Economic Policies
#11Key Findings
With past successes allowing a robust response to the pandemic, the Netherlands scores well overall (rank 11) for its economic policies. Its score on this measure has gained 0.2 points relative to 2014.
Despite a contraction in growth in 2020, the Dutch economy was well-prepared for post-COVID-19 recovery. The government provided generous support to firms, and digital skills are widespread, allowing for extended work from home. GDP growth in 2021 was 3.8%, with the economy surpassing its pre-pandemic level late that year.
The unemployment rate increased from a record low of 2.9% in early 2020 to 4.5% at the end of that year, but had returned below 3% by late 2021. Taxes are complex and lack transparency. The new coalition aims to simplify the system. Lenient wealth and business taxes have earned the country a reputation as a tax haven.
The government ran deficits of 4.9% and 5.9% of GDP in 2020 and 2021, driven by relief spending. Debt is projected to reach 60.4% of GDP by 2025, but this is deemed manageable. Large spending projects for green industrial policy, social housing and infrastructure are on the horizon. R&D expenditure is rising.
Despite a contraction in growth in 2020, the Dutch economy was well-prepared for post-COVID-19 recovery. The government provided generous support to firms, and digital skills are widespread, allowing for extended work from home. GDP growth in 2021 was 3.8%, with the economy surpassing its pre-pandemic level late that year.
The unemployment rate increased from a record low of 2.9% in early 2020 to 4.5% at the end of that year, but had returned below 3% by late 2021. Taxes are complex and lack transparency. The new coalition aims to simplify the system. Lenient wealth and business taxes have earned the country a reputation as a tax haven.
The government ran deficits of 4.9% and 5.9% of GDP in 2020 and 2021, driven by relief spending. Debt is projected to reach 60.4% of GDP by 2025, but this is deemed manageable. Large spending projects for green industrial policy, social housing and infrastructure are on the horizon. R&D expenditure is rising.
Graph View
Graph View
How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
10
9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
8
7
6
7
6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
5
4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
According to international economic watchdogs like the World Economic Forum and IMF the Netherlands is ranked fourth among economies with regard to being well prepared for post-COVID-19 recovery. This is largely due to generous government support to firms, combined with an excellent digital infrastructure and strong digital skills among the local population, which together allows the economy to stay afloat while people work from home. GDP growth for 2021 is estimated at 3.8%. In the fourth quarter of 2021, the economy was expected to surpass its pre-coronavirus level.
Generous government support, amounting to 3.6% of GDP, has prevented an unemployment increase of between 65,000 to 188,000 unemployed persons. The government’s tax agency has become a crucial lender for Dutch firms: 274,000 firms and entrepreneurs (from restaurant and shop owners to multinationals with tens of thousands of workers) owe the government a total of €19.7 billion. Terms of repayment allow firms 60 months to pay off their debts. Only by then the real cost of government support, estimated as €1.5 billion, will become clear. There are indications that too much support has found its way to firms with low productivity and a weak financial position.
The rosy image of the Dutch economy is clouded by worries about inflation, which reached a rate of 5.6% during the last quarter of 2021 (due to stagnating supply chains, raw material shortages and the steep increase in energy prices); the lasting impact of ultra-low interest rates on savings and pensions; and persistent labor shortages. At the time of writing there were 126 vacancies for every 100 unemployed people. Together, these phenomena may cast a shadow on the optimistic expectations of post-COVID-19 recovery and the transition to a post-carbon, more sustainable economy.
A final observation is that political debate on economic policy has turned strongly toward issues of inequality, and especially the widespread feeling that in spite of the country’s satisfactory macroeconomic performance and well-balanced state budget in recent years, Dutch households have yet to experience serious improvements with regard to inequalities in life chances, wages and wealth, housing, health, and work-leisure balance. Perhaps one is observing a lasting shift in economic debate from conventional macroeconomic indicators to greater weight being attributed to sustainable development and quality of life (“broad prosperity”) criteria.
Citations:
NRC, 29 September 2021 IMF,CPB: coronabeleid was successvol
NRC, 25 November 2021 (Schinkel), Koopkrachtverlies in 2022 staat nu al vast
NRC, 20 July, 2021, De lage rente voedt de kater van de toekomst
NRC 26 June 2021, De vijf belangrijkste ongelijkmakers
CBS, 15 April 2021, Economische groei en het inkomen van Nederlanders
CBS, 28 May 2021, Aflevering 4: De Monitor Brede Welvaart. Over hier, nu en later
Generous government support, amounting to 3.6% of GDP, has prevented an unemployment increase of between 65,000 to 188,000 unemployed persons. The government’s tax agency has become a crucial lender for Dutch firms: 274,000 firms and entrepreneurs (from restaurant and shop owners to multinationals with tens of thousands of workers) owe the government a total of €19.7 billion. Terms of repayment allow firms 60 months to pay off their debts. Only by then the real cost of government support, estimated as €1.5 billion, will become clear. There are indications that too much support has found its way to firms with low productivity and a weak financial position.
The rosy image of the Dutch economy is clouded by worries about inflation, which reached a rate of 5.6% during the last quarter of 2021 (due to stagnating supply chains, raw material shortages and the steep increase in energy prices); the lasting impact of ultra-low interest rates on savings and pensions; and persistent labor shortages. At the time of writing there were 126 vacancies for every 100 unemployed people. Together, these phenomena may cast a shadow on the optimistic expectations of post-COVID-19 recovery and the transition to a post-carbon, more sustainable economy.
