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Document 52022DC0621
Recommendation for a COUNCIL RECOMMENDATION on the economic policies of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands
Recommendation for a COUNCIL RECOMMENDATION on the economic policies of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands
Recommendation for a COUNCIL RECOMMENDATION on the economic policies of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands
COM/2022/621 final
EUROPEAN COMMISSION
Brussels, 23.5.2022
COM(2022) 621 final
Recommendation for a
COUNCIL RECOMMENDATION
on the economic policies of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands
{SWD(2022) 621 final} - {SWD(2022) 640 final}
Recommendation for a
COUNCIL RECOMMENDATION
on the economic policies of the Netherlands and delivering a Council opinion on the 2022 Stability Programme of the Netherlands
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Articles 121(2) and 148(4) thereof,
Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies 1 , and in particular Article 5(2) thereof,
Having regard to Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances 2 , and in particular Article 6(1) thereof,
Having regard to the recommendation of the European Commission,
Having regard to the resolutions of the European Parliament,
Having regard to the conclusions of the European Council,
Having regard to the opinion of the Employment Committee,
Having regard to the opinion of the Economic and Financial Committee,
Having regard to the opinion of the Social Protection Committee,
Having regard to the opinion of the Economic Policy Committee,
Whereas:
(1)Regulation (EU) 2021/241 of the European Parliament and of the Council 3 , which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transition, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility [was] updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.
(2)On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the reaffirmed joint commitment of the Porto Social Summit of May 2021 to further implement the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it identified the Netherlands as one of the Member States for which an in-depth review 4 would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was adopted on 5 April 2022 by the Council, as well as the proposal for the 2022 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which was adopted by the Council on 14 March 2022.
(3)Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt for example through higher energy and food prices and weaker growth prospects. The higher energy prices weigh particularly on the most vulnerable households experiencing or at risk of energy poverty. The EU is also seeing an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the Temporary Protection Directive was triggered 5 for the first time, granting displaced persons from Ukraine the right to legally stay in the EU, as well as access to education and training, labour market, healthcare, housing and social welfare.
(4)Taking account of the rapidly changing economic and geopolitical situation, the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any country-specific recommendations issued up to the date of submission of the modified plan.
(5)The General Escape Clause has been active since March 2020 6 . In its Communication of 3 March 2021 7 , the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative criterion. Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.
(6)Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability Programme, the fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures), excluding COVID-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth 8 . Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally-financed 9 primary current expenditure (net of discretionary revenue measures and excluding COVID-19 crisis-related temporary emergency measures) and investment.]
(7)On 2 March 2022, the Commission adopted a Communication providing broad guidance for fiscal policy in 2023, aiming at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination 10 . The Commission noted that, based on the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020-2022 to a broadly neutral aggregate fiscal stance would appear appropriate in 2023, while standing ready to react to the evolving economic situation. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate across Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its Semester spring package of late May 2022.
(8)With respect to the fiscal guidance provided on 2 March 2022, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transition and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second round effects via targeted and temporary measures; fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, and be differentiated across countries depending on their fiscal and economic situation, including as regards the exposure to the crisis and the inflow of displaced persons from Ukraine.
(9)On 29 April 2022, the Netherlands submitted its 2022 Stability Programme, in line with Article 4 of Regulation (EC) No 1466/97. The Netherlands has not submitted a National Reform Programme yet, as the programme will be integrated in the recovery and resilience plan.
(10)The Commission published the 2022 country report for the Netherlands 11 on 23 May 2022. It assessed the Netherlands’ progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed the Netherlands’ progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals.
(11)The Commission carried out an in-depth review under Article 5 of Regulation (EU) No 1176/2011 for the Netherlands and published its results on 23 May 2022 12 . The Commission concluded that the Netherlands is experiencing macroeconomic imbalances. In particular, vulnerabilities relate to high private debt and a large current account surplus, which carry cross-border relevance.
(12)On 20 July 2020, the Council recommended the Netherlands to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended the Netherlands to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, based on data validated by Eurostat, the Netherlands’ general government deficit decreased from 3.7% of GDP in 2020 to 2.5% in 2021. The fiscal policy response by the Netherlands supported the economic recovery in 2021, while temporary emergency support measures amounted to 3.3% of GDP in both 2020 and 2021. The measures taken by the Netherlands in 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were temporary or matched by offsetting measures. Based on data validated by Eurostat, general government debt stood at 52.1% of GDP in 2021.
