The good performance of the Netherlands economy over the latest business cycle was also made possible by a sound medium term framework for macroeconomic policy. Monetary policy has been aimed at price stability and fiscal policy has successfully put public finances on a sustainable long-term path, taking into account budget pressures associated with population ageing. The short-term challenge in the current conjunctural situation arises from the combination of a sharply slowing economy, a tight labour market and a benefit system that generates hysteresis effects. With monetary policy anchored in the euro area and fiscal policy abstaining from activism, it will be crucial to avoid an overshooting adjustment process triggered by backward looking wage claims. In this respect, fiscal policy should let the automatic stabilisers work and rely on the incentive effects of the tax reform.