face delays or cancellations, as environmental impact assessments had to be conducted on a case-by-case basis, often requiring additional mitigation measures.
In response, the government established the Remkes Commission to advise on nitrogen reduction strategies. Short-term measures introduced in 2020 included lowering the highway speed limit from 130 km/h to 100 km/h during daytime and launching voluntary buyout schemes for farmers near Natura 2000 areas.
The 2021 nitrogen law set legally binding targets for reducing nitrogen deposition in Natura 2000 areas, aiming to bring the share of nitrogen-sensitive hectares below the critical load to 40% by 2025, 50% by 2030, and 74% by 2035. The law also introduced a nitrogen reduction programme, a nature restoration plan, and a system for monitoring and adjustment.
Under the 2021–25 Coalition Agreement, the government committed to an integrated, area-based approach to nitrogen, climate, water, and nature policy through the National Programme for Rural Areas. It also accelerated the target for achieving 74% of Natura 2000 areas below the critical load from 2035 to 2030. A EUR 24.3 billion Transition Fund (Transitiefonds) was established to support sustainable farming and ecological restoration.
Following his appointment in 2022 as mediator between the government, farmers’ organisations, and stakeholders, Mr. Remkes issued a report recommending the buyout of several hundred high-emitting farms (so-called "peak loaders") to reduce nitrogen deposition and facilitate economic development. In November 2022, the government introduced a targeted approach for peak loaders, including voluntary buyouts and a contingency for mandatory measures if reductions proved insufficient. Additional regulatory and pricing mechanisms were announced to help meet nitrogen, water, and climate targets, alongside new permitting restrictions to prevent unintended increases in nitrogen deposition.
In September 2024, the government reaffirmed its commitment to addressing nitrogen pollution but provided limited policy details, increasing uncertainty. It reduced the Transition Fund, initially intended to buy out peak loaders, and instead allocated EUR 5 billion to voluntary buyouts and innovation in livestock farming. Additionally, a structural budget of EUR 500 million per year was dedicated to agricultural nature conservation.
Source: Government of the Netherlands; and OECD (2023[3]) OECD Economic Surveys: Netherlands 2023.
1.1.6. The economy will grow moderately amidst downside risks
GDP is set to grow moderately by 1.3% in 2025 and 1.1% 2026, driven by strengthening private consumption on the back of rising disposable household income, and government investment (Table 1.1). Private investment will also improve, supported by gradually declining interest rates, but will be dampened by global uncertainty. External demand is expected to remain subdued, reflecting ongoing trade fragmentation, tariff uncertainty and weakening global growth. Annual headline inflation is set to fall only slowly to 2.9% in 2025 and 2.5% in 2026, and core inflation is expected to remain sticky, slowing to 2.6% in 2026, with rising labour costs continuing to exert upward pressure on services prices. Bankruptcy rates will rise, but only lead to a marginal increase in unemployment, from 3.7% in 2024 to 4% in 2026, as the labour market remains tight.
Annual percent change, unless specified
1. Contributions to changes in real GDP, actual amount in the first column.
Source: OECD Economic Outlook: Statistics and Projections (database).
The economic outlook is surrounded by significant downside risks, primarily driven by rising geopolitical tensions and trade fragmentation. As a trade-dependent economy, the Netherlands is exposed to a stronger than expected slowdown in global trade due to increases in tariffs and trade restrictions (Box 1.1). Higher tariffs on key export sectors, such as machinery, chemicals and electronics, could directly weaken export growth. An economic downturn in key trading partners, or supply chain disruptions, would amplify the impact, dampening external demand and weighing on business confidence and investment. This in turn could spill over into weaker private consumption. On the upside, trade diversion could lead to lower import prices, reducing inflationary pressures.
Domestically, labour market tightness remains a key concern. Continued wage growth could maintain price pressures, especially if Euro area policy rates are lowered while inflation remains elevated in the Netherlands. This could erode price competitiveness, weaken purchasing power, and slow private consumption. On the upside, a stronger than expected release of households’ excess savings could provide an additional boost to domestic demand. Several low-probability but high-impact events could also alter the outlook significantly (Table 1.2).
The Dutch banking system maintains a robust financial position, with liquidity ratios well above requirements. While banks are still highly leveraged in gross terms, the risk weighted capital ratio is just above the OECD average (Figure 1.9, Panel A and B). In May 2023, the Dutch National Bank (DNB) announced to increase the countercyclical buffer to its neutral rate of 2%, effective in May 2024. This development is welcome as pressures on the financial system in the context of high interest rates and low economic growth persist. The rise in interest rates over the last two years has contributed to higher profitability of banks (Figure 1.9, Panel C) through higher interest income, but this has also increased the risk of credit defaults, although so far, they remain below the OECD average (Figure 1.9, Panel D). However, the number of business insolvencies in the Netherlands has been on the rise in recent months, making banks vulnerable to credit losses going forward. While banks have seen their non-performing corporate loans rise only moderately to 3% by mid-2024 (DNB, 2024[13]), it remains important that developments are closely monitored and if needed capital requirements are adjusted.
Note: Panels A, B and D: OECD average excludes New Zealand. Panel C: OECD average excludes Germany and New Zealand.
Source: IMF Financial Soundness Indicators (database).
1.2.1. Close monitoring of the housing market should continue
Residential house prices have rebounded strongly since late 2023, increasing by over 11% year-on-year as of mid-2024 (Figure 1.10, Panel A). House prices remain well above the OECD and the EU average, driven by high demand stimulated through tax advantages for home ownership and housing shortages (Chapter 3), and are a significant drag on the affordability for first-time buyers (Figure 1.10, Panel B). The debt-to-income ratio at 203% remains one of the highest across OECD countries (Figure 1.10, Panel C). The Dutch National Bank assesses that the risk of a price correction in the housing market persists, with potential consequences to financial institutions, most notably banks, through both direct and indirect channels (DNB, 2024[13]). A sharp fall in prices, particularly if coupled with a rise in unemployment, could increase mortgage defaults and bank losses. In the short term, risks are largely mitigated by a large share of fixed-rate mortgages, a decline in interest-only loans, and a public mortgage-guarantee scheme (OECD, 2023[3]). While the maximum loan-to-value ratio on new mortgages was lowered to 100% since the Global Financial Crisis, it remains high by international standards of between 70 and 90% (van Hoenselaar et al., 2021[14]). To further reduce the risks from a correction in the housing market, the DNB has also extended the requirement for banks to hold a certain minimum of capital for their mortgage portfolio for another two years until 2026, which is welcome. Further tightening of macroprudential measures, gradually lowering the maximum loan-to-value ratio to 90% by 2028 as advised by the Dutch National Bank could support financial stability. This measure would make new borrowers more resilient to financial shocks by lowering their interest burdens, reducing negative home equity, and decreasing banks' reliance on wholesale funding and their capital costs. However, it could also increase wealth inequality and delay homeownership for first-time buyers. To address these challenges, it is crucial to implement reforms that deregulate the rental market and ease restrictions on new construction (Chapter 3).