A final observation is that political debate on economic policy has turned strongly toward issues of inequality, and especially the widespread feeling that in spite of the country’s satisfactory macroeconomic performance and well-balanced state budget in recent years, Dutch households have yet to experience serious improvements with regard to inequalities in life chances, wages and wealth, housing, health, and work-leisure balance. Perhaps one is observing a lasting shift in economic debate from conventional macroeconomic indicators to greater weight being attributed to sustainable development and quality of life (“broad prosperity”) criteria.
Citations:
NRC, 29 September 2021 IMF,CPB: coronabeleid was successvol
NRC, 25 November 2021 (Schinkel), Koopkrachtverlies in 2022 staat nu al vast
NRC, 20 July, 2021, De lage rente voedt de kater van de toekomst
NRC 26 June 2021, De vijf belangrijkste ongelijkmakers
CBS, 15 April 2021, Economische groei en het inkomen van Nederlanders
CBS, 28 May 2021, Aflevering 4: De Monitor Brede Welvaart. Over hier, nu en later
Graph View
How effectively does labor market policy address unemployment?
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9
9
Successful strategies ensure unemployment is not a serious threat.
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7
6
7
6
Labor market policies have been more or less successful.
5
4
3
4
3
Strategies against unemployment have shown little or no significant success.
2
1
1
Labor market policies have been unsuccessful and rather effected a rise in unemployment.
In 2020, the coronavirus-triggered contraction caused economic growth to plummet from +1.8% in 2019 to -3.7%. In February 2020, the unemployment rate was at a record low of 2.9 % (277,000 unemployed); but due to the contraction, increased by the end of the year to 4.6 % (or 384,000 unemployed). Due to very generous (non-pharmaceutical) government support to firms and entrepreneurs, by November 2021 unemployment was back to its pro-coronavirus level of 2.9%.
Nothing much changed in the underlying structure of unemployment figures, though. The youth unemployment rate was at an all-time low of 6.7%, which in 2020 increased to 9.1%. Some observers consider youth unemployment to be a serious threat to the country’s long-term prospects. A very considerable number of young people are not in education or employment. Youth unemployment rates are twice as high among those without official qualifications and among those with a migration background. A large proportion of those young people lack a basic level of literacy, and show deficits in computer literacy and technical craft skills. Better educational and school-to-work transitional arrangements are crucial.
Other structural labor-market weaknesses include relatively low labor market participation rates among those with a migrant background, especially young migrants; an increasingly two-tiered labor market that separates (typically older) “insiders” with significant job security and (old and young) “outsiders,” who are often “independent workers,” lack employment protection and have little to no job security; and high levels of workplace pressure. The OESO considers the Netherlands an outlier in Europe in terms of work flexibilization.
This “dualization” of the labor market is attributed to government policy; for firms, flexible workers are financially much more attractive (by as much as 7% in labor costs) than are workers with fixed contracts. An OECD report judges the Dutch labor market situation as being problematic in the long run, because firms invest less in the education of their flexible workers, thereby threatening the long-term labor productivity of the economy as a whole. This labor market precarity also leads to lower capacity to invest in housing, family planning and other core conditions that provide a healthy and safe work-life balance, crucial for high productivity.
In late 2018, the government established an independent expert commission (Commissie Borstlap) tasked with designing policies that would align labor law, social security and fiscal policies with a view to redesigning the labor market to benefit all workers in a sustainable national economy. In January 2020 the commission published its report, titled “In what country do we want to work?” It proposes strong remedies for differences in protection and taxation between different categories of workers with a view to continuous labor market participation of all. These proposals are very controversial; the IMF, WEF and the Dutch association of entrepreneurs (VNO/NCW) are, for example, very positive about the high degree of flexibility and consider it a major asset of the Dutch economy. For this reason, they oppose major changes in policy and regulation. Without being specific, the December 2021 coalition agreement states that, using the Borstlap commission report and advice from the Socioeconomic Council as a guideline, the government intends to decrease differential treatment between fixed and flexible work (in income, taxation and social security).
Citations:
CBS, 22 July, 2021, Werkloosheid in juni onder de 300 duizend
Elseviers Weekblad, 18 November 2021, Werkloosheid weer net zo lag als voor corona, en fors lager dan elders in de eurozone
NRC, 23 January 2021 (Pelgrim), Waar blijven de nieuwe regels rond werk. Het is oorverdovend stil.
Nederlands Jeugdinstituut, Cijfers over Jeugdwerkloosheid (nji.nl, consulted 1 December 2021)
OECD, June 2019. OECD Input for the Netherlands Commission for Regulation of Work. (pdf)
Coalitieakkoord 2021-2025, 15 December 2021.Omzien naar elkaar, vooruitzien naar de toekomst
Nothing much changed in the underlying structure of unemployment figures, though. The youth unemployment rate was at an all-time low of 6.7%, which in 2020 increased to 9.1%. Some observers consider youth unemployment to be a serious threat to the country’s long-term prospects. A very considerable number of young people are not in education or employment. Youth unemployment rates are twice as high among those without official qualifications and among those with a migration background. A large proportion of those young people lack a basic level of literacy, and show deficits in computer literacy and technical craft skills. Better educational and school-to-work transitional arrangements are crucial.