(13)The macroeconomic scenario underpinning the budgetary projections in the 2022 Stability Programme is realistic. The government projects real GDP to grow by 3.6% in 2022 and 1.7% in 2023. The Commission’s 2022 spring forecast projects a similar real GDP growth of 3.3% in 2022 and 1.6% in 2023. In its 2022 Stability Programme, the Government expects that the headline deficit will remain at 2.5% of GDP in 2022 and decrease to 2.3% in 2023. According to the Programme, the general government debt-to-GDP ratio is expected to decrease to 53.1% in 2022, and to 52.7% in 2023. Based on policy measures known at the cut-off date of the forecast, the Commission 2022 spring forecast projects a government deficit for 2022 and 2023 of 2.7% of GDP and 2.1% respectively. This is higher than the deficit projected in the 2022 Stability Programme for 2022, mainly because the Programme only partially included measures taken in response to the high energy prices, and slightly lower for 2023, mainly due to a lower level of gross fixed capital formation and other expenditure expected by the Commission. The Commission 2022 spring forecast projects a lower general government debt-to-GDP ratio of 51.4% in 2022 and 50.9% in 2023. The difference is due to a different forecast for nominal GDP.
Based on the Commission spring 2022 forecast, the medium-term (10-year average) potential output growth is estimated at 1.5%.
(14)In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency support measures are projected to decline from 3.4% of GDP in 2021 to 0.9% in 2022. The government deficit is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission spring 2022 forecast are estimated at 0.7% of GDP in 2022 and phased out in 2023. 13 These measures mainly consist of social transfers to poorer households and cuts to indirect taxes on energy consumption. These measures have been announced as temporary. However, in case energy prices remain elevated also in 2023, some of these measures could be continued. One of these measures is not targeted, notably the cut to indirect taxes on energy consumption. The government deficit is also impacted by the costs to offer temporary protection to displaced persons from Ukraine, which in the Commission 2022 spring forecast are projected at 0.1% of GDP in both 2022 and 2023 14 , as well as the increased cost of defence expenditure by 0.1% of GDP in 2023.
(15)On 18 June 2021, the Council recommended that in 2022 the Netherlands 15 pursues a supportive fiscal stance, including from the impulse provided by the Recovery and Resilience Facility, and preserves nationally-financed investment. It also recommended the Netherlands to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term, and at the same time, to enhance investment to boost growth potential.
(16)In 2022, based on the Commission’s 2022 spring forecast and including the information incorporated in the Netherlands’ 2022 Stability Programme, the fiscal stance is projected in the Commission 2022 spring forecast to be supportive, at -2.6% of GDP, as recommended by the Council. 16 The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain stable compared to 2021 17 . Nationally-financed investment is projected to provide a neutral contribution to the fiscal stance of 0.0 percentage points in 2022. 18 Therefore, the Netherlands plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide an expansionary contribution of 2.0 percentage points to the overall fiscal stance. This significant expansionary contribution includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (0.7 % of GDP) as well as the costs to offer temporary protection to displaced persons from Ukraine (0.1 % of GDP), while, amongst others, additional climate measures (aimed at reduction of greenhouse gas emissions, and at the promotion of sustainable energy) and measures in the field of education (reskilling, training of teachers) are also projected to contribute 0.3% of GDP and 0.2% of GDP respectively to the growth in net current expenditure.
(17)In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at +0.5% of GDP on a no-policy change assumption. 19 The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain unchanged compared to 2022. Nationally-financed investment is projected to provide an expansionary contribution to the fiscal stance of 0.1 percentage point in 2023. 20 At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a contractionary contribution of 1.0 percentage points to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (0.7 % of GDP).
(18)In the 2022 Stability Programme, the general government deficit is expected to gradually decline to 2.5% of GDP in 2024, before rising to 2.9% by 2025. Therefore, the general government deficit is planned to remain below 3% of GDP within the Programme horizon. These projections assume some additional fiscal consolidation measures that are not yet specified. According to the Programme, the general government debt-to-GDP ratio is expected to increase by 2025, specifically increasing to 53.1% in 2024 and further to 54.4% in 2025. Based on the Commission’s analysis, debt sustainability risks appear medium over the medium term.
(19)Distortions in the housing market contribute to rapidly rising house prices and high household indebtedness, which makes households vulnerable to economic shocks. House price growth surged in 2021 with an annual growth rate of 15% and there are increasing signs of overvaluation in the housing market, which increases risks and vulnerabilities. While mortgage interest tax deductibility is being reduced gradually, the reduction is only partial, with the tax relief it provides on mortgage payments remaining generous. Together with relatively high borrowing limits (loan-to-value), this continues to contribute to a strong debt bias for households. At the same time, the private rental market remains small and underdeveloped. The lack of a well-functioning middle segment on the rental market encourages households to buy rather than rent, contributing to high debt-to-income ratios and financial vulnerability. Rigidities on the supply side add to the distortions in the housing market. The relatively inelastic supply of homes increases the risk that policies meant to make housing more affordable end up stimulating demand and ultimately drive house prices up further, thereby undermining the policies’ original objective.