Higher interest rates have increased profitability also for pension and insurance funds, helping to weather a slowdown in office real estate prices since mid-2022 (Figure 1.10, Panel D). Prices in other segments of the Dutch commercial real estate market remained stable, contributing to a rise in transaction values of 0.6% in the second quarter of 2024, supported by lower interest rates and falling construction costs (DNB, 2024[13]). Risks in the commercial real estate market seem contained but warrant further attention. Together with Dutch banks, insurers and pension funds have a combined exposure of EUR 360 billion to the commercial real estate market. Credit risk for loans secured on commercial real estate also seems to be stabilising. Thus, the share of non-performing loans secured by commercial real estate at Dutch banks remained comparatively stable in the second quarter of 2024 (DNB, 2024[13]). Besides structural challenges, such as the rising trend towards teleworking, the main risk to recovery in the commercial real estate market is stemming from persistently higher inflation, which drives up both interest rates and construction costs. It should be monitored that investments of pension funds and insurances are sufficiently diversified to accommodate market corrections.
Note: Panel C: Data for 2023 for Japan and 2022 for Norway; OECD refers to the simple average of 25 OECD member countries with available data.
Source: OECD Economic Outlook: Statistics and Projections (database); Central Bank of the Netherlands (DNB); OECD Household Indicators Dashboard (database); and Statistics Netherlands (CBS).
1.2.2. A large non-banking finance market could pose vulnerabilities
High interest rates can create vulnerabilities in parts of the system of non-banking finance. The non-banking financial sector accounts for about 70% of total financial assets in the Netherlands (Financial Stability Board, 2024[15]). More than half of the sector consists of captive financial institutions, which are not engaged in financial intermediation or in providing financial auxiliary services, but are instead primarily involved in financial transactions within a group of affiliated enterprises, and are therefore deemed not to pose material risks to financial stability. While Dutch pension funds and insurers are in a solid prudential position, according to the Dutch central bank (DNB, 2024[13]), they are exposed to market, liquidity, and inflation risk. These risks can rapidly affect the system as for example seen in early 2023 as the rapid transition to high interest rates led to the collapse of some regional banks in the United States, with consequences for global stock markets and investments of non-banking finance institutions. The vulnerabilities of the non-banking financial sector and how they propagate through the system to the financial sector are however often not fully understood. Improving data-collection and introducing system wide exploratory scenarios, following the example of the Bank of England (Box 1.3), could help to detect risks early on.
As discussed in previous Economic Surveys (OECD, 2023[3]; 2021[12]), occupational pension funds transition from the current defined-benefit to a defined-contribution system by 2028. While this is a welcomed development that will help improve their sustainability in the longer term, the transition and potential complexities need to be managed carefully by the DNB and the Dutch Authority for Financial Markets (AFM). The transition involves accrued benefits of over EUR 1.5 trillion, which could create short-term volatility in financial markets if pension funds shift their investment strategies from government bonds to riskier asset classes.
The Bank of England has pioneered exercises to better understand the risks stemming from the non-banking financial sector, as well as its interconnectedness with the financial sector that could amplify and spread financial stress. In 2024, the Bank of England launched its “system-wide exploratory scenario” (SWES) exercise aiming to:
Enhance understanding of the risks to and from non-bank financial institutions (NBFIs), and the behaviour of NBFIs and banks in stress, including what drives those behaviours; and
Investigate how these behaviours and market dynamics can amplify shocks in markets and potentially pose risks to UK financial stability.
Unlike traditional firm-focused stress tests, which target individual institutions, or model-based system analyses that lack direct firm participation, the SWES integrates both approaches. Around 50 financial firms, spanning diverse business models, actively engaged in the exercise. This system-wide approach provides insights into interactions across the financial system, revealing potential mismatches in firms’ expectations during stress and highlighting vulnerabilities in markets core to UK financial stability and financial system.
Source: Bank of England (2024[16]).
1.2.3. Adapting supervisory toolkits to cyber risks and climate-related risks
The DNB is a frontrunner of stress-testing “non-traditional” risks, such as the effects of cybercrime and climate change. Amidst increasing geopolitical tensions, banks and other financial institutions are increasingly exposed to cyberattacks, which can be a powerful weapon to disrupt the economy and the financial system (OECD, 2024[17]). New Artificial Intelligence (AI) applications are also reshaping the cyber threat landscape, both in the number and types of cyberattacks, highlighting the need to enhance cyber reliance. The implementation of the European Digital Operational Resilience Act (DORA) since January 2025 is a welcome development, as it imposes stricter risk management guidelines, thereby ensuring robust oversight of third-party providers. This is particularly important for the Netherlands, where financial institutions often outsource part of the services and infrastructure to third parties to perform their core functions, such as payments, cloud storage and cybersecurity (DNB, 2024[13]). It remains important that the DNB continues to improve data collection and to evaluate whether risks from cyber threats could be addressed within the existing framework or whether adjustments would be needed, e.g., by limiting exposure to cyber risks by reducing the concentration of operational services.
The financial sector faces growing exposure to climate-related risks. Financial institutions, through their investments in companies, are exposed to physical risks (the impact of natural disasters) and transition risks (e.g. losses due to the declining value of investments in carbon-intensive companies). The DNB has been active in stress testing climate related risks and providing guidance. For example, it has issued guidelines to identify and manage climate and environmental risks, which offers practical tools and examples for insurers, pension funds, and other financial institutions. It outlines how these institutions can incorporate sustainability into their business models and risk management frameworks (DNB, 2023[18]). The DNB also published good practices for financial market infrastructures, offering non-binding guidance on how an FMI, including central counterparties, central securities depositories, payment systems, and securities settlement systems, can organise its processes and procedures to manage climate and environmental risks (DNB, 2023[19]). These are important developments. While the DNB benefits from close collaboration with the ECB and is included in its comprehensive stress test, the DNB could more regularly stress test climate related risks as its latest stress test was conducted in 2018. The Bank of England, for example, has committed to conducting these climate-related stress tests regularly, ensuring that financial institutions continuously reassess their exposure to climate risks as the impacts of climate change become more evident. Based on more regular stress test, the DNB could then also consider introducing sectoral risk buffers linked to climate vulnerabilities (Bartsch et al., 2024[20]).
