2007 Progress Report on the Dutch National Reform Programme for 2005 – 2008

In the context of the Lisbon Strategy

1 Table of Contents

Part I General

Chapter 1 Tackling challenges 4

Part II Background

Chapter 2 Macro-economic policy 15

Chapter 3 Micro-economic policy 20

Chapter 4 Employment policy 42

Annexes

Annexe 1 Structural indicators / Dutch position 62

Annexe 2 EMCO indicators 66

Annexe 3 Contribution by the provinces 67

Part I General

3 1 Tackling challenges

1.1 The National Reform Programme (NRP) and the progress report

A new government with solid ambitions for growth and employment … A new coalition government made up of the Christian Democratic Alliance (CDA), the Labour Party (PvdA) and the Christian Union (ChristenUnie) took office early in 2007. The new Cabinet’s objectives dovetail well with the priority areas (see table 1.1) adopted during the 2006 European Council in the context of the Lisbon Strategy for growth and employment. Actions were linked to these priority areas during the 2007 Spring Council. Since the start of the new Cabinet’s term of office, the Minister of Economic Affairs Maria van der Hoeven has been coordinating the Lisbon Strategy at the political level.

The policy programme of the fourth Balkenende Government is called “Working together, living together”. It sets out the Cabinet’s policy plans for the period 2007-2011 based on six pillars. The Lisbon Strategy is reflected in three of the pillars. Table 1.1 shows a number of the most important Dutch measures. 1

Table 1.1: Cohesion between the Policy Programme and the EU priorities Policy Programme Innovative, competitive and Sustainable living environment Social cohesion enterprising economy Priority areas (Pillar 3) (Pillar 2) (Pillar 4) Participation - Increase labour market participation - Improve quality of education - Overall flexicurity policy Business climate - Reducing the administrative/ regulatory burden - Entrepreneurship as a permanent component of education - Expansion of electronic business counter Knowledge and - Promoting excellence in innovation education and research - Innovation programmes for societal challenges - Simplification of procedures for knowledge workers Energy and - Innovation programme for sustainability societal challenges: energy - Commitment to improving EU ETS - Tax greening - Public sector as launching customer

1 Pillars II, III and IV are the most relevant for growth and employment. Pillars I and VI relate to an active international and European role for the government and the public service sector respectively, and include several measures that are relevant for growth and employment. Pillar V, on safety, stability and respect, has no direct links with growth and employment.

4 … in close cooperation with social partners and local governments … In the first 100 days of its term, before adopting the Policy Programme, the Cabinet initiated a dialogue with the public, the social partners and local authorities. This demonstrates the Cabinet’s commitment to increasing social engagement. The social partners have contributed in various ways, not least during the Participation Summit, where agreements were made to increase labour market participation. During the Economic Summit the Cabinet spoke to business leaders about the future of the economy. As they did last year, the social partners will draft a report about their contribution to achieving the Lisbon objectives.

In the context of the Participation Summit, the Cabinet also made agreements with the Association of Netherlands Municipalities (VNG) since local authorities also make a valuable contribution to growth and employment. The agreement is aimed at helping social assistance benefit claimants and people not entitled to social security to enter the labour market, In the “Everyone takes part” project concrete policy measures are developed, together with the relevant national, regional and local actors, to get 200,000 more people into work in the next four years. The project will be presented at the state opening of parliament in September 2007. The social partners and local authorities were also involved, through the regular consultation bodies, in drafting this Progress Report.

In 2007 EU Member States are not required to submit a National Strategic Report on Social Protection and Social Inclusion (NSR). Since a new government took office the Netherlands reported the most important new policy focal points in the areas of social inclusion, pensions, health care and long-term care in the form of a short letter to the European Commission.

Box 1 Examples of local government involvement: The Hague and Eindhoven

- Municipalities are implementing the Work and Social Assistance Act. A number of

municipalities, including The Hague, is doing so in accordance with the ‘showroom model’.

The focus is on the activation chain of work and income, self-sufficiency and personal responsibility and cooperation with the partners in the chain (Centre for Work and Income

(CWI), Employee Insurance Schemes Implementing Body (UWV) and municipalities). In this

way, the Municipality of The Hague integrates services for jobseekers by providing a one- stop shop for all the services provided by these bodies. Employers, too, have just one account manager with whom they can make arrangements in a wide range of areas aimed at work and/or training for everyone. - In the Eindhoven region local authorities (21 municipalities), high-tech companies, institutions of education and knowledge-intensive organisations cooperate closely within the context of the Brainport agenda: Beyond Lisbon . Brainport aims to become a technology

hotspot in Europe. It is one of the most important drivers of the Dutch economy, accounting

for approximately 45% of national private spending on R&D.

… consistent with the recommendations and points requiring attention for the Netherlands. In order to do justice to the Cabinet’s policy ambitions, this progress report is more forward-looking than the previous progress report and offers a more future-oriented perspective on efforts to promote growth and employment. The country-specific recommendations for the Netherlands and points requiring attention as proposed by the European Commission and adopted by the 2007 Spring European Council will be given special attention. Table 1.2 shows recommendations and points requiring attention, including a few important measures that the Netherlands will be implementing in

5 these areas. The distribution of responsibility between the government and the social partners is specified further in chapter 4.

Table 1.2: Recommendations, points requiring attention and policy response for the Netherlands

Recommendation & points Policy response requiring attention Recommendation - Improve labour supply, - Improve financial incentives, enhance options for particularly with respect to combining work and care, strengthen market position women, older workers and of people aged 45+, stimulate diversity policy, combat vulnerable groups. discrimination, improve quality of education and prevent pupils’ leaving school early. Points requiring - Increase private investment in - SME innovation offensive, innovation programmes for attention R&D societal challenges, ‘key areas’ approach - Create one-stop shop for - One-stop shop has been realised. Also, more options hiring the first employee for electronic business counter. - Increase the number of hours - Tax measures that make working more rewarding, worked expansion of parental leave and pre-school and after- school care

Macroeconomic, microeconomic and employment measures are discussed in detail in chapters 2, 3 and 4 based on the 24 integrated guidelines. The most important developments in the four priority areas are described in this chapter, following the discussion of the economic situation.

1.2 Situation: robust economic picture The outlook for the Dutch economy remains favourable. Economic growth in the Netherlands is expected to be 2.75% in 2007, 2.5% in 2008 and is expected to exceed the euro zone average every year in the period 2006-2008.

Table 1.3 Real growth of GDP in % 2000 2001 2002 2003 2004 2005 2006 2007 2008 EU27 3.9 2.0 1.2 1.3 2.5 1.8 3.0 2.9 (f) 2.7 (f) Euro zone 3.9 1.9 0.9 0.8 2.0 1.5 2.7 2.6 (f) 2.5 (f) Netherlands 3.9 1.9 0.1 0.3 2.0 1.5 2.9 2.8 (f) 2.6 (f) Source: Eurostat 2007

The economic growth is broadly based. Domestic expenditure and exports each account for about half of GDP growth. This reflects the optimism among consumers and in the business community. Nevertheless, the Netherlands’ competitive position has still not recovered from the decline in the early years of this decade, which was brought about by significant increases in labour costs, including pension premiums. There has been a slight improvement in the competitive position in the past few years, but this years developments will be less favourable than last year, mainly due to the strength of the euro. On the other hand, ‘Made in Holland’ exports are profiting from favourable world trade developments.

A high business confidence index, improved profit margins and a higher degree of capacity utilisation are the key ingredients for further expansion of production capacity. The significant growth in investment in 2006 can largely be explained by the fact that companies were increasingly investing in expansion. Thanks to favourable economic developments, the number of business start-ups reached a record level in 2006. More than 90,000 people started a company last year, which is over 10,000 more than in 2005. All in all, these entrepreneurs set up nearly 85,000 new companies in 2006. 2

The effects of positive economic developments can also be seen on the labour market, which is showing increasing shortages: vacancies are rising and unemployment is falling rapidly. Since May 2007 the seasonally adjusted unemployment rate in the Netherlands has been 3.2%, the lowest in the EU-27 (where the average is 7%). 3 The unadjusted rate, which was 6.5% in 2005, is expected to fall to 4% in 2008. 4 As unemployment continues to fall and the number of job vacancies increases, the tension on the labour market is gradually rising, which is why contract wages are going up at an increasing rate and are projected to reach 3.25% in 2008. Nevertheless, the Netherlands is performing well in terms of labour market participation within Europe: in 2006, 74.3% of the working population were in paid employment, compared to 64.7% in the EU-25 (see annexe 1).

The Netherlands is aiming for a structural budget surplus of 1% of GDP in 2011 and yearly improvement of the actual balance. In addition to structural measures (including phasing out the transferability of the tax credit), the Cabinet is preparing the Netherlands to cope with the costs of demographic ageing. This improvement is extremely important for the stability of the financial/economic situation and brings the Netherlands into compliance with the EU-wide commitment to at least balance the budget by 2010. In addition, the Economic Structure Enhancement Fund (FES) input system is being modified to prevent it fluctuating with the price of oil, the euro exchange rate and production volume (see also section 3.4.2).

1.3 Tackling challenges

1.3.1 Participation in paid work

Despite favourable baseline conditions in the Netherlands … With a total participation rate of 72.4% and female employment of 66%, the Netherlands is in compliance with two of the three European labour force participation objectives. Participation of older workers is approaching the target of 50% (38.2% in 2000; 47.7% in 2006). However, the number of hours worked per week (30.9 hours) is approximately 18% below the EU-25 average (37.8 hours).

… and anticipated effects of previous measures … The previous Cabinet took measures to strengthen the labour market, such as changing the disability benefit scheme (introduction of the Work and Income (Capacity for Work) Act (WIA)), maintaining the social assistance benefit scheme (Work and Social Assistance Act), and reducing the maximum duration of unemployment benefit from five years to 38 months. These measures will have an effect in

2 Starter’s profile 2006, Chamber of Commerce. 3 CBS [Statistics Netherlands], ‘Werkloosheid Nederland laagste van EU’ (‘Dutch unemployment rate lowest in EU’), web magazine, 16 July 2007 4 CPB [Netherlands Bureau for Economic Policy Analysis], Zomerse vooruitzichten , CPB press release no. 22, 29 June 2007

7 the years to come . The WIA has already proved to be a major success; in addition to a sharp decline in the number of people on incapacity benefit, research shows that the number of benefit recipients who have undergone reassessment and are working is still increasing.

