Title page 1

Contents 5

Foreword 4

Basic statistics of the Netherlands, 2024 8

Executive Summary 9

1. Supporting growth while preserving strong public finances 18

1.1. The Dutch economy remains resilient 19

1.1.1. Growth picked up again 19

1.1.2. The labour market remains tight 20

1.1.3. Strong wage growth sustains inflation 21

1.1.4. Trade integration is deep 22

1.1.5. Investment and productivity growth are sluggish 25

1.1.6. The economy will grow moderately amidst downside risks 27

1.2. Financial risks appear contained but warrant continued monitoring 28

1.2.1. Close monitoring of the housing market should continue 29

1.2.2. A large non-banking finance market could pose vulnerabilities 31

1.2.3. Adapting supervisory toolkits to cyber risks and climate-related risks 31

1.3. Fiscal adjustments are required to support public finances and growth 32

1.3.1. Budgetary prudence is key to sustain the recovery 32

1.3.2. Reforms are necessary to safeguard public finances 38

1.3.3. Implementing fiscal reforms to tackle spending pressures 41

1.3.4. Enhancing tax efficiency to support growth 44

References 52

2. Advancing decarbonisation and adaptation policies 55

2.1. Climate goals appear out of reach despite progress in decarbonisation 56

2.2. Delivering additional and rapid mitigation to achieve 2030 targets 58

2.2.1. Phasing out implicit fossil fuel support 59

2.2.2. Accelerating the adoption of heat pumps and electric vehicles 61

2.3. Stepping up electrification to deliver energy security and net zero 62

2.3.1. Increasing grid capacity and flexibility 63

2.3.2. Providing a consistent policy path beyond 2030 64

2.4. Continuing adaptation to contain the costs of climate change 65

2.4.1. Broadening the national adaptation strategy 65

2.4.2. Clarifying the repartition of climate risks 66

References 69

3. Towards a more accessible and sustainable housing market 72

3.1. The Netherlands is struggling with a lack of affordable housing 73

3.2. Promoting housing tenure neutrality 75

3.2.1. Phasing out favourable tax treatment for owner-occupied dwellings 75

3.2.2. Improving incentives in both non-market and market rental segments 78

3.3. Ensuring that housing supply is sufficient to meet demand 82

3.3.1. Streamlining permitting procedures and regulations 82

3.3.2. Broadening land value capture tools 85

3.3.3. Increasing labour supply and productivity in construction 86

3.4. Towards a comprehensive longer-term strategy for the housing sector 87

References 89

4. Preserving trade competitiveness amidst increasing global fragmentation 92

4.1. Adapting to a changing global trade landscape to remain competitive 93

4.2. The Netherlands' competitiveness is underpinned by its open economy 95

4.2.1. Trade openness shapes economic performance 95

4.2.2. A strategic hub for capital and foreign direct investment 98

4.2.3. Strong global value chain integration contributes to competitiveness 99

4.3. Making supply chains more resilient 104

4.3.1. Strategies to mitigate supply chain risks can be strengthened further 104

4.3.2. Enhancing monitoring of high-risk dependencies in supply chains 105

4.3.3. Reducing dependence on critical raw materials for the digital and green transition 106

4.3.4. Reducing dependencies from fossil fuels 110

4.3.5. Supporting firms in diversifying trade relations 113

4.4. Leveraging digitalisation and AI to improve trade performance 115

4.4.1. Streamlining border procedures 116

4.4.2. Increasing logistical efficiency in key transport hubs 116

4.4.3. Reducing vulnerabilities to cyberattacks that could harm trade and supply chains 117

4.5. Raising international competitiveness by fostering a dynamic and innovative business environment 118

4.5.1. Balancing industrial policy without distorting trade 119

4.5.2. Supporting business entry and growth 121

4.5.3. Boosting innovation and access to finance 123

4.5.4. Supporting businesses to raise competitiveness by addressing labour market constraints and developing talent 126

References 130

Tables 7

Table 1. Growth will moderate 12

Table 1.1. Macroeconomic indicators and projections 27

Table 1.2. Low-probability events that could lead to major changes in the outlook 28

Table 1.3. Fiscal indicators and projections 35

Table 1.4. The three income boxes 36

Table 1.5. Net primary expenditure growth 37

Table 1.6. Estimated budgetary impact of selected fiscal policy recommendations 40

Table 1.7. Estimated growth impact of selected structural policy recommendations 40

Table 1.8. Past recommendations on the tax-benefits system and on childcare 47

Table 1.9. Findings and recommendations on supporting growth while preserving strong public finances 51

Table 2.1. Past recommendations on climate and energy policy 57

Table 2.2. The Netherlands' 2030 climate and energy targets 59

Table 2.3. Findings and recommendations on advancing decarbonisation and adaptation policies 68

Table 3.1. Support for homeowners and homebuyers 77

Table 3.2. Support and regulation for rental housing 80

Table 3.3. Past recommendations on balancing the housing market 82

Table 3.4. Government programmes to support affordable housing development 83

Table 3.5. Land value capture tools 86

Table 3.6. Past recommendations on increasing housing supply 86

Table 3.7. Findings and recommendations towards a more accessible and sustainable housing market 88

Table 4.1. Dutch energy intensive industries are important for the country's exports 111

Table 4.2. Past recommendations on R&D investment 126

Table 4.3. Past recommendations on education and lifelong learning 129

Table 4.4. Findings and Recommendations to preserve trade competitiveness amidst increasing global fragmentation 129

Figures 5

Figure 1. The Dutch economy outperforms European peers 10

Figure 2. Fiscal policy is expansionary 11

Figure 3. Electrification is lagging across sectors 13

Figure 4. Housing supply has not kept up with changing demographics 14

Figure 5. Smaller firms less commonly use digital technologies than larger ones 15