Other structural labor-market weaknesses include relatively low labor market participation rates among those with a migrant background, especially young migrants; an increasingly two-tiered labor market that separates (typically older) “insiders” with significant job security and (old and young) “outsiders,” who are often “independent workers,” lack employment protection and have little to no job security; and high levels of workplace pressure. The OESO considers the Netherlands an outlier in Europe in terms of work flexibilization.
This “dualization” of the labor market is attributed to government policy; for firms, flexible workers are financially much more attractive (by as much as 7% in labor costs) than are workers with fixed contracts. An OECD report judges the Dutch labor market situation as being problematic in the long run, because firms invest less in the education of their flexible workers, thereby threatening the long-term labor productivity of the economy as a whole. This labor market precarity also leads to lower capacity to invest in housing, family planning and other core conditions that provide a healthy and safe work-life balance, crucial for high productivity.
In late 2018, the government established an independent expert commission (Commissie Borstlap) tasked with designing policies that would align labor law, social security and fiscal policies with a view to redesigning the labor market to benefit all workers in a sustainable national economy. In January 2020 the commission published its report, titled “In what country do we want to work?” It proposes strong remedies for differences in protection and taxation between different categories of workers with a view to continuous labor market participation of all. These proposals are very controversial; the IMF, WEF and the Dutch association of entrepreneurs (VNO/NCW) are, for example, very positive about the high degree of flexibility and consider it a major asset of the Dutch economy. For this reason, they oppose major changes in policy and regulation. Without being specific, the December 2021 coalition agreement states that, using the Borstlap commission report and advice from the Socioeconomic Council as a guideline, the government intends to decrease differential treatment between fixed and flexible work (in income, taxation and social security).
Citations:
CBS, 22 July, 2021, Werkloosheid in juni onder de 300 duizend
Elseviers Weekblad, 18 November 2021, Werkloosheid weer net zo lag als voor corona, en fors lager dan elders in de eurozone
NRC, 23 January 2021 (Pelgrim), Waar blijven de nieuwe regels rond werk. Het is oorverdovend stil.
Nederlands Jeugdinstituut, Cijfers over Jeugdwerkloosheid (nji.nl, consulted 1 December 2021)
OECD, June 2019. OECD Input for the Netherlands Commission for Regulation of Work. (pdf)
Coalitieakkoord 2021-2025, 15 December 2021.Omzien naar elkaar, vooruitzien naar de toekomst
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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9
9
Taxation policy fully achieves the objectives.
8
7
6
7
6
Taxation policy largely achieves the objectives.
5
4
3
4
3
Taxation policy partially achieves the objectives.
2
1
1
Taxation policy does not achieve the objectives at all.
Tax revenues have allowed the government to keep the deficit within manageable bounds even when long-term trends are very uncertain because of the pandemic and climate change (see also “Budgets”). Taxes in the Netherlands are complex and far from transparent. Income policy not only works through tax rates and brackets, but also through tax credits and situation-dependent benefits to households, as well as a jungle of exemptions, deductions, tax reductions and referrals. The more visible income taxation apparently respects the progressive carrying capacity principle (draagkrachtbeginsel), but the overall outcome of the system is regressive.
Pre-tax income and benefits have grown more unequal but are successfully tweaked by government tax policy toward a more equal output. The Gini index for net incomes corrected for household size is just under the European average of 0.3, and has remained steady for the last 20 years. The Central Bureau for Statistics (CBS) calculates Gini index scores based solely on data from tax declarations. This neglects data about the lower (flexible workers and workers on temporary labor contracts without insurance coverage or pensions) and higher income brackets (many types of un(der)taxed capital gains like house sales or profits from selling shares). The Gini index score for wealth has for decades fluctuated around a very high 0.8. Since 2015, it has decreased a bit due to the increasing value of homes, as home ownership represents the bulk of ordinary citizens’ wealth. But here too there is more inequality than meets the eye as evinced by, for example, the wealth hidden in possessions in foreign countries and family trusts. As many issues in daily life demand private investments – homework guidance, excess insurance risks, access to sports and culture – lower- and middle-income households increasingly lack the private wealth to participate on an equal footing. The crux of the matter is that, since the 1998-2002 Kok II cabinet introduced the “boxes” system, the tax system treats capital and labor very differently, with progressive taxes on labor income, and regressive taxes on share income and income from savings and investments.
One of the manifestations of lenient taxation of wealth and business is the Netherlands’ status as a tax haven which allows multinational corporations to siphon off considerable taxation of their profits in their countries of origin. Comparative studies by OESO and Tax Justice Network (TJN) place the country in fourth place worldwide, after the British Virgin Islands, Bermuda and the Cayman Islands, but well before Switzerland and Luxemburg. Only under considerable international pressure is the Dutch government is cooperating with the EU’s anti-tax evasion guideline. So far, the government has continued to defend favorable conditions for attracting multinational corporations to locate in the Netherlands through a combination of low corporate taxation, the use of favorable innovation incentives and generous tax deductions for R&I. Another manifestation of favoring capital over labor is the “greening” of the fiscal system. To date, green fiscal instruments (mostly high value-added taxation of end-use polluting by firms and consumption by citizens) treat sustainability gains as added benefits associated with a more stable government income. An estimated 55% of fossil fuel consumption by industry remains untaxed.