1.3.1. Budgetary prudence is key to sustaining the recovery
The government’s fiscal plans, as presented in the September package and aligned with the 2024 coalition agreement, reflect a shift in economic policy priorities, with important budgetary implications (Box 1.4). The overall emphasis is on providing “socio-economic security” and affordable housing, and helping the farming sector. While overall efforts to support low- and middle-income households are welcome and can contribute to sustaining the recovery, the package includes cuts to education spending and to research and development funding, which could slow long-term productivity growth, as well as undermine trade competitiveness (Chapter 4). Even though climate targets are maintained, lower energy taxation and the reallocation of funds away from subsidy schemes for renewable energy weaken long-term investment incentives and could slow the transition to a low-carbon economy (Chapter 2).
The largest new budgetary items are as follows, as reflected in the cabinet’s policy plans over 2025-28, with budget totalling EUR 515 billion in 2028:
Main items worsening the fiscal balance:
Healthcare: EUR 4.2 billion increase in annual spending by 2028, mostly through a reduction in out-of-pocket costs of medical care;
Defence: EUR 1.7 billion increase in annual spending by 2028;
Labour and income taxation on households: EUR 1.6 billion decrease in annual revenue by 2028; including through changes to rates and brackets in box 1 of the Dutch income tax system;
Housing: EUR 1.5 billion increase in annual spending by 2028, through both new housing developments and the necessary infrastructure for housing development;
Corporate income taxation: EUR 0.8 billion decrease in annual revenue, through the reversal of the previously planned abolition of dividend tax exemption for share buyback.
Environmental taxation: EUR 0.6 billion decrease in annual revenue, through the reversal of the previously planned increase in the energy tax on natural gas, the further decrease in the energy tax rate on natural gas in the first two consumption brackets, and a reduction of excise duty on diesel in agriculture.
Main items improving the fiscal balance:
Climate and environment: EUR 3.5 billion decrease in annual spending by 2028, including the scraping of the EUR 3.3 billion Transition Fund;
International co-operation: EUR 3.0 billion decrease in annual spending, including a EUR 2.4 billion cut in official development aid and an intended reduction in the country’s contribution to the EU multiannual financial framework.
Education: EUR 1.8 billion decrease in annual spending by 2028, including through a reduction in funding per student, the scraping of the extra funding for disadvantaged schools and of the teacher salary top-up in secondary schools in the Randstad, as well as cuts in general education subsidies and in funding for scientific education and research.
Public administration: EUR 1.5 billion decrease in annual spending by 2028, mostly through a reduction in the number of civil servants.
Research, development and innovation: EUR 1.0 billion decrease in annual spending by 2028, mostly through the phaseout of the National Growth Fund.
Below-the-line item worsening public debt:
Innovation: EUR 1.0 billion capital increase to state-owned investment fund Invest-NL.
Source: Government of the Netherlands; and Netherlands Bureau for Economic Policy Analysis (CPB).
Adjustments were made at the 2025 Spring Memorandum, without materially altering the overall policy direction set out in the September package (Box 1.5). On the expenditure side, the decision to freeze rents in social housing over 2025-26 entails lower housing allowances, hence generates fiscal savings, but is expected to worsen the shortage of rental dwellings (Chapter 3). On the revenue side, the tax break for employees in innovative start-ups who take a stake in their business could promote scale up and productivity.
Key measures are as follows, with budgetary implications where available, and with items reflecting both reallocation of existing budgets and the use of windfalls:
Expenditure:
Housing allowance: decrease in spending of about EUR 1.5 billion over 2025-28 due to rent freeze in social housing.
Defence: increase in spending of about EUR 1.4 billion over 2025-28.
Youth care and municipalities: increase in spending of about EUR 3.3 billion over 2025-28, some of which offsets the cut in the Municipal fund in 2026.
Childcare allowance: increase in spending of about EUR 2 billion over 2025-28.
Asylum: increase in spending of about EUR 2.7 billion over 2025-2028.
Non-indexation of departmental spending.
Revenue:
Labour and income tax on households: tax break for employees of innovative start-ups taking a participation in their business.
Environmental taxation: decrease in revenue of about EUR 0.6 billion over 2026-28 due to the reduction in the energy tax.
Indirect taxation: decrease in revenue of about EUR 4 billion over 2026-28 due to the scrapping of the planned increase in VAT on culture, media, and sports.
Source: Government of the Netherlands.
The fiscal stance will be expansionary over 2024-26, supporting short-term economic growth but worsening the government’s fiscal balance (Table 1.3). The deficit is projected to widen from 0.9% of GDP in 2024 to 2.8% in 2026 (Figure 1.11, Panel A), coming from a strong fiscal position by OECD comparison (Figure 1.11, Panels B and C). The fiscal package also risks exacerbating inflationary pressures in a tight labour market (Table 1.1, above). According to the independent assessment by the Netherlands Bureau for Economic Policy Analysis (CPB), the package raises both annual GDP growth and annual consumer price inflation by 0.1 percentage points, and the growth in median purchasing power by 0.2 percentage points (CPB, 2024[21]). At the same time, it worsens the fiscal balance in the short run, with a deterioration of 0.7 percentage points in 2025. The CPB’s updated fiscal projections, which reflect the most recent economic developments and account for measures taken at the Spring Memorandum, confirm the ongoing fiscal expansion (CPB, 2025[22]; 2025[23]).
Note: Panel A: Data for 2027-33 are from the Netherlands Bureau for Economic Policy Analysis’ February 2025 projections (Centraal Economisch Plan, CEP). Panel B: Data refer to 2023 for Israel, Japan, Mexico and Switzerland, and 2022 for New Zealand. Panel C: Data refers to 2023 for Israel, Japan, and Korea.
Source: OECD Economic Outlook: Statistics and Projections (database); and Netherlands Bureau for Economic Policy Analysis (CPB).
% of GDP, unless specified
1. OECD estimates except otherwise stated.
2. Gross fixed capital formation minus consumption of fixed capital.
3. General government gross interest paid.
4. National Accounts definition includes state guarantees, among other items.
Source: OECD Economic Outlook: Statistics and Projections (database).
The fiscal expansion stems from cuts in personal, corporate, and environmental taxes, as well as higher spending on healthcare, housing, and defence. Many of the expansionary measures are costly and lack targeting. The increase in healthcare spending aimed at reducing out-of-pocket payments for everyone is expected to increase expenditure by about 0.3% of GDP in 2028. Plans to support low- and middle-income household purchasing power through the introduction of a new reduced tax bracket in box 1 of the income tax system (Box 1.6) is expected to reduce revenues by about 0.4% of GDP. Additional expansionary measures include an increase in the income-dependent rent subsidy (huurtoeslag) and the extra payment for children of low-income families (kindgebonden budget). The expansion is only partially offset by spending cuts in education, research and development, climate policy, public administration, and development aid.
