The Netherlands: use the recovery from COVID-19 to address long-term challenges

 

16/06/2021 – The COVID-19 pandemic has dealt a historic blow to the Netherlands’ economy, but a swift policy response, effective support to people and firms, and a workforce with comparatively strong digital skills have helped the country to weather the crisis relatively well. It is important to use the recovery to address long-term challenges including housing shortages, imbalances in the labour market and environmental pressures, according to the latest OECD Economic Survey of the Netherlands.

The report says that well-targeted support to households and businesses should continue in the short term, with a focus on training and career guidance for those who lost their jobs. Public investment, supported by European Union recovery funds, should aim to expand digitalisation and accelerate the transition to a greener economy. For the medium term, it will be important to continue addressing emerging pressures from an ageing population and design a multi-year fiscal plan to be implemented once the recovery is self-sustained. The COVID-19 crisis has underlined the need to reduce labour market duality by aligning tax and social security contribution rates between different contract types, and steps should also be taken to reduce the large gap between hours worked for men and women, including by reducing user prices for childcare.

“The Netherlands is recovering strongly from its largest economic contraction since the Second World War,” OECD Secretary-General Mathias Cormann said, presenting the Survey alongside Minister of Economic Affairs and Climate Policy Stef Blok. “This is the moment to optimise the strength and the quality of the recovery by reviving productivity growth, boosting skills training and by tackling key pressure points in the labour market and in housing, while continuing to address the environmental challenges in front of all of us. The OECD stands ready to continue to be your reliable partner in these efforts.” (Read the full remarks.)

After a 3.7% fall in GDP in 2020, the Survey projects the Dutch economy will grow by 2.7% in 2021 and 3.7% in 2022, driven in part by people spending savings accumulated during the pandemic. GDP should be back to pre-crisis levels by early 2022 supported by rebounding exports of goods and services. However, risks remain, with bankruptcies and unemployment set to rise with the phasing out of support measures, high corporate debt likely to restrain investment and the Netherlands exposed to any disruption in global supply chains. High household debt is also a vulnerability.

The crisis hit the Netherlands after years of strong growth, and a high degree of digitalisation and teleworking prior to the pandemic dampened the blow. Past fiscal prudence provided room for a strong government response, and swiftly implemented support measures for firms prevented a wave of bankruptcies and meant unemployment rose only slightly. These policies will need to be wound down once the health crisis is brought under control to avoid them hindering necessary structural change.

Productivity growth has been weak, but could be boosted by going even further and faster in harnessing the digital revolution. While the Netherlands has good digital infrastructure and a well-educated workforce, the small and medium-sized enterprises that account for a large share of jobs tend to lag behind in adopting digital technologies. Incentives to invest in digital technology should be put in place.

Self-employed and flexible workers have been especially affected by the crisis. The low level of social protection for workers on non-standard contracts should be addressed by aligning tax rates and social security contributions for people doing similar jobs on different types of contract. This could also improve productivity by providing an incentive to invest in employees. Training subsidies, already needed to get the most out of digitalisation and automation, are even more important coming out of the COVID-19 crisis, and should be increased to help workers transition to new jobs. The new Personal Learning and Development Budget (STAP) is an innovative contribution to the life-long learning toolbox.

The pandemic has aggravated housing shortages, and Dutch house prices have continued to rise faster than in the euro area and across OECD countries. The Survey recommends speeding up land use planning and building procedures, designating locations for new housing and making home-building agreements binding. The favourable tax treatment of owner-occupied housing, which benefits the wealthy, should be phased out, and rent controls that tend to stifle private rentals should be limited to a narrower part of the market.

People in the Netherlands are highly exposed to air pollution and flooding risks. Landmark court rulings affecting nitrogen emitting projects and limiting greenhouse gas emissions should help accelerate the green transition and will bring forward closures of polluting economic activities. Action is needed to make emissions pricing more consistent across sectors, and to advance the green transition while allowing investments in infrastructure, buildings and agriculture.

 

See a Survey Overview with key findings and charts (this link can be used in media articles).

 

For further information, journalists are invited to contact Catherine Bremer in the OECD Media Office (+33 1 45 24 80 97). 

 

Working with over 100 countries, the OECD is a global policy forum that promotes policies to preserve individual liberty and improve the economic and social well-being of people around the world

 

 

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