… the Cabinet and the social partners are committed to improving labour force participation … The current labour market offers employment opportunities for people in a weak position on the labour market. This is helping to increase the degree of participation and strengthen social cohesion. In the medium-term recommendations of the Social and Economic Council (SER) the central employers’ and employees’ organisations have pledged to strive for a participation rate of 80%. The Cabinet incorporated this target in its policy programme, aiming to achieve it by 2016, which means that employment will need to grow by approximately 500,000 annual work units. The Cabinet and the Labour Foundation ( Stichting van de Arbeid ) intend to effectuate a substantial step in that direction by 2011.

In its medium-term outlook, the Netherlands Bureau for Economic Policy Analysis (CPB) calculates an increase in employment of approximately 300,000 annual work units by 2011 (relative to 2006). This represents a major step towards the target of approximately 500,000 additional annual work units between 2000 and 2016. The CPB’s medium-term outlook takes the effects of the Cabinet’s policy into account where possible.

The Cabinet is focusing special attention on participation by women, older workers and vulnerable groups, because these groups account for the most unused labour capacity. The Cabinet aims to help 200,000 people who are far removed from the labour market to find jobs. The Cabinet has made agreements to that end with municipalities and employers’ and employees’ organisations.

With a view to increasing the labour market’s capacity to adapt, the Cabinet asked the social partners and others for advice regarding a government proposal to reform employment contract law. This review is in line with the shift from job security to employment security in a more dynamic economy. In this regard, the Netherlands is also in favour of the attention being paid to flexicurity at EU level. The Cabinet solicited the advice of the social partners, united in the Labour Foundation, regarding these reform proposals. On 30 August 2007, the Labour Foundation issued a sharply divided advisory report on both the need for change and the way in which the Cabinet believes this change should be made. The different positions will be examined in more detail. It should be noted that flexicurity is more than a statutory framework for using different types of contract and the related employment protection.

… and to increasing the number of hours worked… In addition to the fact that the full-time working week in the Netherlands is not long and could therefore be lengthened, there is also potential for increasing the number of hours worked by women in particular, because many of them have ‘small’ part-time jobs. To make use of this potential, tax incentives are being introduced to make paid employment more financially attractive (income-based additional combination tax credit and limitation of the transferability of the general tax credit) and to make it easier by providing a better supply of child care and expanding parental leave and pre-school and after-school care. In addition, during the Participation Summit it was decided to establish a ‘part- time plus’ task force to examine cultural aspects, ‘larger’ part-time jobs, labour force participation by women without paid employment, training and division of responsibility for care.

8 … whereby investing in human capital is extremely important. Increasing the quantity of working people is just one part of the equation. The Cabinet is also focusing on increasing quality by introducing measures to stimulate life-long learning and improve the quality of education. These measures will also have a positive effect on the business climate in the Netherlands. Modernising the law governing terms and conditions of employment could have the same effect.

1.3.2 Business climate

The Cabinet aims to increase the number of entrepreneurs … Enterpreneurship is an important driver for economic growth and contributes to the quality of life in society. Promoting entrepreneurial spirit starts at school and university, and the Cabinet wants to make entrepreneurship a permanent part of education.

… by making it easier for starters and SMEs to start and run a business… The Cabinet is going to simplify the start-up procedures so that in 2008 a company can be established within one week. One of the measures it will be taking to achieve this aim entails abolishing the minimum capital requirement. The Cabinet is introducing two important measures to bring the instruments for starters and small businesses more into line with their situation: a one-stop shop for hiring the first employee (employers need only contact the tax authorities) and expansion of the electronic business counter to give entrepreneurs access to government information and services 24 hours a day, 7 days a week. These measures meet the goals with respect to entrepreneurship that were set during the 2006 EU Spring Council. In addition, the Cabinet will broaden access to guaranteed credit and innovation credit for starters and rapidly growing businesses.

… and creating the right conditions for running a business … Following an earlier net reduction in the administrative burden of 25%, the Cabinet has decided to take measures to achieve a 25% net reduction in the regulatory burden (comprehensive problem-driven programme). To ensure that entrepreneurs notice the decreasing regulatory burden, the Cabinet has broadened its approach: in addition to reducing the administrative burden, the regulatory burden ensuing from substantive compliance costs, permits, supervision, grants, tendering procedures and services for entrepreneurs and administrative pressure will be tackled. The Cabinet will assess whether there actually is a noticeable reduction in the regulatory burden.

Another important precondition for a favourable business climate is accessibility/mobility. Traffic congestion is a major cost item for businesses, especially in the Randstad conurbation. To tackle this problem, the Cabinet has decided in favour of a phased introduction of a national system of fees charged per kilometre driven, based on time, place and the vehicle’s environmental properties. In this term of office the Cabinet will take the first step towards implementation of this kilometre fee while simultaneously phasing out the existing taxes (car and motorcycle tax (BPM), motor vehicle tax (MRB)).

…which is expected to have positive effects on knowledge and innovation. Entrepreneurship can have a positive effect on participation, because it offers good alternative access to the labour market. Entrepreneurship also stimulates knowledge development and innovation. Starters and small and medium-sized businesses are an important source of innovation and creative

9 ideas. Conversely, increasing innovative capacity – for example, by promoting higher education – enhances the Dutch business climate.

1.3.3 Knowledge and innovation

The Netherlands’ aim is to meet an R&D intensity target of 3% of GDP … The Cabinet announced its ambition to raise investment in R&D to 3% of GDP by 2010 (1% public, 2% private R&D) to meet its goal of strengthening the innovative capacity of the Dutch economy. According to the most recent figures, private R&D intensity was 1.02% in 2005 and public R&D intensity was 0.75% in 2004. Therefore, the greatest improvement still has to be made in private investment in R&D. Within the framework of the Innovation Platform’s Knowledge Investment Agenda, companies have expressed their intention to increase R&D expenditure by 5% a year. The initial figures on R&D spending by the top 25 Dutch R&D companies in 2006 show a clear increase (over 7.5% relative to 2005). The Cabinet is contributing to R&D intensity by increasing the funding for research and innovation amounting to more than 500 million euros by 2011.

… by promoting higher education and improving the quality of research … Having a highly educated work force is a vital precondition for enhancing innovative capacity. The Cabinet has therefore set a goal of increasing the number of highly trained workers in the Netherlands and reducing the number of students dropping out of secondary and tertiary education. By imposing a requirement for young people under 18 to obtain a qualification and a study/work requirement up to the age of 27, the Cabinet is encouraging young people to obtain a basic qualification and participate in the labour market. Creating scope for excellence and improving the international reputation of Dutch academic institutions and research institutes will attract the best students and researchers. Another Cabinet priority is to attract knowledge workers from abroad by, for example, simplifying the procedures involved. Admitting highly trained knowledge workers will improve the overall quality of the workforce, which will therefore have a positive effect on the Dutch business climate.

… and stimulating innovation in the SME sector. The Cabinet has launched an SME offensive, because the small and medium-sized enterprise sector has great potential for innovation. Small business owners do not always have the time, resources or basis to maximise their innovative activities. Broader use of innovation vouchers, the structural introduction of Small Business Innovation Research (SBIR) 5, R&D tax incentives and other measures should stimulate innovation in the sector.

Innovation will be geared towards key areas … The goal of the key-areas approach is to strengthen the Dutch economy by focusing the efforts of public authorities, knowledge institutes and companies on promising areas. The following six key areas have been designated: High-Tech Systems & Materials, Flowers & Food, Water, Creative Industry, Chemical Industry and the service area Pensions and Social Insurances. In addition, the Innovation Platform has designated “The Hague: Residence of Peace and Justice” as an emerging key area and ICT and Energy Transition as an innovation axis for all sectors of the economy. It is in these areas that the Netherlands aims to achieve and maintain a standard of international excellence, boost private R&D and persuade foreign companies to make knowledge investments. In the ‘Peaks in

5 In this programme, the government awards R&D contracts directly to the SME sector.

10 the Delta’ policy framework the regional economic policy dovetails with this approach by increasing the accessibility and availability of industrial parks in regions where clusters hold leading global positions.

… and specific attention will be paid to societal challenges. Within the framework of the project entitled ‘The Netherlands, Country of Enterprise & Innovation’, the interministerial Knowledge and Innovation Programme Department and the Innovation Platform will work together to strengthen the connection between knowledge and innovation on the one hand and the solutions to problems in society on the other hand. The approach is aimed not only at resolving social challenges, but also at boosting the competitive power of the Dutch economy. In 2008 innovation programmes aimed at tackling societal challenges will be launched in the areas of care, water and energy followed later by safety & security and agro-innovation.

1.3.4 Energy and sustainability

The Cabinet has great ambitions in the area of energy and sustainability … Reducing greenhouse gas emissions is a major worldwide challenge. The Netherlands has set itself ambitious reduction targets to contribute to global and European efforts to meet this challenge. It aims to cut energy consumption by 2% a year and, by 2020, to increase the share of sustainable energy to 20% and reduce greenhouse gases – preferably Europe-wide – by 30% relative to 1990.

… which can only be achieved through a smart combination of measures and European support … In the period between now and 2011 the Cabinet wishes to introduce a series of measures that will lay the necessary groundwork for achieving the targets by 2020. The measures have been selected based on cost-effectiveness and will be implemented at sector level. In addition to efforts to stimulate innovation through, for example, the innovation programme for sociaetal challenges on energy mentioned above, the Dutch climate strategy is comprised of three elements. First, the Netherlands is committed to a CO 2 pricing system; to improve on and expand the European emissions trading system. The second element is progressive standardisation, whereby ever-stricter standards are imposed on homes and other buildings, sustainable energy, cars and appliances over time. This kind of policy, especially as it affects cars and appliances, needs to come from the European Union. Third, the Netherlands wants to use tax greening to increase the financial benefits of products and services that contribute to the climate objectives. The role of government is to stimulate these developments, especially by using its procurement policy to support innovation and sustainability in the business sector (thereby acting as a launching customer), and by conserving energy and purchasing sustainable energy in order to become climate neutral as soon as possible.

… ever mindful of the need for security of supply and competitiveness. Along with climate issues, the Netherlands also recognises the importance of security of supply and competitiveness in its energy policy. The aforementioned measures, aimed at reducing the Netherlands’ dependence on fossil fuels, are the first step towards security of supply. At national level, the process of unbundling the regionally integrated energy companies has begun and must be completed by 1 January 2011. This will improve the functioning of the energy market and contribute towards security of supply. In addition, government efforts to create a North-West Europe energy market will continue unabated. A new element is the Netherlands’ ambition to be the ‘gas roundabout’ of Europe.

