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Netherlands : Economic Survey says the new Government will have to address key challenges

Wed, 06/16/2010 - 1:25am
OECD

Chapter summaries | How to obtain this publication | Additional information 

  

 

The next Economic Survey of Netherlands will be prepared for 2012.

An Economic Survey is published every 1½-2 years for each OECD country. Read more about how Surveys are prepared.

An Overview (pdf format) of the Economic survey of the Netherlands is available here. It contains the Summary, the OECD assessment and recommendations and the chapter summaries as reproduced below:

 

Bookmark this page : www.oecd.org/eco/surveys/netherlands

Chapter summaries

 

Chapter 1. Securing fiscal sustainability and boosting potential growth after the crisis

The economy contracted sharply during the crisis but began to recover slowly from mid 2009. Unemployment rose by less than might have been expected, partly as the labour market was more overheated prior to the crisis than realised at the time. Strict employment protection legislation and the government’s continued focus on active labour market policies also played a role. In this context, the most pressing challenge for the near future is to prevent the cyclical increase in unemployment from becoming structural. As in other OECD countries, the upturn is still supported by exceptional fiscal and monetary stimulus. The fiscal policy response was generally well designed, but as a result the deficit widened significantly and fiscal sustainability deteriorated. As economic growth strengthens, the government coming in after the June 2010 elections will be confronted with the task of consolidating public finances without putting the recovery at risk. The most crucial longer-term challenges are to secure fiscal sustainability and raise potential growth.

Chapter 2.  Making the pension system less vulnerable to financial crises

The Dutch occupational pension system has been successful in securing high asset accumulation to fund generous pension promises. However, for the second time in this decade the pension system has been affected by a financial crisis and many pension funds’ assets fell below levels needed to meet regulatory requirements. Insufficient funding raises solvency issues, which could eventually lead to large fiscal costs in case of bail-outs. In response to the crisis, most funds were required by the regulator to draw up recovery plans to restore their funding over five years. This has raised concerns that the adjustment required by the regulator is unnecessarily sharp, with possibly adverse macroeconomic implications. On the other hand, OECD simulations indicate that under current policies, it is unlikely that funding rates will be secured that enable the funds over the long term to fulfil their promises of a replacement rate of up to 80% of average wages. This raises the challenge of implementing parametric changes that secure pension benefits without large detrimental effects on intergenerational equity and growth. Occupational pensions are transferable, which enhances labour market mobility. But it is often very difficult for workers to assess how one pension scheme compares to another, posing practical barriers to mobility that should be eased.

Chapter 3.  The transport system can contribute to better economic and environmental outcomes

Congestion has become a burden for the Dutch economy. Commuters and businesses are suffering from the time lost in traffic and the unreliability of travel time. Expanding infrastructure can potentially solve such problems, albeit only in the long term and at a high cost. Thus short to medium-term solutions will have to be oriented at improvements in the use of existing infrastructure, more efficient public transport and better demand management. In this light the previous government had decided to introduce an innovative country-wide road pricing scheme. This scheme aims to make users pay for road usage and can bring about significant benefits in terms of lower congestion and less pollution.  The full benefits of road pricing can be reaped by adjusting the prices to encourage more efficient economic and environmental outcomes. If the implementation of a fully-fledged road price system is delayed or aborted, the government should rely on alternative measures such as fuel taxation and congestion charges to obtain similar outcomes. Reforms to the transport system, including public transport, together with the housing market reforms proposed in the subsequent chapter should reduce the economic and environmental burden of transport, thereby improving prospects for sustainable long-term growth.

Chapter 4.  Improving the flexibility of the housing market

The housing market figures among the main determinants of labour mobility, as households seldom make employment and housing decisions independently of each other. This interdependence is likely to strengthen as the cost of commuting increases, due to worsening road congestion or measures that would raise fuel prices, for example to  counter global warming. The Dutch housing market is more rigid than in many other OECD countries, as the result of numerous government interventions. Boosting labour mobility by easing rigidities would improve labour resource utilisation, which will be especially important as the labour force contracts with ageing. The rental sector could be made more attractive and flexible by dismantling strict rent regulation and rigid allocation mechanisms in the social housing sector. Lowering tax incentives to homeowners would improve the allocation of scarce capital and reduce house prices. Easing strict land-use and zoning regulation would increase the supply of all types of housing, reducing prices and allowing the housing stock to adjust better to residents’ needs.

How to obtain this publication

 

The complete edition of the Economic Survey of the Netherlands is available from:

 

Additional information

For further information please contact the Netherlands Desk at the OECD Economics Department at eco.survey@oecd.org.

The OECD Secretariat's report was prepared by Jens-Christian Hoj, Tomasz Kozluk and Tom Schmitz under the supervision of Pierre Beynet. Research assistance was provided by Sylvie Foucher-Hantala..

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