Growth of about 2 per cent in 2003 was driven by consumption which has been stimulated by a substantial fiscal easing and low interest rates. A pick-up in world trade is likely to boost growth over the coming years, with output rising above potential in 2005 and unemployment edging down. Recent tax cuts will sustain demand, but may ultimately make it more difficult to cope with the future fiscal implications of ageing. The room for further tax cuts is narrow and will require significant spending restraint by central government and municipalities. It is unlikely that cuts in labour taxes will be sufficient to achieve the government’s goal of a substantial increase in employment, unless accompanied by other reforms...