1.4 Closing remarks The sections above outline the new measures that the Cabinet intends to take to stimulate growth and employment. The Cabinet has also earmarked the funding that is needed to realise these measures. - With regard to labour market participation the Cabinet has incorporated the following block-grant funds in the 2008 Budget Memorandum: o child care envelope (€700 million) o labour market participation, from the participation, margins of society and poverty envelope (€170 million) o parts of quality of education, from the education envelope (€747 million) o labour market participation burden envelope (€1,200 million). - The Cabinet’s investments in the business climate are partly incorporated in the €200 million entrepreneurship envelope. - Part of the funding for knowledge and innovation can be found in the innovation, knowledge and research envelope (€300 million). - For energy and sustainability , the Cabinet has included, among others, a €500 million energy envelope in the policy programme. A detailed financial explanation of these items is provided in the financial sections of the background chapters 2, 3 and 4.

The above demonstrates the Netherlands’ firm commitment to the Lisbon Strategy. The Netherlands also wants to work towards implementing the Lisbon agenda at Community level. Member States cannot do it alone. Their initiatives must be supplemented with Community actions. For example, the ambitious objectives in the area of energy and climate can only be achieved through improvements in the European emissions trading system and progressive standardisation at EU level. The efforts of the Member States to lessen the regulatory burden will be effective only if real progress is also made at Community level to reduce the administrative burden that ensues from EU legislation.

Research and innovation policy in the Member States also depends on support at the level of European policy as regards a greater focus on the role of the business sector . Open and competitive markets, both within and outside Europe, are crucial. The EU can make the contribution that is required by continuing to improve the internal market and pursuing an open trade policy. The Netherlands is in favour of a European research and innovation area, and considers the recent knowledge transfer initiatives (e.g. the European patent strategy) to be a good example. Efforts must also be made at the EU level to attract the best researchers, establish up-to-date research facilities and reinforce excellent research through the European Research Council. It is important to allow forms of cooperation like JTIs and Article 169 initiatives like Eurostars to get going and evaluate them before new measures are proposed.

As stated above, the Netherlands supports the EU’s focus on flexicurity, and the Commission’s broad, integrated approach, and endorses the components of flexicurity identified by the Commission in its communication: various types of contracts, life-long learning, active labour market policy and a modern social security system.

Part II Background

13 2 Macroeconomic policy

2.1 Current situation and key challenges

The Dutch economy continues to develop favourably. 2008 looks set to be the third consecutive year of growth well in excess of the potential rate: while the potential rate of growth is around 2%, both 2007 and 2008 are expected to show growth rates of about 2.75%. The Netherlands has profited considerably from the growth in world trade in recent years.

However, the Netherlands’ competitive position has not yet recovered from the decline in the early years of this decade. At the same time, shortages are growing rapidly in parts of the labour market, which could lead to sharp wage increases, and growth in productivity is lagging behind that of other countries.

A number of shocks – largely from outside the Netherlands – have caused a temporary decline in public finances in 2007. Nevertheless, despite the setbacks, the balance for 2007 still more than meets the 3% deficit rule and is still in line with the European medium-term objective. However, this is not yet sufficient to achieve sustainable public finances.

The Cabinet has set a structural budget surplus target of 1% of GDP by 2011, with an annual improvement in the actual balance. In combination with a number of measures from the Coalition Agreement (including phasing out the transferability of the general tax credit) this will help improve the sustainability of public finances.

2.2 Policy for each guideline

Guideline 1 To secure the economic stability required for sustainable growth

Economic outlook The economic outlook for the euro zone and the world is favourable. GDP growth in the euro zone is expected to be 2.75% in 2007 and 2.25% in 2008. The Netherlands, too, is expected to experience robust and stable economic growth due to favourable developments in the countries that are its main trading partners and an increase in domestic demand. Domestic expenditure (consumption, investment and government spending) and exports both account for approximately half of economic growth in 2007 and 2008. GDP is expected to grow by 2.75% in 2007 and by 2.5% in 2008.

Unemployment is decreasing steadily and, based on the national definition, is expected to drop to 4% in 2008. The fall in unemployment could lead to a rapid increase in labour shortages. The contract wages in the market sector, i.e. wage levels agreed between the social partners in collective labour agreements (CAOs), would rise to 3.25% in 2008. Nevertheless, there will only be a slight increase in inflation to 2% in 2008. Labour productivity is expected to rise by 1.5% in 2007 and by 1.75% in 2008. Unit labour costs will increase in the manufacturing sector by 0.25% in 2007 and by 0.5% in 2008. The Netherlands’ competitive position will deteriorate because unit labour costs in competing countries are falling quickly (by 2.5% in 2007 and by 0.25% in 2008) and because of a rise in the effective exchange rate (2.25% in 2007 and 0.25% in 2008).

14 Budgetary outlook A short-term decline in the EMU balance is likely in 2007. In 2008 the EMU balance is expected to improve again. According to current information, an EMU balance of -0.4% of GDP can be expected in 2007. This is lower than the surplus of 0.2% of GDP predicted for this year in the 2007 Budget Memorandum. This temporary decline can be attributed in part to lower-than-expected revenues from natural gas (-0.4% of GDP) due to a decrease in oil prices and the mild winter. New information about the implementation of the 2007 budget also worsens the outlook, largely due to extra production in health care. Finally, development in the local government balance is positive (+0.2% of GDP).

In 2008 a surplus will be achieved of +0.5% of GDP, mainly because, in contrast to 2007, revenues are expected to rise faster than GDP in 2008. In addition, the revenues from natural gas will improve the EMU balance by +0.2% of GDP in 2008 compared to 2007.

Table 2.1 Budgetary outlook 2005 2006 2007 2008 EMU balance NRP 2006 -0.3 0.1 0.2 NA Current -0.3 0.6 -0.4 0.5 Structural balance NRP 2006 0.6 0.4 0.0 NA Current 0.7 1.1 -0.3 0.4

Guideline 2 To safeguard economic and fiscal sustainability as a condition for creating more jobs Guideline 6 To contribute to a dynamic and well-functioning EMU

Sustainability of public finances and a healthy economic structure Like previous cabinets, this one is keenly aware of the policy and political challenges presented by an ageing population. In 2011, when the Cabinet’s term in office ends, the structural surplus will be 1%. In the interim years, the actual balance will rise each year, eventually reaching this surplus.

The Cabinet will take four structure-reinforcing measures, in addition to the balance targets, to improve the sustainability of public finances. With a view to sustainability, the Cabinet has a general objective of increasing labour market participation. An important step in that direction is the abolishment of the transferability of the general tax credit. As a result, lower-earning partners will benefit more from the enlargement of the labour supply. In addition, measures are being taken to make it easier to combine work and care responsibilities. This can help bring about the change in culture required to increase labour market participation (see also Chapter 4).

In order to ensure that the state old-age pension (abbreviated to AOW in Dutch) remains sustainable in the future, older people with a relatively high income will be asked to pay a contribution. This only applies to those born after 1945 (i.e. those who will be 65 years old starting in 2011) This can be done by working longer or by paying an extra levy. Freedom of choice is paramount. The system therefore has two components: a positive incentive for people to continue working longer and a means-based contribution. Finally, sensible development in health care and new care concepts will enhance sustainability.

15 By means of the structural balance target and structural measures the Cabinet prepares the country for the costs of demographic ageing. This package will make an important contribution towards improving the sustainability of public finances. This improvement is extremely important to the stability of the Dutch financial and economic situation. This objective will also enable the Netherlands to honour its commitment as an EU member state to at least balance the budget in structural terms by 2010.

Modern pension system and resistance to macroeconomic shocks In general, the Dutch system of fully funded pensions will help cover the costs of ageing. Recent developments in the area of pensions are also helping to make the Netherlands, and thus the EMU, more resistant to macroeconomic shocks.

The new Pension Act is primarily intended to modernise and technically revise the Pension and Savings Funds Act, which it replaces. The distribution of responsibility within the triangular relationship of employees, employers and pension administrators has been clarified and the supervision revised. These and other changes are aimed at making the Dutch pension system shockproof and future-proof.

In the Netherlands, the defined benefit system has by far the upper hand: approximately 90% of all pensions pay out defined benefits. An important shift within the defined benefit system is the shift from the final salary pension to pension based on a conditional index-linked average wage. Under this average wage system, pension entitlements are based on average earnings. The indexation of the nominal entitlements depends on the coverage ratio. Any cutbacks in the index linking of the pension entitlements therefore affect not only the benefits paid out (to pensioners), but also the entitlements of active participants. Indexation is consequently a more powerful instrument in this system than in a final-pay system, so premium hikes need not be as high in the event of an economic shock. The macroeconomic effects are also more limited, because labour costs are less volatile. As the Netherlands Bureau for Economic Policy Analysis (CPB) states in its report “Towards a shock-proof retirement system” (“ Naar een schokbestendig pensioenstelsel ”): “The widespread transition from final pay schemes to average pay schemes in recent years can, in this light, be considered favourable for the shock resistance of the system”. While the number of pension funds that have converted to average pay schemes is interesting enough, the actual number of participants who therefore now have an average pay scheme instead of a final pay scheme is spectacular because several large pension funds have made the switch. The table below provides an overview of the relevant figures.

Table 2.2 Final pay vs. average pay pensions as a percentage of the number of pension funds* Defined benefit, final pay Defined benefit, average pay 1998 61.4 (66.5) 15.5 (25.0) 2002 53.1 (54.3) 19.4 (31.6) 2006 37.8 (10.1) 33.7 (76.0) * Percentage of participants in brackets.

Guideline 3 To promote an efficient allocation of resources aimed at growth and employment Guideline 5 To promote greater coherence between macroeconomic policy, structural policy and employment policy

The Cabinet aims for stability in the macroeconomic environment and properly functioning markets and is therefore taking a number of measures to improve the way that the markets function. Chapter 3 provides more details regarding the relevant reforms in the product markets.

An example of micropolicy that also benefits macroeconomic development is the process of intensification in education, security and childcare. The promotion of independent entrepreneurship is another example. Entrepreneurs conduct business at their own risk and for their own account. The more entrepreneurs there are relative to the work force, the more flexible the economy is. The Cabinet is making it easier to transfer from employee to entrepreneur (i.e. employer) and vice versa. Tax and other incentives will be provided to encourage people to start a company – even while they are still employed elsewhere. A third example of micropolicy that will have favourable macroeconomic effects involves the combining of existing venture capital schemes so that they can be used more effectively to give starters and growing businesses better access to the capital market. The availability of microcredit for starters will also be improved. The SME sector will receive more attention and emphasis in this Cabinet’s term of office. The sector’s position will be improved by giving small and medium-sized enterprises greater access to innovation grants, innovation vouchers and government contracts.

