Going for Growth - Netherlands

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Netherlands GDP per capita is close to the upper half of OECD countries but productivity has remained stagnant in recent years.

Income inequality is below the OECD average. Air pollution is quite high and above levels in other advanced countries. Greenhouse gas emissions per capita are just above the OECD average.

Reforms in recent years will improve the job quality and protection of workers on flexible contracts to some extent. Considerable progress has been made in improving the efficiency of the dismissal system and a fairer entitlement and calculation of severance payment between permanent and temporary workers.

Reforms have been taken that will help to reduce the financial stability risks stemming from the housing sector.

Further reforms are needed to address the labour market duality and to improve the fairness of the labour taxation system. Additional reductions in the marginal tax rates will incentivise second-earners to increase their hours worked. Active labour market policies should be more targeted to ensure that those who are most vulnerable receive enhanced support. Higher levels of public research and development spending should complement existing tax incentives.

Growth performance, inequality and environment indicators: Netherlands A. Growth Average annual growth rates (%) GDP per capita Labour utilisation of which: Labour force participation rate Employment rate1 Employment coefficient2 Labour productivity of which: Capital deepening Total factor productivity Dependency ratio

2002-08 1.9 0.6 0.7 0.0 -0.1 1.3 0.2 1.1 0.0

2012-18 1.4 0.4 0.0 0.3 0.0 0.9 0.1 0.8 0.1

Level

Annual variation (percentage points)

2016 28.5 (31.7)*

2013-16 -0.1 (0)*

B. Inequality and environment

Gini coefficient3 Share of national disposable income held by the poorest 20%

4

GHG emissions per capita (tonnes of CO2 equivalent) GHG emissions per unit of GDP4 (kg of CO2 equivalent per USD) Share in global GHG emissions4 (%) * OECD simple average (weighted average for emissions data)

8.7 (7.6)*

0 (0)*

2016 11.8 (10.9)* 0.3 (0.3)* 0.4

Average of levels 2010-16 12.1 (11.3)* 0.3 (0.3)* 0.4

C. GDP per capita is among the highest in the OECD Gap to the upper half of OECD countries5 Per cent 25 GDP per capita 20

GDP per hour worked

15

10

5

0

-5

Source: Panel A: OECD, Economic Outlook Database; Panel B: OECD, Income Distribution and National Accounts Databases; United Nations Framework Convention on Climate Change (UNFCCC) Database and International Energy Agency (IEA), Energy Database; Panel C: OECD, National Accounts and Productivity Databases.

StatLink 2 https://doi.org/10.1787/888933955199

204 

Policy indicators: Netherlands B. Marginal labour tax wedges are relatively high

A. Support for business R&D is skewed towards tax incentives

Percentage of total labour compensation,¹ 2018

Percentage of GDP, 2016 0.25

55

Indirect funding (R&D tax incentives) Direct government funding of R&D

0.20

50

0.15

45

0.10

40

0.05

35

0.00

NETHERLANDS

Advanced economies

NETHERLANDS

Advanced economies

30

Source: Panel A: OECD, Main Science and Technology Indicators and R&D Tax Incentives Databases; Panel B: OECD, Taxing Wages Database.

StatLink 2 https://doi.org/10.1787/888933956073

Beyond GDP per capita: Netherlands A. Inequality is lower than in most advanced economies Gini coefficient, 2016 or last available year¹ NETHERLANDS, 28.5 SVK, 24.1

ZAF, 63.0

Advanced economies median, 29.7

Emerging economies median, 46.2

B. Exposure to fine particulate matter is high Percentage of population exposed to PM2.5, 20172 % NETHERLANDS

Advanced economies

< 10 μg/m³ 10-35 μg/m³

Emerging economies

> 35 μg/m³

World 0

10

20

30

40

50

60

70

80

90

100

Source: Panel A: OECD, Income Distribution Database, World Bank, World Development Indicators Database and China National Bureau of Statistics; Panel B: OECD, Environment Database.

Note: For the explanation of the sets of indicators above, please go to the metadata annex at the end of this chapter.

StatLink 2 https://doi.org/10.1787/888933956947

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Netherlands: Going for Growth 2019 priorities Lower marginal effective tax rates on labour income and improve the fairness of labour taxation.

High marginal effective tax rates hinder work incentives of low-income households and second-income earners. 

Actions taken: The taxation of personal income will be adjusted in 2019 from three to two tax brackets, resulting in a lower effective tax rate for most households. In 2018, the general tax credit was increased for lower-income earners and the tax credit for all employed persons was raised.



Recommendations: Continue to lower the marginal effective tax wedge on labour income, particularly for low-income earners, for example by lowering social security expenses. Phase out the permanent self-employment tax deduction.

Ease employment protection for permanent contracts and reduce the discrepancies in protection across different types of work. The stringent employment protection legislation increases the prevalence of low-security temporary contracts and, together with tax incentives, pushes workers towards self-employment. 

Actions taken: Starting 2020, the applicable period for severance pay will be changed to begin on the first day of employment, giving temporary contract workers more similar protection to those on permanent contracts. Also starting 2020, the dismissal approval requirements will be adjusted to make dismissals marginally easier



Recommendations: Continue to lower the cap on severance payments and ensure that the dismissal system works efficiently to encourage the use of permanent contracts.

Better target active labour market policies. Public employment services play a limited role in providing job support and decentralised service delivery entails different levels of support across regions. 

Actions taken: The public employment services provider will receive increased funding to deliver targeted services for workers currently receiving disability benefits and improved personal coaching to unemployed benefit holders starting 2018. Funding to municipalities to provide targeted activation and support programs has been bolstered.



Recommendations: Improve the targeting of employment support policies for vulnerable groups.

Work towards a more coordinated approach in implementing activation policies across regions, in particular by promoting inter-regional mobility.

Increase the scope of the unregulated part of the house rental market. The rigid housing market hinders labour mobility, generating congestion and hampering housing investment and productivity 

Actions taken: The reduction in mortgage interest tax relief was accelerated considerably and the tax on imputed rent has been lowered starting in 2018, which reduces the incentives for home ownership. From 2018, the approval procedure has been simplified and constraints removed for housing corporations which want to rent on the private market. Starting 2021, municipalities will have more control over zoning and the planning of the private rental market.



Recommendations: Support the supply of rental housing by further limiting rent regulation in the private market and increasing the weight of the property value in setting the maximum initial rent.

Introduce tighter income conditions for social housing eligibility.

206 ď ź Increase direct public support for R&D. Private spending on R&D is low and public support is skewed towards tax incentives. ď&#x201A;ˇ

Actions taken: Additional spending is earmarked from 2018 onwards to promote the National Science Agenda through spending on universities, colleges and other knowledge institutions.

Public funding to improve the digital infrastructure and to encourage participation in collaborative research at the global level has also been marginally increased from 2018 onwards.

ď&#x201A;ˇ

Recommendations: Complement the well-designed tax incentives with more direct funding such as grants, loans and procurement to better cater to the various needs of businesses and ideas in different sectors and in different stages of development.