Figure 1.1. The Dutch economy continued outperforming European peers 19

Figure 1.2. Consumption has been supporting GDP 20

Figure 1.3. The labour market remains tight 21

Figure 1.4. Strong wage growth sustains inflation 22

Figure 1.5. The external position is strong 22

Figure 1.6. Dependence on main trading partners and key exports is significant 23

Figure 1.7. Dutch exports are exposed directly and indirectly to a decline US import demand 24

Figure 1.8. Investment and productivity growth are sluggish 25

Figure 1.9. The Dutch financial system remains robust 29

Figure 1.10. House prices have picked up again 30

Figure 1.11. The budgetary deficit is widening, though from a strong fiscal position 34

Figure 1.12. Structural fiscal adjustments are needed to stabilise public debt over the long run 38

Figure 1.13. Fiscal and structural reforms can help tackle rising ageing costs 39

Figure 1.14. The public sector is sizeable 42

Figure 1.15. Both tax expenditures and labour taxes are high 43

Figure 1.16. Capital is invested in illiquid assets 45

Figure 1.17. The tax-benefits system features implicit gender biases 48

Figure 1.18. Perceived corruption appears low 50

Figure 2.1. Growth decoupled from emissions, but the green transition remains challenging 57

Figure 2.2. The Netherlands is not on track to reach its 2030 emission reduction targets 58

Figure 2.3. Large carbon price disparities weigh on decarbonisation 60

Figure 2.4. The deployment of heat pumps and electric vehicles could be accelerated 61

Figure 2.5. Enhancing grid capacity and flexibility is necessary to enable electrification 63

Figure 2.6. Insurance coverage against climate risk is relatively high 66

Figure 3.1. Housing affordability is challenged by a squeezed market rental segment and subdued housing supply 74

Figure 3.2. Simulations of required tax payments for housing 76

Figure 3.3. Tax relief for homeowners is high in the Netherlands 77

Figure 3.4. The share of rental dwellings owned by housing associations has declined 79

Figure 3.5. Housing supply has been unresponsive to prices contributing to the housing shortage 82

Figure 3.6. Too many houses are under-occupied 84

Figure 4.1. Trade barriers and disruptions have increased globally 93

Figure 4.2. Exports are a significant source of employment 94

Figure 4.3. The Netherlands is highly open to trade 95

Figure 4.4. Key trading partners are located within the European Union 96

Figure 4.5. Re-exports to EU member countries are large 97

Figure 4.6. The Netherlands' financial openness is supported by lean regulations on FDI 99

Figure 4.7. The Netherlands is deeply integrated into GVCs 100

Figure 4.8. The Netherlands strongly relies on foreign inputs for its production 101

Figure 4.9. The Netherlands relies more on foreign markets than most OECD countries 102

Figure 4.10. China and Russia are key suppliers for Dutch imports of critical raw materials needed for the green transition 106

Figure 4.11. The Netherlands is a leading EU country in the use of circular material 108

Figure 4.12. Higher emission prices are expected to shift the trade balance in the medium term 113

Figure 4.13. The Netherlands has diversified its trade relationships, also through increased trade with some emerging economies 114

Figure 4.14. Participants in trade missions are highest in BRIICS countries 115

Figure 4.15. The Netherlands is a top performer in trade facilitation 116

Figure 4.16. Business dynamism in the Netherlands is below EU average 121

Figure 4.17. The Netherlands has a lean regulatory framework in most areas 122

Figure 4.18. The insolvency framework is relatively stringent 123

Figure 4.19. R&D investment in the Netherlands is above OECD average 123

Figure 4.20. Small firms benefit comparatively more from R&D tax support than direct R&D funding 124

Figure 4.21. The Netherlands' venture capital market has grown, but seed financing remains limited 125

Figure 4.22. Smaller firms less commonly use digital technologies than larger ones 127

Figure 4.23. Many workers report inadequate computer and software skills for their job 128

Boxes 7

Box 1.1. US tariffs and Dutch trade: exposure and impact 24

Box 1.2. The nitrogen crisis: latest developments 25

Box 1.3. System-wide stress-testing of NBFIs: the case of the United Kingdom 31

Box 1.4. Budgetary implications of the September 2024 fiscal package 32

Box 1.5. Budgetary adjustments at the 2025 Spring Memorandum 33

Box 1.6. The personal tax system: income boxes 35

Box 1.7. Dutch value added tax: rates, exemptions, and revenue ratio 44

Box 3.1. The 2024 Affordable Rent Act 74

Box 3.2. Structure of the rental housing market in the Netherlands 78

Box 3.3. Addressing high construction costs: the case of Germany 87

Box 4.1. The Port of Rotterdam - A strategic trade hub for the Netherlands and European Union 98

Box 4.2. The Dutch economy is highly exposed to trade shocks - An overview of different scenario analyses 103

Box 4.3. Increasing supply chain resilience - The OECD policy toolkit 104

Box 4.4. The EU Critical Raw Materials Act 107

Box 4.5. Measures to incentivise the adoption of Eco-design principles - The example of Sweden 109

Box 4.6. Smart City Sweden - Sweden's export strategy on waste-to-energy technologies 110

Box 4.7. The EU Carbon Border Adjustment Mechanism (CBAM) 111

Box 4.8. The link between the green transition and the Netherlands' export performance 112

Box 4.9. Artificial Intelligence at the Port of Rotterdam 117

Box 4.10. The Netherlands Cybersecurity Strategy 2022-2028 118

Box 4.11. Recent industrial policy initiatives in the EU and the United States 119

Box 4.12. Good practices on industrial policies 120