Income and wealth taxation
Governed by the 2001 Income Tax Law, income is divided into three separate “boxes” (see Table 1.4). Each box taxes a different type of income according to different tax rules. Box 1 taxes labour income, self-employment income, (sole property or unincorporate company), pension benefits, transfer income and imputed rental income from owner-occupied housing at progressive rates varying in 2024 from 36.97% to 49.5%. Box 2 taxes profits distributed to, and capital gains realised by taxpayers who own at least 5% of a private and public limited company, called substantial ownership, at a 24,5% rate for the first EUR 67 804 of income in box 2 and a 31% rate for the income above since 2024. As long as no dividends are paid out and capital gains are not realised, income is only taxed at the corporate level. Box 3 covers all wealth except for owner-occupied housing, substantial ownership, business assets from unincorporated company and pension wealth. Among other types of wealth, the Box 3 tax base includes bank deposits, bonds, non-substantial ownership of shares, and second homes. and other (rented or non-rented) property. Since the legal redress in 2021 (below), income in box 3 is taxed based on the actual composition of individuals’ asset holdings (savings, investments and other assets and debt) and on assumed returns that are close to actual returns.
Boxes, rates and brackets (2024)
Source: Ministry of Finance.
Legal redress and transitional law for box 3
Background: In December 2021, the Supreme Court ruled that the box 3 system based on a notional return violated property rights and was discriminatory. This led to legal redress for the years 2017-22 and the introduction of a transitional law from 2023 on.
Transitional law: The box 3 transitional law came into effect in January 2023, and will remain in place until the introduction of the new system (expected in 2027 or 2028). Under this law, assets are still taxed based on notional returns, but these rates are more closely aligned with the actual returns of different asset categories. Assumed returns for 2024 are as follows: savings: 1.44%; investments/other assets: 6.04%; debt: 2.61%. Calculation is based on the actual distribution between assets but uses annually updated fixed rates.
Legal redress: Over 2017-22, compensation was provided if the actual return was lower than the assumed return. In June 2024, the Supreme Court ruled that both the legal redress and the transitional law violate European law if the actual return is lower than the notional return. The tax authorities may not levy more tax than the actual return achieved.
Counter-evidence scheme: From 2025, taxpayers can demonstrate to the tax authorities that their actual return is lower than the notional return.
Source: Ministry of Finance.
The government’s plans raise concerns about fiscal sustainability, considering long-term spending pressures from ageing and climate change, as well as commitments to increasing defence spending. Public debt is projected to rise from 43.3% of GDP in 2024 to 46.8% in 2026 (Table 1.3, above). According to the medium-term forecast by the Netherlands Bureau for Economic Policy Analysis (CPB), the growth in expenditure is expected to increasingly outpace the growth in revenue under current policy settings, with the government fiscal balance deteriorating steadily until 2033. This is particularly the case beyond the government’s term, from 2029 onwards (CPB, 2025[22]; 2024[21]). While the trend-based fiscal framework ensures that the growth in public expenditure remains below the pre-agreed ceiling over the government’s term, by design it does not discipline expenditure after. Therefore, there is currently no information about the necessary policy adjustments to stabilise the deficit beyond 2028.
Further uncertainty surrounds the feasibility of the government’s fiscal plans. Implementation challenges are expected regarding key spending cuts, such as reducing public administration staff by 20%. While public employment increased more steadily than private employment since 2020 (Statistics Netherlands, 2025[24]), the government has neither provided a clear rationale for cuts to the headcount of public employees, nor any information regarding execution. Against that backdrop, the government should refrain from abrupt and untargeted cuts and ensure that the quality of public services is preserved. Moreover, other measures may face political resistance, such as cutting the Netherlands’ contribution to the EU multiannual financial framework. Finally, supply bottlenecks, including labour shortages and the knock-on effect from the nitrogen crisis, could constrain the ability to plan and execute infrastructure investments, which may lead to underspending.
The current fiscal trajectory also risks breaching EU fiscal rules. Under the European Commission’s technical information communicated to EU members as part of the reformed EU fiscal framework, the Netherlands is required to reach a structural primary balance surplus of 0.1% by 2028. However, the government’s projected path for net primary expenditure growth is higher than the EU-assigned limits (Table 1.5). Without appropriate adjustment, the Netherlands may face a “Significant Deviation Procedure” under the preventive arm of the EU Stability and Growth Pact. Such a scenario is unlikely, as the government is strongly committed to remain within EU Treaty values for deficit and debt levels, and because supply bottlenecks have often led to underspending. While fiscal targets might eventually be met, proactive deficit-reducing measures would provide greater policy credibility and economic stability.
Note: Annual and cumulative refer to changes from the previous year and since 2023, respectively; cumulative is not the sum of annual.
Source: Government of the Netherlands.
A more prudent approach to fiscal policy is also needed to keep inflation in check while supporting economic growth. The current expansionary fiscal stance, combined with a tight labour market, risks prolonging domestic price pressures. While consumer price inflation is expected to return to the 2% target in the Euro area, and even fall below target in a few major Euro area economies, the European Central Bank’s monetary stance may be insufficiently tight to contain price pressures in the Netherlands. Thus, fiscal policy should play a complementary role in stabilising inflation by shifting towards a neutral or mildly contractionary stance.
To close the fiscal gap, the government could prioritise revenue-side adjustments. Some revenue-raising measures are ripe for swift implementation. Phasing out generous mortgage interest deductions, which distort the housing market and disproportionally benefit higher income households, could raise revenues while reducing housing market imbalances (Chapter 3). Reinstating the planned increases in energy taxes could boost revenues, while ensuring alignment with climate targets by reducing fossil fuel support (Chapter 2). The government could also accelerate the phaseout of self-employment tax deductions, which distort the labour market (below). Some recently introduced tax measures that increase disposable income across the board, such as the change in the tax rate reduction for labour income and pension benefits in box 1 of the Dutch income tax system, should be more targeted towards low-income households.
On the spending side, the government should ensure that cuts do not weaken long-term productivity, by focusing on efficiency improvements rather than across-the-board cuts. The planned spending cuts to education and to research, development and innovation risk undermining productivity and long-term growth, and should be reversed.
1.3.2. Reforms are necessary to safeguard public finances
In addition to short-term risks, rising long-term spending pressures could challenge the sustainability of public finances. These pressures primarily stem from demographic shifts, the rising cost of servicing public debt, and necessary investments in climate change mitigation and adaptation (Chapter 2). Even though spending pressures in the Netherlands are moderate by OECD comparison (Figure 1.12) and gross debt is low, keeping the debt-to-GDP ratio stable near its current value over the long term would require structural primary revenues to increase by about 1.8% of GDP, or equivalent savings. Without timely reforms, the combination of rising spending pressures and fiscal expansion could raise borrowing needs and strain public finances.