A radical and coherent reform effort is needed to make the fiscal system fairer and more sustainable. The coalition agreement of December 2021 announced an intention to simplify the tax system, beginning with abolition of the benefit system that confuses taxpayers with overcomplex rules and forces them to pay hefty recoveries (evidenced traumatically in the childcare benefits affair). Further reforms have been delayed to a distant future, partly to create a less turbulent policy environment for an overburdened tax authority.
Citations:
NRC-H, 5 March 2021, Heilbron, Het belastingstelsel is een wangedrocht
NRC-H, 21 June 2021, Beunderman en Molijn, De grote scheefgroei – 2. Inkomensongeleijkheid, 3. Vermogensongelijkheid
NRC-H, Stellinga, 13 Februry 2021, Belastingen zo krom al seen banaan
Jacobs en Cnossen, Ontwerp voor een beter be;astingstelsel (njb.nl) Ontwerp voor een beter belastingstelsel, onder redactie van Sijbren Cnossen en Bas Jacobs, een uitgave van ESB, vakblad voor economen, 298 p., 2019 op de site van ESB: https://esb.nu
NRC-H., Beunderman, 10 March 2021, Nederland ‘doorsluisland’ op plek vier, na Bermuda
PBL, 17 November, 2017, Huidige fiscale wetgeving ontoereikend in aanpak milieuschade.
Coalitieakkoord 2021-2025, December 15 2021. Omzien naar elkaar, vooruitzien naar de toekomst
Pre-tax income and benefits have grown more unequal but are successfully tweaked by government tax policy toward a more equal output. The Gini index for net incomes corrected for household size is just under the European average of 0.3, and has remained steady for the last 20 years. The Central Bureau for Statistics (CBS) calculates Gini index scores based solely on data from tax declarations. This neglects data about the lower (flexible workers and workers on temporary labor contracts without insurance coverage or pensions) and higher income brackets (many types of un(der)taxed capital gains like house sales or profits from selling shares). The Gini index score for wealth has for decades fluctuated around a very high 0.8. Since 2015, it has decreased a bit due to the increasing value of homes, as home ownership represents the bulk of ordinary citizens’ wealth. But here too there is more inequality than meets the eye as evinced by, for example, the wealth hidden in possessions in foreign countries and family trusts. As many issues in daily life demand private investments – homework guidance, excess insurance risks, access to sports and culture – lower- and middle-income households increasingly lack the private wealth to participate on an equal footing. The crux of the matter is that, since the 1998-2002 Kok II cabinet introduced the “boxes” system, the tax system treats capital and labor very differently, with progressive taxes on labor income, and regressive taxes on share income and income from savings and investments.
One of the manifestations of lenient taxation of wealth and business is the Netherlands’ status as a tax haven which allows multinational corporations to siphon off considerable taxation of their profits in their countries of origin. Comparative studies by OESO and Tax Justice Network (TJN) place the country in fourth place worldwide, after the British Virgin Islands, Bermuda and the Cayman Islands, but well before Switzerland and Luxemburg. Only under considerable international pressure is the Dutch government is cooperating with the EU’s anti-tax evasion guideline. So far, the government has continued to defend favorable conditions for attracting multinational corporations to locate in the Netherlands through a combination of low corporate taxation, the use of favorable innovation incentives and generous tax deductions for R&I. Another manifestation of favoring capital over labor is the “greening” of the fiscal system. To date, green fiscal instruments (mostly high value-added taxation of end-use polluting by firms and consumption by citizens) treat sustainability gains as added benefits associated with a more stable government income. An estimated 55% of fossil fuel consumption by industry remains untaxed.
A radical and coherent reform effort is needed to make the fiscal system fairer and more sustainable. The coalition agreement of December 2021 announced an intention to simplify the tax system, beginning with abolition of the benefit system that confuses taxpayers with overcomplex rules and forces them to pay hefty recoveries (evidenced traumatically in the childcare benefits affair). Further reforms have been delayed to a distant future, partly to create a less turbulent policy environment for an overburdened tax authority.
Citations:
NRC-H, 5 March 2021, Heilbron, Het belastingstelsel is een wangedrocht
NRC-H, 21 June 2021, Beunderman en Molijn, De grote scheefgroei – 2. Inkomensongeleijkheid, 3. Vermogensongelijkheid
NRC-H, Stellinga, 13 Februry 2021, Belastingen zo krom al seen banaan
Jacobs en Cnossen, Ontwerp voor een beter be;astingstelsel (njb.nl) Ontwerp voor een beter belastingstelsel, onder redactie van Sijbren Cnossen en Bas Jacobs, een uitgave van ESB, vakblad voor economen, 298 p., 2019 op de site van ESB: https://esb.nu
NRC-H., Beunderman, 10 March 2021, Nederland ‘doorsluisland’ op plek vier, na Bermuda
PBL, 17 November, 2017, Huidige fiscale wetgeving ontoereikend in aanpak milieuschade.