Micropolicy will also positively impact the macro-economy in the form of a project aimed at reducing the regulatory burden for companies. This project will be broadened and deepened by means of a single comprehensive problem-based programme, coordinated by the Ministries of Finance and Economic Affairs. The aim is for the reduction in the regulatory burden to be noticeable for entrepreneurs (i.e. employers) by 2011 (see specific goals in chapter 3, section 3.2.4).

Finally, the unbundling of energy companies is yet another example of flexibilisation with favourable macroeconomic effects. This process will generate fairer competition between parties offering electricity and gas, which will result in flexible pricing and improve the quality of service. The expectation is that Dutch energy companies will become part of international companies that compete with each other on the European market. In the Cabinet’s view, independent network management must be maintained against the background of these developments because energy supply is a public good.

Guideline 4 To ensure that wage developments contribute to macroeconomic stability and growth.

The Netherlands’ competitive position was under pressure in the first five years of this decade due to sharp increases in labour costs, including pension premiums, and the stronger euro. During this period, labour costs rose in real terms by 16.2% more than in competing countries. Competitiveness has improved – although only slightly – in recent years, but it is expected to dip once again in the next few years due to rising labour costs and a lack of growth in productivity relative to competing countries.

Rapidly rising labour shortages are expected to result in an increase in contract wages of 2% this year and 3.25% in 2008. Employers’ social security contributions look set to rise next year due to an expected increase in the income-related health insurance contribution. Both these effects will push up wage costs in the market sector by 2.25% this year and 4.5% in 2008. Inflation is expected to rise from

17 1.5% in 2007 to 2% next year. Inflation will rise next year due to higher import prices, higher product- related taxes and a sharper increase in unit labour costs. The underlying inflation, which is revised for changes in energy prices and product-related taxes, will increase from 0.8% in 2006 to 1.25% this year and 2% next year. The rise in the underlying inflation rate reflects the increasing cyclical tension.

Table 2.3 Labour costs and competitiveness (% year-on-year) 2005 2006 2007 2008 Contract wages 0.7 2.0 1.75 3.25 Unit labour costs, manufacturing -1.4 -0.3 -0.25 0.5 sector Labour productivity in the market 2.7 2.0 1.5 1.75 sector CPI 1.7 1.1 1.75 2.0 Competitiveness (unit labour costs) 1.1 -1.3 -2.75 -0.75 Source: CPB Economic Outlook, June 2007 “Sunny prospects” (“Het blijft zomeren”)

18 3 Microeconomic policy

3.1 Situation and key challenges

The Cabinet aims for an innovative, competitive and entrepreneurial economy in a sustainable living environment. Room for entrepreneurship, a favourable business and investment climate, a high- quality knowledge infrastructure and stimulating research are key in this respect. This chapter describes the measures that the Cabinet intends to take to achieve progress in these areas.

The Cabinet’s ambitions regarding entrepreneurship and R&D dovetail well with the points requiring further attention in the context of the Lisbon Strategy. The Cabinet recognises the importance of and the need for entrepreneurship and is tackling the issues regarding entrepreneurship in education, expansion of the electronic business counter and the one-stop shop for entrepreneurs hiring their first employee, in addition to introducing a range of other measures as well. Increasing R&D intensity is also high on the political agenda.

In addition to the aforementioned issues, energy and sustainability pose a major (global) challenge. The Cabinet has formulated ambitious targets to help meet that challenge.

3.2 Policy for each guideline

3.2.1 Knowledge and innovation

Guideline 7 To increase and improve investment in R&D, especially in the private sector, with a view to creating a European knowledge area. Guideline 8 To facilitate all forms of innovation. Guideline 9 To facilitate the diffusion and effective use of ICT and build a fully inclusive information society. Guideline 11 (section on eco-efficient innovation) To encourage the sustainable use of resources and reinforce the synergy between environmental protection and growth.

In 2006, the previous Cabinet announced the ambition to invest 3% of GDP in R&D by 2010 (2/3 privately financed and 1/3 publicly financed). The official figures show that public R&D intensity was 0.75% in 2004 and private R&D intensity was 1.02% in 2005. This means that private R&D intensity is lagging furthest behind. Within the framework of the Innovation Platform’s Knowledge Investment Agenda, the ten largest R&D companies have expressed their intention to increase R&D expenditure by 5% per year. The initial figures for R&D expenditure by the top 25 Dutch R&D companies in 2006 show a clear increase in excess of 7.5% relative to 2005 6. The Cabinet is contributing to R&D intensity by increasing spending on research and innovation to reach more than €500 million in 2011.

Research shows that about 60% of the lag in R&D intensity in the Netherlands relative to the OECD average can be attributed to the specific sector structure of the Dutch economy 7. However, even given the sector structure, the Netherlands spends relatively little on R&D compared to the OECD average.

6 Technisch Weekblad , March 2007. 7 See H.P.G. Erken and M.L. Ruiter, Determinanten van de private R&D uitgaven in internationaal perspectief [Determinants of private R&D expenditure from an international perspective], Ministry of Economic Affairs, 2005

19 In addition, foreign companies conduct relatively little R&D in the Netherlands - measured in terms of the openness of the Dutch economy - which is another cause of low R&D spending. The sector structure makes it more difficult for the Netherlands to achieve an R&D intensity of 3% of GDP (Barcelona objectives) than for other EU countries. However, this structure is not a permanent fixture. Over time it could change by means of higher R&D spending. . The Cabinet is taking action to increase R&D intensity (more on this subject can be found under the heading ‘Innovation’).

A new governance structure has been introduced for innovation. First, a new Innovation Platform (IP) of high-ranking representatives from a range of fields has been set up to take the lead in advising on innovation opportunities. As an independent icebreaker, the IP will put forward ideas to encourage innovation. In addition, the new interministerial Knowledge and Innovation (K&I) Programme Department is formulating a long-term strategy for knowledge, innovation and entrepreneurship, based in part on the IP’s recommendations. Furthermore, K&I is - in cooperation with the IP - developing an innovation programme aimed at tackling societal challenges covered in the policy programme (energy, care, education and water). K&I will also tackle the themes safety & security, sustainable agriculture and possibly at a later stage the environment and mobility/transport. See also ‘Innovation programmes for societal challenges’ below for more information.

The Cabinet wants to make the set of instruments more accessible and better organised by reducing the number of innovation and enterprise schemes, streamlining the schemes and improving cooperation between executive agencies. It is too early to predict the exact results of these measures. In this context, the Ministry of Economic Affairs is currently one of the parties working on the Innovation Omnibus , which is a legal framework for supporting innovation programmes financially. The aim of the Omnibus is to increase access to the set of instruments and significantly improve the way in which they are organised. The Order in Council for the Innovation Omnibus is expected to come into effect in mid-2008. The Cabinet will promote cohesion between the use of European instruments for cohesion policy (Structural Funds, see § 3.4.3) in the Netherlands and the Framework Programme for Research and Technological Development (FP7) and the Competitiveness and Innovation Framework Programme (CIP) by, for example, improving the exchange of information about Dutch project partners and project outcomes.

Human capital – highly educated people The number of highly educated people continues to rise. The number of university graduates with degrees in science and technology is increasing steadily, while the number of science and technology graduates with degrees from universities of professional education (HBO) has been falling since 2004. A knowledge-based economy needs not only well-trained experts, but also highly trained and flexible professionals. This is where senior secondary vocational education (MBO) plays the role of supplier in that the MBO system provides approximately 27% of all first-year students in higher professional education (HBO).

This section discusses higher education, research and knowledge workers. For other topics related to human capital, such as early school leaving , basic qualifications, the obligation to study/work and lifelong learning, see § 4.4.

Several experiments in higher education have begun in the recent past:

20 1. Selection at the gate . This experiment will be evaluated at the end of 2007. The political decision- making process will take place in 2008. 2. Differentiation in tuition fees . Varying tuition fees in Dutch higher education based on the popularity of courses. This experiment will be evaluated at the end of 2007. The political decision- making process will take place in 2008. 3. Open system . An "open” system is one in which all education providers are subject to the same conditions for access to and operate in the regulated, publicly funded higher education market. The key features are an experiment with open registration and an experiment for HBO Small Business & Retail Management courses. The trial period ends in 2015. An interim evaluation will be carried out in 2010 to predict the effects that will emerge later (e.g. labour market effects). 4. Bill on study entitlements and tuition fees credit . The Bill had too little support in the education sector and will be replaced with another proposal for funding higher education that will be drafted in close consultation with educational institutions and students. The only thing that can be said about the proposal at this time is that funding will remain partly linked to student registration.

The Dutch universities score well in European framework programmes. The initial results within the context of the European Research Council (ERC) are positive and cooperation with the business community shows ongoing improvement. The Cabinet is taking measures to further strengthen the international status of research . It wants to apportion funding so as to reinforce the primacy of independent and fundamental research: not by imposing themes or dispersing money through institutions, but by ensuring that funding goes directly to the best researchers. The emphasis will shift to the development and utilisation of scope for creativity and to the independence of young researchers. The focus is on excellent, investigator-driven research. To further promote excellence in research, this Cabinet is committed to tailor-made Talent Programmes, such as the Renewal Impulse (Vernieuwingsimpuls ) and ASPASIA for women. In addition, the Cabinet is continuing the current Mozaïek programme for ethnic minorities. Large research facilities with a greater degree of international significance will be further strengthened and more scope will be created for excellence within doctorate programmes by adopting elements from US graduate schools.

The Cabinet is committed to increasing the Netherlands’ appeal to knowledge workers . The table below shows the number of applications for residence permits by knowledge migrants.