Required change in fiscal pressure, 2025-50 (% of potential GDP)
Note: Figures refer to the change in the ratio of structural primary revenue to potential GDP that is required between 2025 and 2050 to stabilise the debt-to-GDP ratio at 2025 level.
Source: OECD calculations based on OECD Long-Term Baseline (database); and the OECD Long-Term Model.
Under current policies based on the government’s September fiscal package for 2024-28, public debt as a share of GDP (national accounts definition) would surge from below 50% in 2024 to above 60% by the mid-2030s, and would remain on an unsustainable trajectory (Figure 1.13, red line). The growing fiscal burden stems from rising healthcare and long-term care spending linked to ageing, from increased pension-related expenditure, and from higher interest payments, as borrowing costs rise relatively to GDP. This baseline scenario may even underestimate future fiscal pressures, as it excludes the additional expenditure needed for climate change mitigation and adaptation (Chapter 2), as well as potential increases in defence spending.
Gross debt (% of GDP)
Note: All scenarios account for ageing costs. The “Current Policies” scenario assumes existing spending and tax policies based on the government’s fiscal plans for 2024-28. The “Fiscal Reforms” scenario assumes the implementation of fiscal recommendations listed in Table 1.5. The “Fiscal + Structural Reforms” scenario further assumes a gradual increase of 0.66% points in potential GDP growth due to growth-enhancing reforms listed in Table 1.6; it does not account for potential improvements in the primary balance due to higher GDP growth.
Source: OECD calculations based on OECD Long-Term Baseline (database); and the OECD Long-Term Model.
To ensure long-term debt sustainability, fiscal policy adjustments will be necessary. Implementing fiscal policy reforms could help contain pressures on public finances. Key reforms include phasing out fossil fuel support; reducing the favourable tax treatment of owner-occupied housing; phasing out reduced VAT rates; and reversing the reduction in out-of-pocket payments for medical care (Table 1.6). Under this “Fiscal Reforms” scenario, fiscal policy changes would generate approximately 1.7% of GDP in structural primary revenue or equivalent savings, which would help to contain the rise in the debt-to-GDP ratio (Figure 1.13, blue line). This scenario is also aligned with the European Commission’s reformed economic governance framework, ensuring compliance with net primary expenditure targets until 2028.
While fiscal measures will help contain debt growth, further structural reforms will be needed to ensure that the debt-to-GDP ratio stabilises in the long run. These include reversing proposed cuts in R&D support; lowering effective marginal tax rates on labour income and simplifying income-dependent allowances; and improving tax neutrality across forms of employment, types of asset, and sources of income (Table 1.7). Under this “Fiscal + Structural Reforms” scenario, potential GDP growth would gradually increase, supporting fiscal sustainability (Figure 1.13, green line). While these growth-enhancing reforms will have a long-term positive impact, short-term fiscal adjustments remain necessary to stabilise debt dynamics.
Note: Estimates show direct medium-term budgetary impact. Assumptions: (1) 50% reduction in tax expenditure on fossil fuel support measures; based on data from OECD Fossil Fuel Support database. (2) 50% reduction in tax expenditure for home ownership; based on data from the 2021 OECD Questionnaire on Affordable and Social Housing; see also Chapter 3. (3) 50% reduction in overall tax expenditure from reduced VAT rates; based on figures from the Ministry of Finance. (4) Adjustments to rates and brackets in box 1 of the Dutch income tax system. (5) Based on estimates published by the Ministry of Finance (2022[25]). (6) Based on figures from the Ministry of Finance. (7) No estimate available. (8) Re-instatement of EUR 1.2 billion National Growth Fund, reversal of EUR 1.8 billion cut in education spending, and EUR 4 billion increase in R&D spending; based on OECD calculations and on figures from CPB. (9) Re-instatement of EUR 3.5 billion in climate policy spending, and EUR 2.7 billion increase in spending on adaptation; based on figures from CPB; see also Chapter 2. (10) Based on figures from CPB. (11) Shifting half of the reduction in tax expenditure for home ownership into higher housing allowances (huurtoeslag).
Source: OECD calculations.
Note: Figures show estimated impact after 10 years. (1) Increase by about 0.4% of GDP. (2) By adjusting rates and brackets in box 1 of the Dutch income tax system, simplifying the system of income-dependent allowances, and other pro-work reforms.
Source: OECD calculations based on Egert (2018[26]).
1.3.3. Implementing fiscal reforms to tackle spending pressures
Strengthening the multi-year fiscal framework
The Netherlands operates a multi-year fiscal strategy, under a trend-based expenditure framework which allocates expenditure ceilings by line ministry over the government’s term. Most aspects of this strategy are regarded as best practice under the OECD Spending Better Framework. However, the expenditure framework is fixed over the government’s term, reflecting a political consensus on the principle that a government cannot impose financial obligations on future governments in ways that binds their policy choices. While the principle intends to preserve political flexibility over tax and spending decisions, it may have the opposite effect: if current policies are sustainable only in the short term, future governments may have to enact tax increases or spending cuts when entering office.
The government’s fiscal plans incorporate medium-term planning thanks to the trend-based fiscal policy framework, which sets maximum net primary expenditure for each year over 2024-28. However, because expenditure ceilings are fixed for the duration of the government and not rolled forward, the planning horizon gets shorter each year. This limits the framework’s ability to address longer-term fiscal pressures, such as those due to population ageing or climate change. In addition, the practice of announcing fiscal measures on an annual basis, rather than pre-defining them in a transparent multi-year plan, can create incentives to postpone politically difficult but necessary decisions on revenue-raising measures and spending cuts. For example, current fiscal plans frontload income tax cuts, while postponing VAT increases. Therefore, essential fiscal adjustments may not be fully implemented, potentially worsening public finances. The fact that expenditure ceilings are allocated by line ministry can complicate adjustments further and create tax and spending inefficiencies, as it largely prevents cross-ministry reallocation.
The government should consider evolving its current framework into a rolling multi-year framework, by adding one additional year annually to the expenditure horizon. This would provide greater predictability, support long-term sustainability, and enhance transparency, while keeping the benefits of the current framework, including fiscal discipline on the expenditure side and macroeconomic stabilisation on the revenue side. The Netherlands could draw on the experience of the United Kingdom, where binding expenditure ceilings (excluding cyclical spending, such as spending for welfare and pensions) are set for three years and updated every two years through a formal spending review process. Implementation could be supported by strengthening the role and resources of the independent Netherlands Bureau for Economic Policy Analysis (CPB), leveraging its world-renowned expertise and key institutional role in Dutch economic policy making.
