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2008 OECD Economic Surveys: Netherlands 2008

image of OECD Economic Surveys: Netherlands 2008

This 2007 Economic Survey looks at how, after a long stagnation during the first half of the decade, the Dutch economy has made a successful comeback. Living standards in the Netherlands are among the highest in the OECD, and over recent years growth has strengthened and unemployment has fallen.

This most recent survey focuses on labour utilisation, which has been the main source of growth in the past decade, but which is likely to slow sharply with the ageing of the Dutch population. Improving work incentives is therefore a key imperative. Although labour-market participation rates are high, there are several groups who continue to be less active.

This survey looks at the challenges threatening the prosperity of the Dutch economy, which include: addressing the effects of population ageing on the sustainability of the public finances; boosting the labour market involvement of under-participating groups; helping parents reconcile work and family responsibilities; and improving the immigration policy and the integration of migrants.

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Securing fiscal sustainability

The Dutch public finances are generally in a good condition. Following the breach of the 3% limit in 2003, an impressive fiscal consolidation programme brought the budget successfully back into surplus in 2006. The fiscal stance was, however, eased somewhat in 2007 at a time when the economy was already running out of available capacity. The draft budget for 2008 shows an improvement in the structural balance, reflecting a projected rise in natural gas revenues. A gradual further improvement is planned for later years. Given the high uncertainty surrounding short-term prospects in the international economy, the authorities should be prepared to allow a flexible operation of automatic stabilisers. Over the medium-term, the challenge of ageing looms large, but less so than in other countries, thanks to the well-funded second pillar pension system. Since the last Survey, the required consolidation for achieving fiscal sustainability has increased, reflecting both a re-assessment of future cost and revenue developments, but also an increase in life expectancy. A possible strategy to cope with the “sustainability gap” would be to run large budgetary surpluses for a long period of time, but this is likely to prove politically challenging. An alternative strategy is the adoption of incentives to increase participation in the labour market, including at older ages, so as to widen the revenue basis. It would also be important to enact measures containing age-related spending. Various proposals to reform the first pillar pension scheme, which besides health care expenditures accounts for the bulk of future deficits, are discussed in this chapter.

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