Table 3.1 Applications for resident permits by knowledge migrants 1st quarter of 2007 2006 2005 Submitted 1,579 3,934 2,007 Rejected 28 45 46 Approved 1,582 3,592 1,613 Source: Immigration and Naturalisation Service (IND) data

- In the past year it was decided to expand opportunities for foreign students and asylum seekers . Foreign students who graduate from a Dutch educational institution have one year, rather than three months, to search for a job and the minimum salary to qualify for the Knowledge Migrant Scheme has been lowered from €34,100 to €25,000. Most asylum seekers are now allowed to work a maximum of 24 weeks a year (previously it was 12 weeks). Artists, film workers and those providing technical support for the film industry are excluded from this arrangement; they are

21 permitted to work only 14 weeks a year because they are entitled to apply for unemployment benefit (WW) earlier. - In 2006 the Knowledge Migrant Scheme was expanded to include all researchers and the work permit requirement was abolished for foreign students participating in work experience programmes , and in 2007 the permit requirement for asylum seekers who wish to participate in a work placement programme as part of a vocational study programme was abolished. New, simplified procedures for admitting third-country nationals for the purpose of scientific research will come into force at the end of 2007, in accordance with the relevant EC Directive. - In the year ahead, the Modern Migration Policy Project will produce new legislation on the basis of the Cabinet’s memorandum ‘Towards a Modern Migration Policy’ (May 2006). The most important changes are: (1) an increase in transparency by reducing the multiplicity of schemes for different target groups to five uniform residence categories for temporary work, regular work & study, knowledge workers, family and humanitarian migration, (2) the Talent Scheme that has been announced, a points system for entrepreneurs, independent researchers and top creative talent and (3) the voluntary agreement system, a new distribution of responsibility between government, companies and institutions and migrants. The changes should bring the system more into line with real needs, increase selectivity, improve transparency and accelerate procedures.

Innovation Innovation is needed to increase productivity, especially as labour shortages increase, because shortages on the labour market tend to drive up wages and therefore have the potential to damage the Netherlands’ competitiveness. Consequently, the new Dutch government’s innovation policy has three general priorities:

1. SME innovation offensive : Small and medium-sized enterprises do not always have the time, resources or basis needed to maximise their tremendous potential for innovation. The SME offensive therefore encompasses a number of new initiatives and increases: - The CPB’s effect assessment (February 2007) shows that the use of innovation vouchers in the pilot projects carried out in 2004 and 2005 generated additional research contracts. The 2006 voucher project will be evaluated during the last six months of 2007. In view of the positive experiences with the vouchers thus far, the Cabinet has decided to broaden their application in order to promote exchange between SMEs and knowledge institutes. Vouchers will be available for all SMEs, in industry, agriculture and the service sector, and applications for the European Patent, ICT and sustainability will be explored. Proposals will be drafted in connection with the evaluation later this year. - On the basis of the experience gained from the nine pilot projects launched in 2005 and 2006, an Innovation Performance Contracts (IPC) scheme was introduced on 1 January 2007. The scheme aims to provide assistance to groups of small and medium-sized enterprises to collectively execute their own multi-annual innovation plan. Cooperation and knowledge transfer play an important role in this scheme and will therefore be fostered. The 15 to 35 companies that form a group within an IPC are substantively connected, for example they are all located in a particular geographical area, they all work in a particular sector, or they are all links in a product or service chain. A budget of €17 million has been earmarked for the IPC grant scheme in 2007. - The R&D tax incentives under the Research and Development (Promotion) Act (WBSO) tailored to SMEs: measures will include broadening the target group (also services), expanding the definition of the term ‘starter’ and extending the first tax bracket.

22 - The Cabinet intends to examine closely the question of whether it is necessary for small companies to always be bound by the same rules as large companies (“what’s good for the goose is not necessarily good for the gander”).

In addition, the following instruments are available to innovative SMEs: - The Challenger Facility provides credit to SMEs for innovative but risky projects that do not fit in with any of the themes of the innovation programmes. The 2007 budget for the Challenger Facility is €12.2 million. The facility will be expanded in 2008 to include innovation credit aimed at stimulating development projects (products, processes and services) that entail substantial technical and, consequently, financial risks and that are unable to attract sufficient (if any) funding on the capital market. - There are currently six Small Business Innovation Research (SBIR) pilot projects in progress. The Ministry of Economic Affairs is running a test project in the field of energy, and the Ministries of Transport, Public Works & Water Management, Defence, and Agriculture, Nature and Food Quality are also running pilot projects in their own areas. SBIR will be fully implemented in 2008. - A total of 113 technostarters have been launched or are about to be launched with funding from the Knowledge Exploitation Subsidy Programme (SKE). This has led to 54 patent applications. An annual budget of €10 million is available. In 2007 an additional €5 million in FES funding was provided to finance SKE proposals from the creative sectors. This will facilitate a total of three pilot projects in three different creative sectors: ICT & new media, fashion, and design.

2. Innovation programmes for societal challenges, aimed at good water management, renewable energy, public safety, a clean living environment, good health care and high-quality education. Innovation can play an important role in dealing with issues that affect society. Two objectives are accomplished at once: competitiveness is enhanced and societal issues are tackled. The Innovation Platform is currently drawing up an innovation programme aimed at tackling societal challenges, in collaboration with the new inter-ministerial Knowledge and Innovation Programme Department. The initial focus will be on energy, water, care, education, safety and agricultural innovation. These programmes will be broad-based, running from institutional preconditions and regulations and government as a launching customer to R&D investments and cooperation among the various links in the chain (including SMEs). Increased structural funding, rising to €80 million by 2011, has been earmarked for the innovation programmes for societal challenges to which key areas such as food, water, high-tech materials & systems, and chemicals can contribute.

3. Key-areas approach in innovation policy: The Netherlands is maintaining the course inspired by the Innovation Platform with regard to the key-areas approach. One of the aims is to achieve and maintain international excellence in specific areas (more focus and mass) and to drive up private R&D investments. This should significantly strengthen the appeal of the Netherlands to foreign investors looking to make knowledge investments. Five innovation programmes are currently running in the key areas: - Point One (June 2006): aimed at embedded systems and nano-electronics. Budget: €50.1 million over four years (2006-2009). - Food & Nutrition Delta (September 2006): aimed at healthy and convenient food and nutrition with a high added value. Reserved budget: €105.7 million over five years (2006-2010), of which €42.2 million for Topinstituut Food & Nutrition (formerly WCFS) for 2006-2008.

23 - Water Technology : aimed at water treatment technology. Budget: €42.5 million over five years (2006-2010). - High Tech Automotive Systems (June 2007): aimed at vehicle efficiency - reduced consumption and emissions - and encouraging motorists to alter their driving behaviour to increase safety and fuel efficiency. A grant of €40 million is available for 2007-2011. - Maritime Innovation Programme (July 2007): aimed at the maritime manufacturing industry and the offshore industry. Grant budget: €39.5 million for 2007-2012. It may be possible to launch a number of new programmes in 2008 based on the results of exploratory studies. These could include innovation programmes in relation to chemicals, life sciences & health, materials, and/or ICT and other services.

Box 2 Local government and innovation: the Twente innovation route The Twente Agenda, which is based on the Lisbon Agenda, is an area-based investment programme aimed at strengthening the socioeconomic structure in a sustainable way. The programme will lay the groundwork for a new economic foundation in the province of Twente. It takes the region’s strengths into account and is based on active cooperation and consultation between the business community, educational and research organisations and regional government. The programme focuses on five clusters: Food, Technology & Health, Technology & Safety, Materials & High-Tech Systems, and Construction. Twente-based companies, educational institutions and research organisations are investing €100 million in the Innovation Route. The regional government is matching their investment by also investing €100 million. With cofinancing from national and European programmes, the total investment target is €400 million.

In addition to the three general priorities outlined above, there are also the following generic innovation instruments: - With some 15,000 applications and a total budget of €425 million in 2007, the Research and Development (Promotion) Act (WBSO ) is the largest technology incentive scheme in the Netherlands. The recent evaluation (April 2007) shows that the WBSO works properly and provides a high level of added value for small and medium-sized enterprises in particular. In that light, it has been decided to increase structural funding for this instrument by an amount increasing to €115 million as of 2011, for example by broadening the definition of R&D to include process innovation and ICT research and development. In addition, an extra deduction will be created for existing companies (non-starters) embarking on R&D for the first time. Finally, consideration is being given to raising the limit up to which companies may profit from the high rate. - The Launching Customer (LC) plan of action, launched in 2006, aims to increase government awareness of how it can support innovation in the private sector through its procurement and tendering policy. The plan will be implemented in 2007 and 2008 and will have four main themes: 1) Awareness : raising awareness among policymakers and government procurement officials of the advantages of launching customership; 2) Knowledge and Information : the website www.launchingcustomer.ez.nl provides information about such matters as the advantages, costs and risks of LC and the connection between LC and the tendering guidelines; 3) Organisation and Coordination: a Chief Procurement Officer has been appointed to shape the extensive cooperation within central government; 4) Implementation : the Association of Netherlands Municipalities (VNG) has completed a project aimed at raising awareness at municipal level. SenterNovem will put

24 together knowledge teams to advise municipalities and other agencies on promoting innovation through tendering. - The Lower House of the Dutch Parliament has passed a bill amending the Patents Act . The Upper House is currently considering the bill. The changes are mainly intended to provide greater legal certainty by abolishing the entirely untested patent and to improve the accessibility of the patent system by lowering the threshold costs. - The Ministry of Economic Affairs’ Department of Foreign Investment in the Netherlands (DBIN) works closely with the Science and Technology Attachés (TWA), the Agency for International Business and Cooperation (EVD), the regions, SenterNovem and the knowledge clusters in the Netherlands in order to attract knowledge-intensive investments to the Netherlands . This entails seeking out knowledge-intensive companies and activities abroad. The TWAs form a link between Dutch and foreign knowledge institutes, high-tech companies and local and national government. - Together with regional development companies and large municipalities, DBIN runs an Investor Development (ID) programme. The purpose of the programme is to embed foreign investors that have established an office in the Netherlands, nurture the business climate, identify problems, and draw attention to planned new knowledge-intensive investments. In a promising development, the acquisition results for 2006 recently published by DBIN show that foreign investors are increasingly interested in establishing R&D operations in the Netherlands.

Social innovation To stimulate and support social innovation initiatives, the Cabinet and the social partners identify where potential problems lie and remove barriers. To this end, the Netherlands Centre for Social Innovation (NCSI) – a partnership of employers’ and employees’ organisations and institutions of higher education and research, subsidised by the Ministries of Economic Affairs, Education, Culture & Science, and Social Affairs & Employment – was officially launched in June 2006. Since then, the NCSI has initiated various activities, including launching a website ( www.ncsi.nl ) to provide knowledge and information about social innovation, organising workshops and seminars about social innovation, and carrying out and encouraging other parties to carry out practical experiments and programmes for change in sectors and companies. In the autumn of 2007 the NCSI website will launch a database containing a broad range of information about experiments, publications and research in the area of social innovation.