In the short term, particularly over 2025-26, the fiscal strategy should focus on credibility and compliance with the EU fiscal rules, ensuring a balanced and predictable fiscal path. To contain the deficit, the government should implement targeted fiscal adjustments, particularly by phasing out inefficient tax expenditures (see below). The government could leverage its long experience in integrating spending reviews in the budgetary process to evaluate fiscal priorities and improve spending efficiency, particularly on healthcare and pension, which are expected to rise due to ageing. As tax revenue and public expenditure are already sizeable (Figure 1.14, Panels A and B), priority should be given to reducing tax expenditures, as well as addressing areas of spending inefficiency within the public sector. The strategy should also preserve public investment in areas and policies that enhance productivity and sustainability, including skills, education, infrastructure, innovation, and the low-carbon transition.
Note: Panel A: Data for Australia and Japan refer to 2022. Panel B: Data refer to 2023 for Australia, Canada, Chile, Israel, Japan, Korea, Mexico, New Zealand, the United States, and 2020 for Türkiye.
Source: OECD Revenue Statistics (database); and OECD National Accounts Statistics (database).
Containing long-term spending pressures
Pension-related fiscal pressures in the Netherlands remain lower than in many other advanced economies, as retirement age is linked to life expectancy and thanks to the large fully-funded second-pillar pension system. However, long-term demographic shifts may still put pressure on pension adequacy and require further adjustments, especially for lower-income retirees.
Rising healthcare and long-term care spending presents the most pressing long-term fiscal challenge, as demand increases due to ageing and costs grow due to labour intensity. Moreover, the government’s planned reduction in out-of-pocket medical costs will likely increase healthcare demand, while shortages of care staff add further pressure. The annual growth in public spending on healthcare is expected to accelerate by about 0.9 percentage point over 2024-28, from 2.9% to 3.8% (CPB, 2024[21]). While ensuring access to healthcare is a priority, and part of the country’s structural reform objective under NextGenerationEU plans, such untargeted budgetary expansion raises fiscal sustainability concerns.
To contain spending pressures in healthcare, the government should swiftly reverse its policy of reducing out-of-pocket payments for medical care. In case supporting access further remains necessary, a higher income-dependent healthcare allowance (zorgtoeslag) could be contemplated, but disincentivising effects on labour supply should be carefully considered.
Efficiency improvements in the delivery of long-term care (LTC) would also contribute to reducing costs overall. While the scope for productivity gains in LTC is limited, ensuring an appropriate allocation of recipients between institutional care and home-based care based on needs can contribute to efficient delivery. Moreover, expanding preventive care can reduce hospitalisation and other high-cost medical procedures.
Climate-related fiscal pressures for mitigation and adaptation are also expected to increase, by about 0.5% of GDP annually until 2050 (CPB, 2023[27]). Reducing fossil fuel support measures, which amounted to about 3.5% of GDP in 2023, could offset some of these costs, however only imperfectly as the fossil fuel tax base will shrink over time as fossil fuel use falls (Chapter 2).
Defence spending, slightly above 2% of GDP in 2024 in line with NATO’s guidelines, may have to increase given international commitments and heightened geopolitical tensions. Any additional defence spending should be integrated into a multi-year fiscal framework, ensuring it is fully financed.
Streamlining tax expenditures
The Dutch tax system features many tax exemptions, allowances, and reduced rates. According to the Ministry of Finance, they amount to an estimated EUR 150 billion in foregone tax revenue in 2023, equivalent to about 40% of the total tax revenue (even though such a large figure partly reflects the specific tax benchmark used to define tax expenditures in the Netherlands). Other sources, such as the Global Tax Expenditure Database, suggest that Dutch tax expenditure as a share of GDP is one of the highest in the OECD (Figure 1.15, Panel A). While some tax expenditures serve legitimate policy goals, such as strengthening work incentives or incentivising R&D, a review by the Ministry of Finance found that many schemes are ineffective, unjustified, or excessively complex. Among the 116 existing schemes, the review identified 20 schemes with no measurable positive effects, 17 schemes without a clear rationale, and 24 schemes with excessive administrative complexity (Ministry of Finance, 2023[28]). Ongoing evaluations depict an unchanged picture. A significant portion of tax expenditures is related to implicit fossil fuel support measures (about 3.5% of GDP in 2023; Chapter 2) and tax relief for home ownership (almost 1.2% of GDP; Chapter 3).
The government should prioritise streamlining tax expenditures by eliminating inefficient schemes first. Besides phasing out fossil fuel support measures and tax relief for home ownership, removing reduced value added tax (VAT) rates should be considered as part of a comprehensive reform. VAT tax revenue is relatively low by international comparison, while the tax system is currently biased against labour income (Figure 1.15, Panel B). The newly generated VAT revenue from normalising the reduced rates could be used to rebalance the overall system. Further removing sector-specific corporate tax reductions, such as reduced profit taxation in the agriculture sector, would also generate extra revenue to this end. A well-design revenue-neutral reform could broaden the tax base while allowing lower effective marginal tax rates on labour.
Source: Global Tax Expenditure Database; and OECD Revenue Statistics (database).
Rates
Headline rate: 21%.
Reduced rate: 9% on food items and water supply; goods and services for the disable, medicine, aids for the visually disabled; books; certain electronic publications and e-books, lending of books, newspapers, magazines; entrance fees for sports events, amusement parks, museums, cinemas, zoos and circuses, use of sports accommodation; art and antiques; catering; restaurant, and hotel meals, hotel and holiday accommodation; passenger transport (except passenger transport by air); thermal insulation of dwellings; cut flowers and plants, certain labour-intensive services, e.g., maintenance and cleaning of dwellings, hairdressing.
Zero rate: supply and installation of solar panels on or near a home.
Exemptions
Postal services; transport of sick/injured persons; hospital and medical care; human blood, tissues and organs; dental care; charitable work; education; non-commercial activities of non-profit making organisations; insurance and reinsurance; financial services; betting, lotteries and gambling; certain fund-raising events; burials; cremations; public broadcasting; sports clubs; the services of composers, writers and journalists.
Revenue ratio
The Netherlands has a VAT revenue ratio (VRR) of 0.55, close to the OECD average of 0.58. The VRR is calculated as the ratio of collected VAT revenue to what would theoretically be collected if VAT were applied at the standard rate to the entire potential tax base in a “pure” VAT regime. The difference between the two measures reflects the loss of revenues due to exemptions, reduced rates, fraud, and non-compliance.