Coalitieakkoord 2021-2025, December 15 2021. Omzien naar elkaar, vooruitzien naar de toekomst
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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9
Budgetary policy is fiscally sustainable.
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6
7
6
Budgetary policy achieves most standards of fiscal sustainability.
5
4
3
4
3
Budgetary policy achieves some standards of fiscal sustainability.
2
1
1
Budgetary policy is fiscally unsustainable.
Since the euro zone crisis, the government has steadily improved the state of its finances. Therefore, in 2020 it was relatively well prepared for the coronavirus crisis. As of the time of writing, at the end of 2021, it is still considered well positioned for a post-coronavirus restoration and investment effort. The state budget reversed from a surplus of 1.7% of GDP to a deficit of 4.3% of GDP in 2020, followed by a deficit of 5.9% of GDP in 2021. This is due, of course, to generous wage cost subsidies (estimated at €82.1 billion and counting, as when coronavirus infections were on the rise again, the policy was extended until spring 2022) and other types of financial support, as well as the decline in tax revenues due to the pandemic-triggered recession. While in 2019, public debt stood at 48.6% of GDP, it is approximately 9 percentage points higher in 2021 and 2022; it is projected to reach 60.4% of GDP in 2025. Despite all this, interest payment on public debt will be lower in 2022 (0.4% of GDP) than in 2019 (0.8% of GDP) because of very low interest rates. The deficit and the increase in public debt will stay well under average in the euro zone.
Most financial experts agree that government finances are not in danger, and there is room for government spending on urgent issues. The extra spending is kept outside normal budget rules by creating special funds. A large part of the spending will be dedicated to climate measures, as the Netherlands has missed most of its climate goals over the years, and is still among the most polluting countries in the European Union.
Meaningful project- and policy-driven spending from these funds will generally extend over periods longer than an ordinary four-year government period. This is supposed to alleviate investors’ fear of long-term investments, especially in training workers to acquire the necessary new skills needed for large-scale climate change and energy transition projects. At the same time, other experts have warned against too loose of an approach, and are urging a return to conventional rules for budget discipline. They warn against overheating the economy, where in some sectors a shortage of labor (infrastructure, housing, care) and inflation (especially in the energy sector) are no longer expectations but realities.
Nevertheless, the four political parties that will build the next Rutte IV government, take the risk of a big spending spree: €35 billion for a climate change fund (for green industrial policy), €25 billion for a nitrogen fund (for the greening of farming), €7.5 billion for a housing fund (to quickly build appr. 100,000 new houses), €3 billion for infrastructure in the northern provinces (to compensate homeowners for earthquake damages and a new railway connection). Defense and education will structurally get billions of euros to help restore years of underfunding in the past. Of course, taxes will also increase, somewhat more for firms than for citizens.
The rosy financial picture on national level is not mirrored on the provincial and local levels. At these levels there is a dormant financial crisis. National budget cuts (2013-2019) have been proportionally allocated to local government budgets even though national policy, especially since 2015, burdened local governments with new tasks (e.g., youth and elderly care, and recently more tasks and responsibilities in town-and-country planning) without structural budget compensations. Nearly all local governments, irrespective of political make-up, are confronted with loss of subsidies for welfare, culture and sports; as well as substantial cutbacks for anti-poverty and town district policies, maintenance and services. At the same time, charges for parking, garbage collection and processing, and property taxes have increased for citizens. The coalition agreement does not mention reform of the system for local finances, the Gemeentefonds, which covers approximately 70% of local government budgets. It merely promises more financial resources for local governments in order to implement national policy initiatives.
From the perspective of democratic and public accountability, the General Accountability Office (Algemene Rekenkamer) has warned since 2016 that an ever-larger share of nationally collected taxes (fully two-thirds in 2019) is actually spent without much parliamentary budgetary oversight. Provincial and local governments, independent public organizations like schools and universities, the police, the executive agency for employee insurances (UWV), the Social Insurance Bank (SVB), other social funds, and the EU all spend tax money under highly restricted or fragmented accountability arrangements. The Council of State (Raad van State) is more and more concerned about this problematic situation, which tends to erode the principle of no taxation without representation.
Citations:
CPB, Centraal Economisch Plan, 2021
NRC, 22 September 2021 Strooien met geld is nu gewoon
NRC, Stellinga en Rutten, 15 December 2021. Rutte IV wil problemen te lijf met een doorgeladen bazooka vol geld.
NRC, 26 October 2021, DNB, CPB en Financiën: veel ruimte voor incidentele investeringen, niet voor permanente verhoging uitgaven.
Algemene Rekenkamer, 30 September 2021, Coronarekening – editie Prinsjesdag 2021
NRC, 20 October 2021 Harde kritiek op nieuwe verdeling gemeentegeld
Raad van State, 15 September 2021. Septemberrapportage begrotingstoezicht 2021 en advise Miljoenenota 2022
Algemene Rekenkamer, 13 July 2016. Inzicht in publiek. geld. Uitnodiging tot bezinning op de publieke verantwoording. (rekenkamer.nl, accessed 8 November 2019)
Centraal Planbureau, January 2022. Analyse coalitieakkoord 2022-2025
Most financial experts agree that government finances are not in danger, and there is room for government spending on urgent issues. The extra spending is kept outside normal budget rules by creating special funds. A large part of the spending will be dedicated to climate measures, as the Netherlands has missed most of its climate goals over the years, and is still among the most polluting countries in the European Union.
