Remarks by Angel Gurría
02 July 2018 - The Hague, Netherlands
(As prepared for delivery)
State Secretary, Ambassador, Ladies and Gentlemen,
It is a great pleasure to be in The Hague to launch the 2018 Economic Survey of the Netherlands. I want to thank State Secretary Keijzer and her team for their excellent collaboration during the preparation of this Survey.
Let me start with some good news. The Dutch economy is performing very well. A number of challenges that were faced during the financial crisis have been addressed. In recent years, the Netherlands has undertaken a number of structural reforms to heal public finances, strengthen the banking sector, foster competition and address some long-standing challenges in the labour and housing markets.
This is particularly welcome at a time characterised by growing protectionism and trade disputes. As mentioned in our June Economic Outlook, growing political uncertainty in some European countries and Brexit could also add pressure on growth in the euro area.
Growth has been robust and broad-based, at around 3% in the past year and well above the euro area average. This dynamism has helped to reduce unemployment, which is back to a pre-crisis rate of below 4%, nearly two times lower than the peak in the first quarter of 2014. However, wage growth has been slower than productivity growth.
Looking ahead, we expect growth to reach 3.3% this year and 2.9% in 2019. We expect private consumption to continue to expand at a robust pace, underpinned by further increases in employment, higher wage growth supported by a tighter labour market, continued rises in house prices and a recently announced small fiscal stimulus.
Despite this progress however, numerous challenges persist. Let me briefly highlight some of the key messages and recommendations of the Economic Survey.
One of the main challenges addressed in the Survey is the need to promote a more inclusive labour market. In recent years, the Netherlands has experienced a significant rise in new forms of work, including self-employment. The share of self-employed in total employed has increased by more than 4 percentage points over the last decade to nearly 17% in 2017. This is the highest increase in the OECD.
To the extent that this rise is associated with entrepreneurship and innovation, this would be positive for productivity growth and living standards. In the Netherlands, however, only a very limited number of the self-employed scale up their business and hire staff, and the self-employed appear to be generally less productive than employees.
Self-employment can also be an avenue to avoid existing protections and labour market institutions, leading to concerns that the development of these new forms of work may weaken job quality. One example is when vulnerable workers are requested to opt for self-employment in order to lower regulatory costs, as self-employed are not subject to minimum wage requirements and do not contribute to sickness and invalidity insurances.
To tackle this challenge, the Survey recommends a more balanced support for the self-employed. Specifically, introducing minimum social security coverage for self-employed workers, and gradually reducing the size of tax incentives would lower the gap in tax treatment with regular workers. In addition, scaling down social security contributions would also lower the cost of employing low-skilled employees.
To make the Dutch market more inclusive, the Survey also recommends reducing the gender gap in part-time work. This is already high on the agenda. For example, making a paid paternity leave entitlement longer – than the one currently planned by the government and closer to the OECD top performers – would promote greater gender equality in part-time work.
Last but not least, targeting planned individual lifelong-learning accounts to low-skilled workers and other vulnerable groups, including older workers and immigrants, would increase their job opportunities.
Another important challenge is to ensure that the tax system will be adequately adapted to a rapidly changing global environment. In recent years, the OECD has worked extensively to address tax Base Erosion and Profit Shifting (BEPS). We welcome the announcement by the Dutch government, in October 2017, of a new policy agenda to tackle tax evasion and avoidance, to overturn the Netherlands’ image as a country that makes it easy for multinationals to avoid taxation. To this end, the Netherlands should follow through with plans to ratify the BEPS multilateral instrument and impose a withholding tax on dividend, interest and royalty earnings transferred to low-tax and non-cooperative jurisdictions.
In addition, the Netherlands’ tax system remains overly complex and a broad reform of the tax system has not been implemented. In this respect, the Survey recommends, that the dual rates for the VAT should be streamlined in order to reduce inefficiencies in the tax system by phasing out the lower rate and, if need be, compensating the potential monetary losses incurred by low-income households. The number of tax exemptions or tax expenditures also needs to be reduced.
Lastly, the Survey raises the need to better prepare for multiple external risks. For example, the financial health of the life insurance sector could be jeopardised should global interest rates stay low for too long; while the housing market may overheat if prices keep rising. These potential risks could be dealt with by introducing macro-prudential measures and relaxing housing supply constraints.
Rising global protectionism can be a significant shock to the Dutch economy, given its position as a major European and global trading hub. The uncertainty surrounding Brexit, in particular, can be an important downside risk as it is likely to create frictions in bilateral trade and investment relations.
The Netherlands is one of the most-exposed European economies to Brexit; and should Brexit lead to significant trade barriers, our analysis suggests that the impact would be felt disproportionately in some Dutch sectors, particularly agriculture and food.
This highlights the need to develop contingency plans, including ex-ante policy offsets, to minimise possible economic disruptions in these sectors. Some important steps are already being taken, for example the Dutch authorities have announced plans to recruit additional customs officers, and businesses are helped to assess the impact of Brexit on their activities and prepare accordingly.
State Secretary, Ambassador, Ladies and Gentlemen,
Robust growth, low unemployment, consumer confidence and growing exports are some of the key characteristics of the Dutch economy. The Netherlands has demonstrated resilience in coming out of the crisis and a determination to achieve sustainable and inclusive growth.
I would like to thank the Dutch government for its drive to keep markets open, for its efforts to deliver a more inclusive and fairer globalisation, its strong support for responsible business conduct, and the impressive work that has been promoted through the Network for Open Economies and Inclusive Societies (NOEIS). Rest assured that the OECD stands with you in your efforts to design, develop and deliver better policies for better lives. Thank you.