In the next few years, the TNO research institute will be running various social innovation research projects within the framework of the Smart Working / Work-Life Balance Targeted Financing Programme 2007-2010 ( Doelfinancieringsprogramma Slimmer werken / Arbeid en Zorg 2007-2010 ). The key question addressed by the programme is how government can encourage self-regulation and limit the regulatory burden to promote innovation and productivity in work organisations, whereby the employees’ talent is fully utilised without their work load being increased. The first concrete results of the Targeted Financing Programme will be available in 2008. A budget of €41.5 million in European Social Fund financing has been earmarked for the period covered by the programme (2007-2013) to promote social innovation.

Eco-efficient innovations Creating markets for sustainable products is an important instrument in effective environmental policy, and it also offers opportunities for new and innovative economic activity. The Cabinet therefore seeks to encourage companies to develop and market sustainable products. Central government is going to

25 work with other public and semi-public bodies to boost the market for sustainable products by setting a good example: as the country’s largest purchaser, central government will introduce a sustainability requirement in its procurement policy. As of 1 January 2008 sustainability criteria for all major product groups will be available to ensure that public authorities purchase only the most sustainable products. The Cabinet will also support the sustainable product markets by giving a boost to to the greening of the tax system: the 2008 tax plan will include new, concrete greening measures worth nearly 1 billion euros. For example, clean, fuel-efficient cars will become cheaper and dirty, inefficient cars will be more expensive, tax on environment-unfriendly fuels (such as red diesel) will increase and a packaging tax and an airline ticket tax will be introduced.

The 2006 Future Environment Agenda (under the theme ‘Environment’) announced a policy plan for agreements to be reached between government and business on eco-efficient innovations. A first step towards working out the details of this new approach has been taken in the form of a research report by Arthur D. Little entitled ‘Environmental Images for Dutch Industry in 2030’, which was commissioned by the Ministry of Housing, Spatial Planning and the Environment. The future scenarios indicate the environmental performance levels that industry can be expected to achieve by 2030 and identify the “major” existing environmental technologies that can be used to bring these performance levels within reach by 2030 and at what cost. The estimated marginal costs (in 2030) of existing technologies can be used as benchmarks to evaluate the cost-efficiency of emerging technologies. The environmental regulations (primarily from the EU) that Dutch industry can expect to face in 2030 will form the basis for an open dialogue between government and business about long-term environmental innovation agendas. This approach will supplement the existing set of instruments aimed at promoting the development and application of environmental technologies (e.g. MIA [the tax credit for environment-related investments] and VAMIL [the scheme for arbitrary depreciation of environmental investments]). In addition, the Environment and Technology Programme (ProMT) encourages industrial SMEs to develop and apply environmental technologies.

In 2008 the Cabinet will also initiate a number of innovation programmes for social challenges, including one aimed at energy (referred to above under the header ‘Innovation’). The sustainability accord between business and government, in which the business community pledges to support government ambitions and to make substantial, long-term efforts in areas such as innovation, also plays a role in this context (see §3.2.3 for more details).

Regional economic policy With the ‘Peaks in the Delta ‘ policy, central government is fostering opportunities of strategic national importance in specific regions. This policy comprises six programmes involving municipal and provincial governments, the private sector, knowledge institutes and central government. - The government has earmarked a total of €296 million for the implementation of the Peaks in the Delta programmes until the end of 2010, €80 million of which is intended for the northern part of the Netherlands. The other five programmes will receive €216 million, €25 million of which was released in 2006. Regional and local government will contribute another €296 million over the entire period until the end of 2010. - The programmes reflect the economic objectives that the regions want to achieve within the framework of Peaks in the Delta. The focus is on economic opportunities. For example, the programme for the southern part of the Randstad conurbation is dedicated to strengthening the port and industrial area in Rotterdam and the programme for eastern Netherlands is focused on

26 strengthening the knowledge concentrations around the universities of Nijmegen, Twente and Wageningen. - A tender system was used to allocate the first €25 million to projects in 2006. Interest was high: the tender was oversubscribed by nearly 2.5 to 1.

The Randstad Urgency Programme (UPR) is aimed at turning the Randstad conurbation into a leading sustainable and internationally competitive region. To achieve this goal, objectives have been set within the UPR according to the following three themes: - accessibility and a dynamic economy; - quality of life in an attractive living and working environment; - a climate-proof delta. The UPR incorporates comprehensive, region-based projects that contribute to the main objectives in the northern and southern regions of the Randstad, including Utrecht. In addition, the UPR introduces a new working method whereby two administrators are jointly responsible for each project. In the summer of 2007 ministers/state secretaries and the regional administrators made agreements concerning the approach to be taken, the distribution of responsibilities and the powers that may be used to overcome any administrative resistance that threatens to impede progress.

ICT The basic e-government facilities contribute to the reduction of the regulatory burden for the public and the business community (see also § 3.2.4, reduction of regulatory burden). By the end of 2006, 61% of the government’s services were provided electronically (target: 65%). The rate of use of electronic government services significantly exceeds the European average. Use of the national authentication facility DigiD has risen sharply: approximately 200 government organisations and more than five million citizens use DigiD. This increase is largely due to the obligation to use DigiD to file tax returns electronically. In addition, by the beginning of 2007 half of the municipalities were connected to the electronic business counter at the content level (§ 3.2.4 provides more information about the electronic business counter, one of the points requiring further attention for the Netherlands). In the coming period, more will be done to connect e-government building blocks to sector developments and continue developing facilities such as the personal webpage and the municipal authorisation facility.

3.2.2 Competitiveness Guideline 10 To strengthen the competitive advantage of the industrial base Guideline 12 To extend and deepen the internal market Guideline 13 To ensure open and competitive markets inside and outside Europe, to reap the benefits of globalisation

Internal market: implementation backlog In the first six months of 2007, the Netherlands fell just short of meeting its goal of reducing the implementation backlog to no more than 1.5% (the backlog was 1.6% (26 directives)). The backlog is due to directives of a purely technical nature, namely the 19 directives adapting the internal market rules to accommodate the accession of Romania and Bulgaria. The Netherlands expects to reduce the backlog to below 1.5% in the second six months of 2007, considering nine of the 29 directives requiring implementation in the next six months have already been implemented. Like last year, the

27 Netherlands is in compliance with the requirement to transpose into national law all internal market directives within two years of the deadline for implementation.

Internal market: implementation of the Services Directive Directive 2006/123/EC of the European Parliament and of the Council on services in the internal market (the Services Directive) came into force on 28 December 2006. The implementation term is three years. The Netherlands attaches great importance to the proper and timely implementation of the Services Directive, because the service market is growing for businesses and consumers, thus generating more opportunities for sales and more choice. Rules for businesses, e.g. for obtaining licences, will be simplified. Each Member State will establish an electronic counter where service providers can find everything they need to start a business in that country. Consumers will reap the benefits of increasing competition. To ensure timely and correct compliance with this comprehensive directive in the Netherlands, the Ministry of Economic Affairs has set up an interministerial project group with the Ministry of the Interior & Kingdom Relations and the Ministry of Justice. This project group will chart all the requirements and ensure that the bodies concerned – including all ministries, local authorities and the many executing agencies – make the necessary adjustments and take the action required to implement the directive to the best possible effect.

Competing markets Market regulation and competition policy 1. The Independent Network Management Bill ( wetsvoorstel Wet Onafhankelijk Netbeheer ) to split up the regional energy companies has been passed by both the Upper and Lower Houses of Parliament. The process of unbundling must be completed by 1 January 2011. (See also § 3.2.3) 2. The Lower House has passed the Bill for the new Postal Act . The aim of the new Act is to fully open up the postal market in the Netherlands as of 1 January 2008 by abolishing the monopoly on letters up to 50 grams while providing guarantees for universal postal services. This means that a basic, good-quality postal service will be offered nationwide at uniform and affordable rates. The Upper House will debate the Bill after the summer recess. 3. The new Public Procurement Act ( Aanbestedingswet ) is currently before the Upper House. The Act is expected to come into force midway through next year. The government intends to incorporate measures in the implementation regulations for the Act to facilitate a greater degree of uniformity and reduce disproportionate requirements. 4. Several experiments in higher education initiated in previous years to test selection at the gate and differentiation in tuition fees will be evaluated at the end of this year. Experiments with an open system are also in progress and will continue until 2015. (See also § 3.2.1). 5. The new health care insurance system introduced on 1 January 2006 has enabled market forces to play a larger role in the health care market. - Many insurance policyholders exercised their freedom to choose a health insurance provider. When the new Health Insurance Act was introduced in 2006, 18% switched to another insurance provider to take advantage of competitive insurance premiums. Fewer people – 4% – switched insurance companies in 2007, but another 4% took out a different policy without changing insurer. Insurance companies set competitive premiums that, in many cases, are lower than expected, which is good news for policyholders. The average annual premium in 2006 was €1028 (€78 or 7% lower than expected) and in 2007 it was €1103 (€31 or 3% lower than expected).

28 - Health insurance companies are required by law to provide the standard package to all applicants. 93% of insured persons have supplementary coverage, which suggests good accessibility. - Recent mergers of insurance companies may indicate that they are striving to improve efficiency. - Hospitals are funded by means of diagnosis and treatment combinations (DBC). The price of more than 90% of DBCs is fixed; 7.3% of the prices are currently negotiable. This means that price differences are transparent. The average price fell by 0.8% in real terms in 2006 compared to 2005. Prices stabilised in 2007. The percentage of negotiable DBCs will be further increased in the years ahead.

6. The Bill to introduce a compulsory excess amount in the Health Insurance Act has been sent to the Lower House. The Bill will replace the current no-claims rules (whereby insured persons could receive a refund of up to €255 at the end of the year if they had not purchased any health care services) with a compulsory excess amount of €150 (whereby insured persons pay the first €150 worth of care services themselves). People with chronic illnesses and disabilities who incur high, unavoidable medical expenses every year would also be subject to the compulsory excess amount, but would receive full financial compensation. This Bill will be debated in parliament in autumn 2007 and, if approved, it is expected that it will come into effect on 1 January 2008.

Increasing supervisory authority powers The Bill to amend the Competition Act as a result of the evaluation of that Act was passed by the Upper House on 26 June 2007. The amendment addresses the following issues: - the option of imposing fines on clients/actual managers; - the power of the Netherlands Competition Authority (NMa) to search private residences; - the power to impose structural measures, such as an order to dispose of a business unit, as an ultimate remedy; - bringing national merger control more into line with European merger control, one of the aims being to introduce higher maximum fines; - procedural changes, including the fact that an objection to or an application for a judicial review of an order by the NMa to pay periodic penalties will no longer have the effect of suspending the order.