Meaningful project- and policy-driven spending from these funds will generally extend over periods longer than an ordinary four-year government period. This is supposed to alleviate investors’ fear of long-term investments, especially in training workers to acquire the necessary new skills needed for large-scale climate change and energy transition projects. At the same time, other experts have warned against too loose of an approach, and are urging a return to conventional rules for budget discipline. They warn against overheating the economy, where in some sectors a shortage of labor (infrastructure, housing, care) and inflation (especially in the energy sector) are no longer expectations but realities.
Nevertheless, the four political parties that will build the next Rutte IV government, take the risk of a big spending spree: €35 billion for a climate change fund (for green industrial policy), €25 billion for a nitrogen fund (for the greening of farming), €7.5 billion for a housing fund (to quickly build appr. 100,000 new houses), €3 billion for infrastructure in the northern provinces (to compensate homeowners for earthquake damages and a new railway connection). Defense and education will structurally get billions of euros to help restore years of underfunding in the past. Of course, taxes will also increase, somewhat more for firms than for citizens.
The rosy financial picture on national level is not mirrored on the provincial and local levels. At these levels there is a dormant financial crisis. National budget cuts (2013-2019) have been proportionally allocated to local government budgets even though national policy, especially since 2015, burdened local governments with new tasks (e.g., youth and elderly care, and recently more tasks and responsibilities in town-and-country planning) without structural budget compensations. Nearly all local governments, irrespective of political make-up, are confronted with loss of subsidies for welfare, culture and sports; as well as substantial cutbacks for anti-poverty and town district policies, maintenance and services. At the same time, charges for parking, garbage collection and processing, and property taxes have increased for citizens. The coalition agreement does not mention reform of the system for local finances, the Gemeentefonds, which covers approximately 70% of local government budgets. It merely promises more financial resources for local governments in order to implement national policy initiatives.
From the perspective of democratic and public accountability, the General Accountability Office (Algemene Rekenkamer) has warned since 2016 that an ever-larger share of nationally collected taxes (fully two-thirds in 2019) is actually spent without much parliamentary budgetary oversight. Provincial and local governments, independent public organizations like schools and universities, the police, the executive agency for employee insurances (UWV), the Social Insurance Bank (SVB), other social funds, and the EU all spend tax money under highly restricted or fragmented accountability arrangements. The Council of State (Raad van State) is more and more concerned about this problematic situation, which tends to erode the principle of no taxation without representation.
Citations:
CPB, Centraal Economisch Plan, 2021
NRC, 22 September 2021 Strooien met geld is nu gewoon
NRC, Stellinga en Rutten, 15 December 2021. Rutte IV wil problemen te lijf met een doorgeladen bazooka vol geld.
NRC, 26 October 2021, DNB, CPB en Financiën: veel ruimte voor incidentele investeringen, niet voor permanente verhoging uitgaven.
Algemene Rekenkamer, 30 September 2021, Coronarekening – editie Prinsjesdag 2021
NRC, 20 October 2021 Harde kritiek op nieuwe verdeling gemeentegeld
Raad van State, 15 September 2021. Septemberrapportage begrotingstoezicht 2021 en advise Miljoenenota 2022
Algemene Rekenkamer, 13 July 2016. Inzicht in publiek. geld. Uitnodiging tot bezinning op de publieke verantwoording. (rekenkamer.nl, accessed 8 November 2019)
Centraal Planbureau, January 2022. Analyse coalitieakkoord 2022-2025
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
Regarding knowledge infrastructure as whole – that is, pre-university education, technical and vocational education and training, higher education, research, development and innovation (RDI), information and communications technology (ICT), and economy, in addition to the general enabling environment – Netherlands is a leading performer. It ranks fifth out of 138 countries in the Global Knowledge Index 2020 and fifth out of the 56 countries with very high human development. As strengths, the Global Knowledge Index mentions: expenditure on non-tertiary vocational education, secure internet servers, the availability of research and training services, and the impact of ICT on new services and products.
Regarding R&I in the narrow sense of the word, the 2021 EU Innovation Scoreboard mentions Sweden as a leader of innovation in the EU, followed by France, Denmark and Belgium. The Netherlands is identified as a “strong innovator” whose performance improved 10%-15% compared to 2019-20. In the 2021 World Economic Forum’s Global Competitiveness Index, the Netherlands ranks fifth, ex aequo with Singapore, after Switzerland, Sweden and Denmark.
R&D expenditures (aggregated for both public and private) in the Netherlands have increased from half a billion euros in 1964 to €17.8 billion in 2019. As a percentage of GDP, R&D expenditures over the last 50 years have moved in a band between 1.64% and 2.18%. The government has determined that 2.5% is its policy goal. Public R&D expenditure is stable at approximately 62%-64% of total expenditures. Since 2017 it has increased, but not proportionally to the growth in GDP. Private expenditures are not likely to increase either. Private business expenditure on R&D is similar to the EU-27 average, but below the OECD average. Some economic sectors are clearly R&D-intensive, like ICT/software, high-tech, automotive and particularly pharmaceuticals. But the Dutch economic structure is traditionally more dominated by R&D-extensive sectors like oil and gas, trade, hospitality and building. A number of studies demonstrates how this mix of economic activities and sectors strongly determines the level of private investment in R&D.