(20)While the pension system performs well on pension adequacy and fiscal sustainability, the occupational pension system (second-pillar) has drawbacks in terms of intergenerational fairness, transparency of pension rights and flexibility. Second-pillar pension contributions are high and potentially large adjustments to contributions could be needed to absorb imbalances in pension funds’ balance sheets. The large mandatory savings also contribute to the current account surplus. A reform of the pension system could make pension funds more resilient to shocks. Following a framework agreement on broad principles for pension reform in 2019, the government and social partners agreed on a new second-pillar contract structure in June 2020. Overall, the planned reform aims to address the pension system’s key vulnerabilities. Legislative measures to implement the agreed pension reform are set to be discussed and adopted by the Dutch parliament in the course of 2022. The main challenge will then be to implement the reform in full, which will need to be carefully monitored.
(21)The Netherlands submitted the cohesion policy programming documents 21 on 22 December 2021, 23 December 2021 and 22 March 2022. In line with Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021, the Netherlands shall take into account the relevant country-specific recommendations in the programming of the 2021-2027 cohesion policy funds. This is a prerequisite for improving the effectiveness and maximising the added value of the financial support to be received from cohesion policy funds, while promoting the coordination, complementarity and coherence between these funds and other Union instruments and funds. The successful implementation of the cohesion policy programmes also depends on the removal of bottlenecks to investment to support the green and digital transition and balanced territorial development.
(22)The share of flexible employment remains high and represents a substantial share of the labour market in the Netherlands. This points to an increasing risk of labour market segmentation. The use of these types of employment is to a considerable extent influenced by institutional factors and national policy choices such as differences in tax treatment (for the self-employed without employees), social security coverage and labour protection regulations. These distinct drivers and institutional factors create large financial (dis)incentives, with particularly distortive effects at the margins of the labour market. The COVID-19 pandemic also highlighted the risks of a segmented labour market and the unfavourable employment and social situation of certain groups, as well as the significant challenges in terms of access to adequate social protection for the self-employed that are more often underinsured against sickness, disability, unemployment and old age. In addition, further measures to clarify the qualification of the working relationship of self-employed and enforcement of applicable rules could help reduce bogus self-employment.
(23)Labour shortages have increased further and have become more general across sectors in line with the overall economic recovery and pick-up in labour demand. Labour market forecasts point to a continued tight labour market in the future and in particular for education, healthcare, technical jobs and in the ICT sector. In the near term, shortages are also very high in construction. The tight labour market risks hampering the large investments needed as part of the green and digital transition. At the same time, there is untapped or underutilised labour, in particular in light of the lower employment rate for people with a migrant background and the high share of part-time employment. Incentivising an increase in the number of hours worked by part-time workers, many of whom are women (62.5% of employed women worked part-time in 2021), could further reduce the existing labour market shortages and reduce the average gender pay and pension gap. Activating and up-skilling or re-skilling of the inactive (those neither working nor seeking work), those in long-term unemployment and those at the margins of the labour market via targeted and tailored actions could help alleviate labour and skills shortages while fostering equal opportunities and active inclusion.
(24)In response to the mandate by the EU Heads of State or Government set out in the Versailles Declaration, the REPowerEU plan aims to phase out the European Union’s dependence on fossil fuel imports from Russia as soon as possible. For this purpose, the most suitable projects, investments and reforms at national, regional and EU level are being identified in dialogue with the Member States. These measures aim to reduce overall reliance on fossil fuels shift fossil fuel imports away from Russia.
(25)Dependence on fossil fuels is very high. According to 2020 data, dependence on fossil fuels from Russia is at the same level as the EU average for coal (54%) and crude oil (26%) and lower for natural gas (30% versus 44%). 22 The shares in the energy mix of oil (39% versus 33%) and natural gas (44% versus 24%) are both above the EU average, while the share of coal is lower (6% versus 11%). The reliance on fossil fuels could be lowered overall by increasing investment in renewables and electrification, addressing infrastructure bottlenecks and boosting energy efficiency. Stepping up efforts to meet the EU 2030 renewable energy targets is crucial. The Netherlands was the fifth worst performing Member State in terms of the share of renewable energy in the gross final energy consumption in 2020, and has one of the largest gaps between the 2020 share and the 2030 targets. Additional investments are needed to increase renewable energy deployment, as well as to increase the grid capacity necessary to transmit renewable energy from production sites to consumption sites. Building up grid capacity is especially important given that capacity constraints in the electricity grid continued to increase in 2021, leading to implementation delays for renewable energy projects. Administrative procedures for deploying renewable energy capacity could be further simplified and streamlined. New infrastructure and network investments related to gas are recommended to be future-proof where possible, in order to facilitate their long-term sustainability through future repurposing for sustainable fuels. Moreover, increasing energy efficiency provides a cost-efficient opportunity to further reduce carbon emissions and dependence on fossil fuels, including on imports from Russia. In particular, there is scope for improvements in relation to building renovations and the roll-out of heat pumps and district heating in the building sector, as well as through the electrification and provision of clean energy for energy intensive industries. Further increase in ambition for reducing greenhouse gas emissions and increasing renewables and energy efficiency will be needed for the Netherlands to be in line with the ‘Fit for 55’ objectives.