Source: OECD (2024) Consumption Tax Trends 2024
1.3.4. Enhancing tax efficiency to support growth
Reducing distortions in capital and labour taxation can strengthen growth. At the same time, complementary measures to support labour supply are necessary to alleviate shortages, as discussed in depth in the previous Economic Survey (OECD, 2023[3]). Scaling up skills policy, better integrating migrants, and streamlining the migration system would also help addressing labour market tightness, while further improving the business environment can enhance productivity (Chapter 4).
Reform prioritisation matters, as some tax distortions are more pressing than others. Tackling labour market distortions should come first, given the knock-on effect of labour shortages on the entire economy. Other reforms, such as reforming capital taxation and closing corporate tax loopholes, could come next.
Aligning taxation across forms of employment
Disparities in labour taxation across different forms of employment can undermine productivity growth and fiscal fairness. The current system incentivises self-employment through preferential tax treatment, contributing to a rise in false self-employment and entailing one of the largest regulatory gaps between regular and non-regular employment (OECD, 2023[3]). While non-standard work arrangements offer flexibility, they reduce incentives for skills development, which can weigh on long-term productivity. Moreover, labour market segmentation weakens job security, which can lead to higher income inequality.
The Commission for the Regulation of Work (Borstlap Commission) recommended a gradual reduction of tax advantages for the self-employed, which the government has started to implement. These include progressively reducing the self-employment deduction, introducing mandatory insurance for the self-employed, and legislating a stricter employment definition to prevent abuse. The government should continue efforts to align tax and regulatory treatment across contracts for the same type of work, including by swiftly delivering on its proposed labour market package. Fully implementing the recommendations from the Commission is key to achieving the desired convergence in a balanced way. Specifically, while the government reduced tax and social security incentives favouring flexible work already, much remains to be done to increase the flexibility of regular employment contracts.
Reforming the tax preference for illiquid wealth
The tax preference for illiquid assets, such as owner-occupied housing and pensions, distorts capital allocation and limits investment in productive assets, weighing on economic growth (OECD, 2023[3]). Dutch households invest disproportionally in housing and hold a low share of net assets into equities and bonds (Figure 1.16), constraining business investment and reducing the availability of finance, especially for SMEs. Moreover, while pension funds partly fund business investment, they disproportionately do so abroad (DNB, 2025[29]). The government plans to tax capital income based on actual returns by reforming box 3 of the Dutch income tax system (Box 1.6, above). This will reduce distortions in capital taxation, which is a step in the right direction. However, the implementation of the reform has been delayed from 2026 to 2027.
The transition to actual return taxation should be expedited, and further reforms to remove distortions in the taxation of capital income should be considered. For example, moving the taxation of home equity from box 1 of the Dutch income tax system to box 3 to ensure alignment with the taxation of other investment assets would be welcome (Chapter 3). The government could use the opportunity of the court-imposed change to the taxation of capital income to consider a broader reform that harmonises tax rates across sources of capital income to promote allocative efficiency, based on an in-depth review of the overall tax system. Additionally, loopholes in the taxation of closely held companies, which allow for deferred tax payments on retained profits and lower rates on dividends, should be closed to increase fiscal fairness and reduce tax avoidance, without increasing headline tax rates, as discussed in the previous Economic Survey of the Netherlands (OECD, 2023[3]).
Distribution of household assets and liabilities per capita, 2023 or latest
Note: Figures show net worth excluding land and machinery assets. Dwellings (net) is equal to its gross value minus its value of consumption of fixed capital (depreciation).
Source: OECD Annual Financial Balance Sheets (stocks) consolidated (database); and OECD Annual Balance Sheets for Non-Financial Assets (database).
Addressing arbitrage between labour and capital taxation
The Dutch tax system creates incentives for business owners (holding at least five percent of the shares) to report business income as profits (in box 2 of the Dutch income tax system) instead of salary (in box 1), due to lower tax rates on profits and dividends. Moreover, taxes on profit can be deferred until the payout of dividends, or until shares are sold and are liable for capital gains tax. The reduced corporate income tax rate for business income makes the rate difference even larger, strengthening tax avoidance incentives. This tax arbitrage discourages businesses from growing and encourages splitting firms into smaller entities, reducing overall productivity.
The government has already lowered the ceiling for reduced corporate income tax rates and increased rates on income reported in box 2 of the Dutch income tax system. This is welcome, but more is needed. To further remove distortions, the government could eliminate the reduced corporate income tax rate, while considering a moderate decrease in the headline rate to avoid increasing tax pressure. Another, complementary reform would be to increase the minimum share of business income that must be paid as salary, reducing incentives for tax-driven income classification.
Attenuating implicit gender biases in taxes and benefits
The complexity of the system of income-dependent allowances (toeslagen) discourages labour market participation, especially for low-income and vulnerable workers. The system comprises different income-dependent schemes that interact non-linearly at different income thresholds. In the absence of clear information, some individuals avoid entering the labour market for fear of losing benefits. Income-dependent benefits also lead to relatively high participation tax rates for single parents, often women, with close to two thirds of earnings lost to higher taxes, lower benefits, and net childcare costs when a single parent with young children takes up full-time employment and uses full-time centre-based childcare (Figure 1.17, Panel A).
The government should reform income-dependent allowances through consolidation into a simpler and more straightforward benefits system where benefits depend on a limited number of household characteristics, e.g., income, assets, and number of children, as recommended in the previous Economic Survey (OECD, 2023[3]). Clearer communication tools would help individuals to better understand the financial impact of labour supply decisions.
High effective tax rates on additional hours worked implicitly reinforce cultural preferences for the “one-and-a-half worker household” model, where one partner (often a man) works full-time and the other partner (often a woman) works part-time (Figure 1.17, Panel B). Despite various attempts at introducing tax incentives for second earners to work more, including stronger in-work benefits (Inkomensafhankelijke combinatiekorting, IACK), a childcare allowance, and limits on the transferability of the general tax credit between partners, the gender gap in hours worked remains among the highest in the OECD (Figure 1.17, Panel C). This suggests that tax incentives alone are unlikely to achieve the desired change in individuals’ labour supply in the Netherlands, and should instead be part of a broader set of complementary reforms to lift labour supply, as discussed in depth in the previous Economic Survey (OECD, 2023[3]).
Adjusting the income tax schedule to reduce effective marginal tax rates would alleviate the bias, promote labour utilisation, and reduce gender inequalities in employment and earnings. However, as discussed in depth in the previous Economic Survey, the tax system has gone relatively far already in providing tax incentives for second earners to increase their labour input (OECD, 2023[3]). The government intends to prepare an overhaul of the income support system to incentivise workers to increase hours worked. In the meantime, programmes such as More Hours Works! (Meer Uren Werkt!), which aims to identify and reduce barriers that hold back labour supply with a budget of EUR 75 million, are steps in the right direction.