The leap from an R&D expenditure of 2.18% to 2.5% of GDP cannot be achieved by incremental increases of several hundreds of million euros. It means a full-scale transition to a different economic structure in which the government pursues a mission-driven innovation strategy focusing on great societal challenges: an energy transition, strong efforts to mitigate climate change, innovations in agro-food, water management, and physical and cybersecurity. Green industrial policy may offer the proper double-edged instrument that, on the one hand, stimulates industry to use technologies befitting a sustainable and circular economy, and on the other uses levies on CO2 emissions.
Citations:
Rathenau Instituut, Voorpublicatie Totale Investeringen in Wetenschap en Innovatie (TWIN) 2017-2023, (rathenau.nl)
European Commission, Innovation Union Scoreboard 2021 (ec.europa.eu)
World Economic Forum, The Global Competitiveness Report 2021 (reports.weforum.org))
Rathenau Instituut, 9 November 2021, Twee en een half procent
Haveman, E. Donselaar, P. Innovatieplatform Analysis of the Netherlands’ private R&D position 2008
NRC.next, Stellinga, 11 September 2021 Groene Industriepolitiek, is dat een goed idee?
Regarding R&I in the narrow sense of the word, the 2021 EU Innovation Scoreboard mentions Sweden as a leader of innovation in the EU, followed by France, Denmark and Belgium. The Netherlands is identified as a “strong innovator” whose performance improved 10%-15% compared to 2019-20. In the 2021 World Economic Forum’s Global Competitiveness Index, the Netherlands ranks fifth, ex aequo with Singapore, after Switzerland, Sweden and Denmark.
R&D expenditures (aggregated for both public and private) in the Netherlands have increased from half a billion euros in 1964 to €17.8 billion in 2019. As a percentage of GDP, R&D expenditures over the last 50 years have moved in a band between 1.64% and 2.18%. The government has determined that 2.5% is its policy goal. Public R&D expenditure is stable at approximately 62%-64% of total expenditures. Since 2017 it has increased, but not proportionally to the growth in GDP. Private expenditures are not likely to increase either. Private business expenditure on R&D is similar to the EU-27 average, but below the OECD average. Some economic sectors are clearly R&D-intensive, like ICT/software, high-tech, automotive and particularly pharmaceuticals. But the Dutch economic structure is traditionally more dominated by R&D-extensive sectors like oil and gas, trade, hospitality and building. A number of studies demonstrates how this mix of economic activities and sectors strongly determines the level of private investment in R&D.
The leap from an R&D expenditure of 2.18% to 2.5% of GDP cannot be achieved by incremental increases of several hundreds of million euros. It means a full-scale transition to a different economic structure in which the government pursues a mission-driven innovation strategy focusing on great societal challenges: an energy transition, strong efforts to mitigate climate change, innovations in agro-food, water management, and physical and cybersecurity. Green industrial policy may offer the proper double-edged instrument that, on the one hand, stimulates industry to use technologies befitting a sustainable and circular economy, and on the other uses levies on CO2 emissions.
Citations:
Rathenau Instituut, Voorpublicatie Totale Investeringen in Wetenschap en Innovatie (TWIN) 2017-2023, (rathenau.nl)
European Commission, Innovation Union Scoreboard 2021 (ec.europa.eu)
World Economic Forum, The Global Competitiveness Report 2021 (reports.weforum.org))
Rathenau Instituut, 9 November 2021, Twee en een half procent
Haveman, E. Donselaar, P. Innovatieplatform Analysis of the Netherlands’ private R&D position 2008
NRC.next, Stellinga, 11 September 2021 Groene Industriepolitiek, is dat een goed idee?
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To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
The Netherlands is losing its position in the important bodies (IMF, ECB, BIS) that together shape the global financial architecture. In EU policymaking before Brexit, the Dutch tended to agree with the UK position in principle, but ultimately follow the German position in practice. After all, as a small but internationally significant export economy, the Dutch have a substantial interest in a sound international financial and legal architecture. It has been estimated that under a merely regional trade treaty, the Netherlands would have been 7.7% poorer; under the WTO regime, this would figure would rise to 9.3%. Without the EU’s internal market, estimated GDP income loss would be around €65 billion (in 2018).
During the wave of political skepticism toward international affairs, as exemplified by “No” votes in the EU constitution and the 2016 Ukraine referendums, the Dutch have until recently been more reluctant followers than proactive initiators or agenda setters. After a decade or so, in its State of the EU 2021 report, the government finally seems ready to support a stronger, action-capable Europe for issues like climate change, digitalization, migration, internal security and even defense. It formulated three principles for its EU policy: resilient and secure nation states converging to the highest level of welfare; geopolitical use of EU-instruments; and an effective and transparent Union that fully respects democracy and the rule of law.