The Health Care (Market Regulation) Act ( Wet Marktordening Gezondheidszorg , WMG), introduced on 1 October 2006, provided for the establishment of the Dutch Healthcare Authority ( Nederlandse Zorgautoriteit, NZa). One of the major objectives of the NZa is to put consumer interests first in its supervision of the markets for the provision and procurement of care and for health insurance. This relates to the creation and monitoring of markets as well as the regulation of the markets, including tariffs and financing of care. These tasks were carried out satisfactorily in 2006.

With the introduction of the Financial Supervision Act ( Wet op het financieel toezicht , WFT) on 1 January 2007 there is now a single law, supplemented with subordinate legislation, governing the supervision of the financial sector in the Netherlands. As a result, the legislation governing the financial markets is now effective, market-oriented and transparent. This has been achieved in part by consolidating eight separate acts into one, by formulating a single rule for as many subjects as possible and by regulating the tasks of and the collaboration between the Dutch central bank (De

29 Nederlandsche Bank – DNB) and the AFM (the Netherlands Authority for the Financial Markets) in their roles as the two supervisory authorities. The tasks of the DNB (prudential supervision) and of the AFM (supervision of conduct) have been clearly separated to prevent overlap. Furthermore, the rules that financial institutions have to comply with have been simplified and the administrative burden imposed on companies will be reduced as a result of the clear regulation of supervisory tasks.

The Consumer Protection (Enforcement) Act ( Wet handhaving consumentenbescherming ) was passed by the Upper House in November 2006 and, as a result, the Consumer Authority began operating on 1 January 2007. In addition to its enforcement task, the Consumer Authority is charged with the task of informing consumers about their rights and obligations. The website ‘ConsuWijzer’, an online information source provided by the Netherlands Competition Authority (NMa), the Independent Post and Telecommunications Authority (OPTA) and the Consumer Authority, received over 300,000 unique hits and 43,000 e-mail and telephone reports between the launch date, 1 October 2006, and 1 June 2007. In order to perform its supervisory tasks as effectively as possible, the Consumer Authority has opted for an enforcement programme based on five defined topics: misleading lotteries, internet, tourism sector, general terms & conditions, and guarantees & conformity. In addition, the Consumer Authority is investigating a number of “ad hoc” issues outside its agenda (based in part on complaints and queries that have come in via the ConsuWijzer website) and it also handles requests for assistance from fellow supervisory authorities in other EU Member States. The supervision department is currently running some 30 investigations of varying scope into possible infringements of consumer law.

The Bill implementing the Unfair Trade Practices Directive (Richtlijn Oneerlijke handelpraktijken , OHP) was submitted to the Lower House in January 2007 (Parliamentary Papers II, 2006-2007, 30928, nos. 1-3). The aim is to introduce the Act by the end of 2007. The Bill distinguishes between two main categories of unfair trade practices: misleading and aggressive trade practices. The starting point of the Bill is that the Consumer Authority is the sole enforcement body for unfair trade practices legislation. The reason for this choice is the legislation’s generic character (in principle, it affects all sectors). The two exceptions are: - unfair trade practices in the financial sector, which is subject to AFM supervision - misleading information within the meaning of the Health Care (Market Regulation) Act, which is subject to supervision by the Dutch Healthcare Authority (NZa).

3.2.3 Energy

Guideline 11 (section on sustainable energy management) To encourage the sustainable

use of resources and strengthen the synergies between environmental protection and growth.

Guideline 16 (section on interconnection capacity and preventing congestion on

electricity connections) To expand, improve and connect European infrastructure and

complete priority cross-border projects.

Sustainability The Cabinet’s ambitions in the area of climate and energy exceed the current objectives set out in the Kyoto Protocol. It aims to cut energy consumption by 2% a year, increase the share of renewable energy to 20% by 2020 and reduce greenhouse gas emissions – preferably at EU level – by 30% by 2020 relative to 1990 levels. A cost-efficient mix of measures will be sought to achieve these targets. A

30 package of measures within the “Clean and Green” working programme will be presented in September 2007. The Netherlands is pushing for an EU-level follow-up to the Kyoto Protocol. International cooperation is a decisive factor if the working programme is to be a success. It is vital to expand and improve the existing European emissions trading system and to preserve the Dutch target of a 30% reduction in CO2 emissions. It is also essential to set rules and raise product energy standards. Only a Europe-wide approach will facilitate a level playing field for businesses.

The Cabinet intends to meet its goals using a combination of new and existing instruments, varying from public information campaigns, agreements with sectors and target groups, financial instruments such as grants and tax incentives, to new or phased standardisation. Close cooperation with businesses and NGOs is leading to agreements pertaining to the built environment, the energy sector, industry, traffic and transport, and agriculture and horticulture. In this regard, the Cabinet is formulating a sustainability pact in which the business community endorses the government’s ambitions and pledges to make substantial, long-term efforts in the areas of CO2 reduction, energy conservation, renewable energy, innovation and energy transition. The government will facilitate and encourage the business community’s initiatives and take action to bring a global climate coalition closer to fruition. This sustainability pact was inspired by the brochure ‘ Nederland gidsland? Als het maar slim gebeurt ’, which the employers’ organisations VNO-NCW, MKB and LTO Nederland published with a view to achieving just such a pact.

The Cabinet’s more notable measures and intentions include the following: - From now on, all new coal-fired power stations will be CO2-capture ready , and must meet high environmental performance targets. Two demonstration projects for large-scale CO2 capture and sequestration are being prepared in cooperation with the Eemshaven and Rotterdam regional authorities. - The Renewable Energy Incentive Scheme will be introduced as the successor to the MEP scheme (MEP = Electricity Production (Environmental Quality) Act). - In compliance with European targets, the percentage of biofuels in engine fuel will be raised gradually from 5.75% in 2010 to at least 10% by 2020, with the proviso that the biomass must be produced and used in a sustainable way. In 2008 a reporting obligation will be imposed to ensure that the biomass used in transport fuels and electricity/heat production meets the sustainability criteria set by the Cabinet. - Measures will be taken to foster the market for sustainable products (for more information, see §3.2.1, Eco-efficient innovations).

Closer international cooperation The Netherlands is working towards a free European electricity and gas market . Before the European energy market can integrate further, though, the intra-European markets need to be well organised and problems in those markets need to be solved. The Netherlands is of the opinion that good cooperation between public authorities, network managers and supervisory authorities in the North- West European market is essential to guarantee security of supply and enable market forces to work freely.

Since January 2006 the five ministers in the North-West European electricity market have been meeting every six months within the framework of the Pentalateral Energy Forum, which is a cooperative network of public authorities, regulators and transmission system operators (TSOs) in the

31 Benelux countries, Germany and France whose aim is to create a joint electricity market in North- Western Europe. Since the forum was established, important steps have been taken to improve utilisation of interconnection capacity, make agreements aimed at enhancing security of supply and remove legislative and regulatory barriers. When the five ministers met on 6 June 2007, two important steps were taken: 1. The ministers, TSOs, regulators, electric power exchanges and market parties from the five countries signed a Memorandum of Understanding (MoU). The MoU addresses two issues: the agreement to facilitate flow-based market coupling between the five countries by January 2009 and the drafting of concrete agreements (including a timetable) on security of supply. 2. The five ministers decided to set up a similar initiative – a ‘platform’ – for the gas market. The aim of this gas platform is to integrate the gas market in North-West Europe and make agreements about secure facilities and security of supply.

Unbundling of energy companies Integrated energy companies in the Netherlands will be unbundled in order to guarantee the security of supply and the economic efficiency of the energy supply. This will produce network companies that are responsible for the regional network monopoly and commercial energy companies that are fully independent of the network companies; these energy companies will be engaged in the production, sale and supply of electricity and gas. Unbundling energy companies in this fashion will enhance fair competition among suppliers and among energy producers. The unbundling process will be governed by the Independent Network Management Act, which amends the 1998 Electricity Act and the Gas Act. In addition to the unbundling process, this Bill requires network managers to perform all strategic network management tasks themselves and limits their tasks to those set out in the 1998 Electricity Act and the Gas Act. Referred to as ‘fat’ network managers, they are also required to have economic ownership of the network. Another requirement in the Bill is that the manager of the national high- voltage electricity grid must manage all 110+ kilovolt networks. The Lower House passed the Bill in April 2006. In November 2006, the Upper House passed a motion preventing the unbundling, or ‘group prohibition’, from taking place until a later date (to be determined) when complete unbundling occurs in the European Union, or until such time as the public and independent network management is in jeopardy. In that case, the Minister of Economic Affairs may decide to introduce the group prohibition by royal decree. The Upper House passed the motion unanimously. The Bill was passed with 71 votes in favour.

However, in a letter dated 7 June 2007, the Minister of Economic Affairs informed both Houses of Parliament that she wanted the group prohibition to take effect despite the motion passed by the Upper House, and after consulting with both Houses on this matter, the Minister decided that the group prohibition will come into effect on 1 July 2008. Due to the transition provisions in the Act, the integrated energy companies will have a period of two and a half years (i.e. until 1 January 2011) to comply with the group prohibition.