Care responsibilities remain a major barrier to full time employment (Figure 1.17, Panel D), especially for women. While the 2022 childcare reform subsidising 96% of childcare costs (up to a ceiling) for all working parents is a step forward, the rollout was delayed to 2029 due to staff shortages and increased demand (Table 1.8). As argued in the previous Economic Survey (OECD, 2023[3]), a gradual phasing in of the reform with prioritisation is necessary. However, the government has ruled out re-instating a link between childcare subsidies and hours worked after the fallout from the recent childcare benefit scandal, whereby parents were unduly court-ordered to repay parts of their childcare benefits.
An impetus remains needed to alleviate the so-called “maternity penalty”, as discussed in depth in the previous Economic Survey (OECD, 2023[3]). However, the Netherlands lacks a mandatory, whole-of-government gender impact assessment framework to identify budgetary measures that have an impact on gender gaps and barriers, even though some ministries perform ex-ante gender impact assessments (OECD, 2023[30]). The government could consider adopting gender budgeting to systematically embed gender equality assessments into budgetary decision making. The experience of Canada’s Gender-Based Analysis Plus (GBA+) framework, whereby all budget proposals are assessed for gender impacts before approval, could help.
Source: Ministry of Economic Affairs; Ministry of Social Affairs and Employment; and Ministry of Finance.
Note: Panel A: Figures refer to the share of gross earnings lost to changes in tax liabilities and benefit entitlements when a jobless person claiming social assistance and/or guaranteed minimum income benefits (GMI) takes up work; they include family benefits, in-work benefits, and rent supplements, subject to relevant income and eligibility conditions; they do not include childcare costs or benefits; where applicable, partners are assumed to earn the same salary. Panel B: Figures refer to the share of additional gross earnings lost to changes in tax liabilities and benefit entitlements when a person working two-thirds of full-time hours increases their hours to full-time; they include family benefits and in-work benefits, subject to relevant income and eligibility conditions; they do not include either social assistance and/or guaranteed minimum income benefits (GMI), or rent supplements, or childcare costs or benefits; where relevant, partners are assumed to earn the same salary. Panel C: Figures refer to the difference between men’s and women’s average usual weekly hours worked on the main job for the population aged 15-64, except for Canada and Japan (population aged 15+); data for Japan refer to 2020.
Source: OECD Taxes, Wages and Benefits (database); OECD Employment and Labour Force Statistics (database); and ILOSTAT (database).
Reducing tax avoidance and lobby influence
The Netherlands has made significant progress in curbing aggressive tax planning, including the implementation of the EU Minimum Tax Directive into Dutch domestic law, which ensures that multinational and domestic groups with a turnover of EUR 750 million or more pay at least a 15% effective tax rate on their profits in each jurisdiction where they operate. The directive is based on OECD Pillar Two model rules, as part of a global deal to overhaul the international tax system. The deal, agreed by 137 countries reallocates taxing rights to market jurisdictions, reduces the potential gains from profit-shifting to low-tax jurisdictions, and places multilaterally agreed limits on tax competition.
Other reforms include a new dividend withholding tax that applies to affiliated entities when payments are made to low-tax jurisdictions or tax abuse is taking place, adding to similar withholding taxes on royalties and interest payments. The government’s September 2024 budget also contains, among other tax transparency measures, amendments to the Minimum Tax Agreement to reflect the latest administrative guidelines from the OECD. Moreover, the country is largely compliant regarding the exchange of information on request (Figure 1.18, Panel A). The Netherlands should continue with its strong commitment to implement and enforce international agreements.
The Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog, praises the Netherlands’ use of data and intelligence to combat money laundering (Figure 1.18, Panel B). However, there is room for improvement to further use technology to detect suspicious transactions, as recommended in the previous Economic Survey. Investing in advanced technology solutions for transaction monitoring and enforcement, and strengthening cooperation between national and international agencies could help.
Despite low levels of perceived corruption (Figure 1.18, Panels C to F), the Netherlands lags in regulating lobbying. There is no mandatory lobbyist register for all branches of government. The only existing register, for MPs in the Lower Chamber, lacks essential information about, for example, specific legislation that lobbyists target, or their sources of funding. 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 (OECD, 2024[31]). Regulation should ensure that processes for tracking and checking lobbying of officials are adequate, and in line with the OECD Recommendation on Transparency and Integrity in Lobbying and Influence. Establishing a publicly accessible lobbying register and implementing OECD-aligned rules to track and regulate the movement of officials into private sector roles would be steps in the right direction, as they would enable citizens to better understand who is influencing policy and how and ensure a level playing field.
The OECD Public Integrity Indicators also highlight other areas for improvement. While a 2023 parliamentary letter on the integrity policy of the public administration set some strategic objectives for improving integrity policy, there is no formal integrity or anti-corruption strategy with defined activities and targets (OECD, 2024[31]). This undermines the country’s ability to effectively assess and respond to corruption risks on a government-wide level and prioritise reforms. Regulations on integrity in financing of political parties and election campaigns also lack several provisions present in most OECD countries, such as a ban on donations from publicly owned enterprises and ceilings on electoral campaign expenses. This opens avenues for certain actors to exercise undue influence over policymaking via political financing.
On the other hand, the Netherlands has quite a strong internal control and risk management system in the public administration, which enables public organisations to effectively mitigate corruption and integrity risks. Regulations on internal audit and the quality of internal audit in practice are particularly strong.
Note: Panel B shows the point estimate and the margin of error. Panel D shows sector-based subcomponents of the “Control of Corruption” indicator by the Varieties of Democracy Project. Panel E summarises the overall assessment on the exchange of information in practice from peer reviews by the Global Forum on Transparency and Exchange of Information for Tax Purposes. Peer reviews assess member jurisdictions' ability to ensure the transparency of their legal entities and arrangements and to co-operate with other tax administrations in accordance with the internationally agreed standard. The figure shows results from the ongoing second round when available, otherwise first round results are displayed. Panel F shows ratings from the FATF peer reviews of each member to assess levels of implementation of the FATF Recommendations. The ratings reflect the extent to which a country's measures are effective against 11 immediate outcomes. "Investigation and prosecution¹" refers to money laundering. "Investigation and prosecution²" refers to terrorist financing.
Source: Panel A: Transparency International (database); Panels B & C: World Bank Worldwide Governance Indicators (database); Panel D: Varieties of Democracy Project, V-Dem Dataset v12; Panels E & F: OECD Secretariat’s own calculation based on the materials from the Global Forum on Transparency and Exchange of Information for Tax Purposes, and OECD, Financial Action Task Force (FATF).
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