Public opinion is in line with this European orientation. However, the translation of values and principles into policy on the ground is still hesitant. In EU negotiations over the Stability and Growth Pact, Prime Minister Rutte (“Mr. No”) and especially Finance Minister Hoekstra insulted many southern states by demanding they first get their finances in order before becoming eligible for support. An expert commission on foreign policy frankly stated that in EU negotiations the Dutch were inconsistent, opportunist and unreliable. For example, in budget negotiations, and for national consumption, the government stresses it is a long-time net payer to the EU, while neglecting to mention that, overall, contributing €1 brings in €12 to GDP. Especially richer Dutch farmers profit considerably from EU membership. Also, even during and after the coronavirus crisis, the Dutch government has stuck to the position that public health is an issue of national sovereignty. After demanding that all EU countries needed to show solid plans as a condition for access to the European Restoration Fund, the Dutch (at the time of writing) were the only laggards due to the caretaker status of the present cabinet.
Nevertheless, looking at actual voting behavior of Dutch ministers and high officials in EU policymaking and negotiations, it appears that the Dutch aversion to the EU is reversing to a more positive and realistic political attitude.
Citations:
Algemene Rekekamer, Wat draagt Nederland bij aan en wat ontvangt Nederland van de EU?
CBS, Kazemier en Verkooijen, December 2016. Nederland en de EU: betalingen en ontvangsten
FTM, 12 September 2021, Rutte kreeg in Brussel de bijnaam ‘Mr. No’. Zijn ministers zegggen steeds vaker ‘ja’.
NRC, 31 January 2020 (Alonso en Van der Wiel), Nettobetaler in de EU? ‘Juist Nederland verdient goed’.
Financieel Dagblad, Bouman, 13 April 2018. Zonder interne markt was Nederland misschien wel 65 mrd armer.
NRC-H, 8 July 2021, Stellinga en Alonso, ‘Nederland moet eem keuze maken over zijn EU-beleid en ophouden met zwabberen’
Korteweg, R., Houtkamp, C., Sie Dhian Ho, M., Krouwel, A. & Etienne, T., Sep 2020, 9 p.. (Clingendael Buitenland Monitor) https://www.clingendael.org/publication/dutch-views-transatlantic-ties-and-european-security-cooperation
Sie Dhian Ho, M., Houtkamp, C., Zandee, D., Krouwel, A., & Etienne, T., (2020). Clingendael Buitenland Monitor: De Nederlandse wending naar Europa, (Clingendael Buitenland Monitor). https://www.clingendael.org/nl/node/12039
During the wave of political skepticism toward international affairs, as exemplified by “No” votes in the EU constitution and the 2016 Ukraine referendums, the Dutch have until recently been more reluctant followers than proactive initiators or agenda setters. After a decade or so, in its State of the EU 2021 report, the government finally seems ready to support a stronger, action-capable Europe for issues like climate change, digitalization, migration, internal security and even defense. It formulated three principles for its EU policy: resilient and secure nation states converging to the highest level of welfare; geopolitical use of EU-instruments; and an effective and transparent Union that fully respects democracy and the rule of law.
Public opinion is in line with this European orientation. However, the translation of values and principles into policy on the ground is still hesitant. In EU negotiations over the Stability and Growth Pact, Prime Minister Rutte (“Mr. No”) and especially Finance Minister Hoekstra insulted many southern states by demanding they first get their finances in order before becoming eligible for support. An expert commission on foreign policy frankly stated that in EU negotiations the Dutch were inconsistent, opportunist and unreliable. For example, in budget negotiations, and for national consumption, the government stresses it is a long-time net payer to the EU, while neglecting to mention that, overall, contributing €1 brings in €12 to GDP. Especially richer Dutch farmers profit considerably from EU membership. Also, even during and after the coronavirus crisis, the Dutch government has stuck to the position that public health is an issue of national sovereignty. After demanding that all EU countries needed to show solid plans as a condition for access to the European Restoration Fund, the Dutch (at the time of writing) were the only laggards due to the caretaker status of the present cabinet.
Nevertheless, looking at actual voting behavior of Dutch ministers and high officials in EU policymaking and negotiations, it appears that the Dutch aversion to the EU is reversing to a more positive and realistic political attitude.
Citations:
Algemene Rekekamer, Wat draagt Nederland bij aan en wat ontvangt Nederland van de EU?
CBS, Kazemier en Verkooijen, December 2016. Nederland en de EU: betalingen en ontvangsten
FTM, 12 September 2021, Rutte kreeg in Brussel de bijnaam ‘Mr. No’. Zijn ministers zegggen steeds vaker ‘ja’.
NRC, 31 January 2020 (Alonso en Van der Wiel), Nettobetaler in de EU? ‘Juist Nederland verdient goed’.
Financieel Dagblad, Bouman, 13 April 2018. Zonder interne markt was Nederland misschien wel 65 mrd armer.
NRC-H, 8 July 2021, Stellinga en Alonso, ‘Nederland moet eem keuze maken over zijn EU-beleid en ophouden met zwabberen’
Korteweg, R., Houtkamp, C., Sie Dhian Ho, M., Krouwel, A. & Etienne, T., Sep 2020, 9 p.. (Clingendael Buitenland Monitor) https://www.clingendael.org/publication/dutch-views-transatlantic-ties-and-european-security-cooperation
Sie Dhian Ho, M., Houtkamp, C., Zandee, D., Krouwel, A., & Etienne, T., (2020). Clingendael Buitenland Monitor: De Nederlandse wending naar Europa, (Clingendael Buitenland Monitor). https://www.clingendael.org/nl/node/12039