(26)Further investments in transport infrastructure could help remove bottlenecks and support sustainable mobility. Rail and road infrastructure is congested. The Dutch railway network is the most heavily used in Europe. The Netherlands is deploying the European Rail Traffic Management System to support the increase in its railway network capacity. In 2019, road congestion, albeit slightly below the EU average, was estimated to have cost 4% of annual Dutch GDP. Investments in sustainable mobility infrastructure can have positive spill over effects for the single market, given the importance of Dutch transport hubs (Port of Rotterdam, Schiphol airport) and reduce further the high dependency of the country towards oil (39% of the energy mix in 2020).
(27)Excessive nitrogen deposits are harming the environment and holding back construction and agricultural activities. The nitrogen surplus is four times the EU average while ammonia emissions per hectare are the highest in Europe. Nitrogen deposition is too high to achieve biodiversity objectives, it affects the quality of water and results in the Netherlands exceeding the thresholds of the Nitrates Directive. Further to a ruling of the Council of State in 2019, the Dutch government needs to take action to reduce nitrogen deposition in Natura 2000 areas. To further reduce nitrogen deposits, a shift towards sustainable agriculture is needed, which requires significant investments. Agriculture is responsible for 45% of nitrogen deposits notably because of intensive livestock farming. This makes it the country with the highest livestock density in the EU.
(28)While the acceleration of the transition towards climate neutrality and away from fossil fuels will create significant restructuring costs in several sectors, the Netherlands can make use of the Just Transition Mechanism in the context of cohesion policy to alleviate the socio-economic impact of the transition in the most affected regions. In addition, the Netherlands can make use of the European Social Fund Plus to improve employment opportunities and strengthen social cohesion.
(29)In the light of the Commission’s assessment, the Council has examined the 2022 Stability Programme and its opinion 23 is reflected in recommendation (1) below.
(30)In view of the close interlinkages between the economies of euro area Member States and their collective contribution to the functioning of the Economic and Monetary Union, the Council recommended that the euro area Member States take action to implement the recommendation on the economic policy of the euro area. For the Netherlands, this is reflected in particular in recommendations (1) and (3) below.
(31)In the light of the Commission’s in-depth review and this assessment, the Council has examined the 2022 Stability Programme. Its recommendations under Article 6 of Regulation (EU) No 1176/2011 are reflected in recommendations (1) and (4) below. Recommendation (1) also contributes to the implementation of the Recommendation for the euro area, in particular the first euro area recommendation. Fiscal policies and other policies referred to in recommendation (1) and (4) help inter alia address imbalances linked to the large current account surplus. Policies referred to in recommendation (1) also help address imbalances related to high private debt.
HEREBY RECOMMENDS that Netherlands take action in 2022 and 2023 to:
1.In 2023, ensure that the growth of nationally-financed current expenditure is in line with an overall neutral policy stance, taking into account continued temporary and targeted support to households and firms most vulnerable to energy price hikes and to people fleeing Ukraine. Stand ready to adjust current spending to the evolving situation. Expand public investment for the green and digital transition and for energy security, including by making use of the RRF, RePowerEU and other EU funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent medium-term fiscal positions. Reduce the debt bias for households and the distortions in the housing market, including by supporting the development of the private rental sector, and taking measures to increase housing supply. Enact and implement the reform of the pension system agreed in 2019 and 2020.
2.Swiftly finalise the negotiations with the Commission of the 2021-2027 cohesion policy programming documents with a view to starting their implementation.
3.Promote adequate social protection for the self-employed without employees, tackle bogus self-employment and reduce the incentives to use flexible or temporary contracts. Address labour and skills shortages, in particular in healthcare, education, digital and technical jobs and construction, including by tapping underutilised labour potential originating from the high share of part-time employment and the lower employment rate of people with a migrant background. Strengthen up- and reskilling opportunities, notably for those at the margins of the labour market and the inactive.
4.Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, in particular by boosting complementary investments in network infrastructure and further streamlining permitting procedures, improving energy efficiency, in particular in buildings, and accelerating investments in sustainable transport and sustainable agriculture.
Done at Brussels,
For the Council
The President