3.2.4 Business environment

Guideline 14 To create a more attractive business environment and stimulate private

initiatives through better regulations

Guideline 15 To promote a more entrepreneurial culture and create a more supportive

environment for SMEs

32 Better regulations A number of different but related policy lines are followed to improve the business environment. The key objective is to achieve a noticeable reduction in the regulatory burden for companies, focusing in particular on the perception of entrepreneurs . The project aimed at reducing the regulatory burden for companies has been broadened and deepened by means of a single problem-driven programme, coordinated by the Ministries of Finance and Economic Affairs. The aim is a noticeable reduction in the regulatory burden for entrepreneurs by 2011. The Cabinet will use instruments such as a Regulatory Burden Commission, a Perception Barometer and a Digital Complaints Desk to test whether the regulatory burden is noticeably diminishing. The Cabinet has decided to pursue the following goals and courses of action to reduce the regulatory burden: - The administrative burden will be reduced by 25% net during the current term in office. - The costs associated with compliance will be reduced in cases where they are disproportionately high for the entrepreneur relative to the general interest served by the rules. - The quality of central government supervision will be enhanced and the administrative and perceived burden will be reduced by 25% on average in the specified domains. This will be accomplished by introducing domain-wide risk analyses, closer cooperation and information exchange, integrated inspection programmes and transfer of tasks wherever possible. - The permit procedures will be accelerated by bundling permits together and, wherever possible, applying the principle of “silence implies consent” ( lex silencio positivo ) more widely. - At the end of this term in office there must be guarantees in place ensuring that all existing grant programmes are regularised, and these programmes must entail only a low level of burden. - To avoid increasing the burden, the Cabinet will comprehensively assess the impact of new rules on entrepreneurs before imposing them. To that end, a comprehensive regulatory burden assessment framework will be introduced, which will incorporate the main parameters that provide regulatory burden indicators such as administrative burden, substantive compliance costs and excessive layers of government. The opinion of the assessing agency will be presented along with the proposed regulation when it is submitted to the cabinet. - In the autumn of 2006, the business community was asked for the second time to report (suspected) cases of Dutch legislation going further than required under EU directives . However, a study done by a research team produced a much more balanced picture: few of the reported problems turned out to actually be additional national provisions. The Cabinet is currently studying the options for reducing the problems observed by the business community. - In its progress report, the European Commission recommended that the Netherlands take further action to create a single counter for entrepreneurs who wish to hire their first employee . The counter has now been set up: entrepreneurs need only contact the tax authorities when they wish to hire employees. The electronic business counter provides all the relevant information about hiring staff. - Improvements are being made in the supply of information to entrepreneurs. All public authorities and several implementing agencies are affiliated with the electronic business counter , which will function as a one-stop shop for the business community, offering clear explanations of all the procedures involved in starting a company. In the coming period, the electronic business counter will be expanded to provide electronic services to entrepreneurs 24 hours a day, seven days a week. From 2009 onward, the electronic business counter will also serve as a one-stop shop for foreign service providers within the framework of the Services Directive. Other measures include setting fixed dates for the introduction of new rules and legislative amendments and forms that are easier to understand.

33 - Service provision to entrepreneurs will be made faster and better. It is the Cabinet’s aim to make government services more professional and customer-oriented. - In order to reduce the regulatory burden and improve service provision, it is important for all levels of government (central, regional and local government and implementing agencies) to work closely together. To this end, administrative and voluntary agreements have been made with regional and local authorities . - The regulatory burden needs to tackled at EU level as well as central government level. Many new regulations, and the burdens they impose, originate in Brussels. The Cabinet is therefore committed to preventing unnecessary EU regulations by participating in the European policymaking process at the earliest possible stage and putting forward alternatives that impose the smallest possible burden. The Cabinet intends to evaluate the quality of European impact assessments in a more systematic fashion and raise the subject of possible shortcomings in the Council.

More entrepreneurship Entrepreneurship is an important driver of economic growth and contributes to quality of life in society. With that in mind, the Cabinet is taking a number of measures to foster entrepreneurship.

Fostering the entrepreneurial spirit begins in education. The last government therefore invested in entrepreneurship projects and in fostering entrepreneurial spirit in schools , from primary to secondary and higher education. The new Cabinet wants to give an extra boost to these measures by encouraging schools to incorporate entrepreneurship in the curriculum and create a culture of enterprise in the school. The previous Cabinet invested €20 million in such efforts and the current Cabinet will be adding approximately €30 million on top of the existing funding.

To make the prospect of starting a business more appealing, the procedures involved should be easier and faster. The Cabinet wants to simplify the process of establishing a private limited company (BV) by taking a number of measures, including abolishing the minimum capital requirement. The aforementioned measures to reduce the regulatory and administrative burden will also play a role in stimulating entrepreneurship.

In addition, facilities will be better tailored to the situation of starters and small businesses : - Microcredit facilities will be made available for starters. - Where possible, tax facilities and other schemes will be made more accessible to entrepreneurs who do not (yet) run a business fulltime. - Access to capital will be improved by providing innovation credit and by broadening the guarantee scheme for SMEs. - The Cabinet is identifying in which areas it might be desirable to relax the rules that apply to small businesses. - Provision of informal capital investment will be encouraged.

Box 3: The G4 and entrepreneurship - The four large cities (the G4: Amsterdam, The Hague, Rotterdam and Utrecht) support starters with instruments such as information/coaching, separate financing and accommodation. Start-up companies are encouraged at the bottom end of the market, but also among so-called ‘high-end starters’ or

knowledge-intensive start-ups. - The G4 support strengthening the business environment and improving service provision by reducing and simplifying rules, shortening procedures and offering high-quality, fast service to starters and established entrepreneurs. In The Hague, all municipal products and services that qualify will be offered on the Internet from 2007 onwards; the other cities will follow suit later. - The G4 encourage universities, universities of professional education and prestigious research institutes to

form partnerships with each other and with the business community, such as Utrecht’s Science Park ‘de

Uithof’ and ‘Skillcity’ (which targets innovative ICT companies). The North Wing of the Randstad conurbation offers the creative industry support, promotion and coordination in the form of various initiatives (e.g. Creative Cities Amsterdam).

3.2.5 Physical infrastructure and use of space

Guideline 11 (section on sustainable use of space) To encourage the sustainable use of

resources and strengthen the synergies between environmental protection and growth Guideline 16 (section on physical infrastructure) To expand and improve European infrastructure and complete agreed priority cross-border projects

Physical infrastructure The Netherlands has decided to introduce national kilometre pricing based on time, place and environmental characteristics. Due to the severity of the congestion problem, an intermediate step towards the introduction of kilometre pricing will be taken during the present government’s term in office. The Cabinet will take a decision on this first step after the summer of 2007. At the same time, work will continue on the definitive kilometre pricing system. Existing car taxes will be abolished proportionally. Starting with the first significant step, a fairer distribution of costs will be achieved, as drivers will be charged for road use rather than car ownership.

The Mobility Policy Document ( Nota Mobiliteit ) is the long-term policy framework aimed at facilitating reliability and adequate capacity on the network of main roads by means of a long-term investment programme. At present, a National Market and Capacity Analysis of the entire network of main roads is being carried out to update understanding of and expectations as regards growth in road use and how problems arise. The results of this analysis will show whether the investment programme needs to be adapted or supplemented. In the short-term, the emphasis is on solving problems that can be solved quickly (‘quick wins’) and optimal use of current capacity (e.g. through dynamic traffic management).

Public railway transport has grown by 5% in the last two years. The Netherlands aims to sustain this trend. To that end, the railway sector is drafting a plan of action that will be completed in autumn 2007. This plan of action focuses on measures that will produce an annual rate of growth of 5% in the short term. These measures include increasing the length and height of trains, adjusting the timetable and

35 executing the Railway Recovery Plan ( Herstelplan Spoor ). With respect to longer-term development, the National Market and Capacity Analysis will indicate whether it is possible to achieve a quality leap for rail passengers and, at the same time, accommodate the expected growth in goods transport. On the basis of this analysis, decisions will be taken at the end of 2007 concerning investments in infrastructure and measures to improve utilisation of existing railway capacity.

Cross-border projects The Betuwe goods transport line became operational on 16 June 2007. The operator is KeyRail, which is a consortium consisting of Haven Amsterdam, Havenbedrijf Rotterdam and ProRail. 2007 is a build- up year because using the line is subject to temporary restrictions to comply with the additional safety requirements that are needed until the infrastructure is finalised. The restrictions for the new section of track along the A15 will most likely be lifted at the end of 2007. The restrictions on the port track will be lifted in 2008 once the new safety system and energy system are also operational on that section of the line.

The operational service date for the high-speed line HSL Zuid has been postponed due to delays in upgrading/modifying the ERTMS safety system. The target date for starting transport on the HSL Zuid from Amsterdam to Paris at 300 km/h is 1 October 2008. With this date in mind, the aim is to award a temporary concession to the High Speed Alliance to provide an hourly service at 160 km/h on the northern section of the HSL (Amsterdam – Rotterdam) from December 2007 to 30 September 2008.

Sustainable use of space The Cabinet is also devoting attention to sustainable use of space in the Netherlands. Activities include the development and implementation of an incentive programme for quality in spatial planning aimed at regenerating rundown areas. Implementation will begin in 2008. To facilitate an integrated approach to urbanisation, the natural environment and the climate the Cabinet intends to promote a cohesive and quality-enhancing strategy through comprehensive local development and will make €1 billion available (up to 2014) for this purpose.

In addition, the Cabinet aims to improve the quality of the Dutch landscape , create more, easily accessible green spaces in and around cities, and revitalise the countryside by broadening the economic foundation and providing adequate services. At EU level, too, the Netherlands supports agricultural policy that better reflects social values. Extra investments will be made in conservation to ensure that the National Ecological Network ( Ecologische Hoofdstructuur ) is completed in quantitative terms by 2018 and to ensure compliance with EU nature conservation requirements by 2015.

As part of the Multi-Annual Programme for Infrastructure, Spatial Planning and Transport (Meerjarenprogramma Infrastructuur Ruimte en Transport , MIRT) a project book for 2008 has been published that sets out the investment projects and programmes for infrastructure, water, space, economy and ecology of the Ministries of Housing, Spatial Planning & the Environment, Transport, Public Works & Water Management, Economic Affairs, and Agriculture, Nature & Food Quality. The project book is the first step towards a cohesive spatial-economic investment programme funded by central government and coordinated with local authorities. Step two, which is planned for autumn 2007, entails streamlining and simplifying the current rules frameworks for infrastructure (Multi-Annual Programme for Infrastructure and Transport, MIT), water (Rules Framework for Wet Infrastructure Projects ( Spelregelkader Natte Infrastructuurprojecten )), integrated area projects (procedure as set out

36 in the Spatial Planning Funds Policy Document ( Nota Ruimtegelden )) and business parks (TOPPER scheme). The aim is to create a common rules framework for coordinating and decision-making on spatial-economic issues. The first results are expected in 2008.

3.3 Local authorities At a conference on 1 June 2007, representatives of local authorities and various ministries (Economic Affairs, Social Affairs & Employment, Housing, Spatial Planning & the Environment, and the Interior & Kingdom Relations) discussed local authority ownership of the Lisbon objectives. The local authorities pointed out that the Lisbon objectives offer prospects and help to focus local and regional policy, as well as encouraging greater strategic cooperation with the business community. The provinces and cities are working together within the framework of the new regional Operational Programmes for the Structural Funds. These programmes are mainly geared towards innovation and economic growth.

Central government has concluded a new administrative pact (entitled ‘ Samen aan de slag ’) with the Association of Netherlands Municipalities (VNG), setting out agreements about each party’s efforts in the areas of safety, youth and family, housing and communities, participation, shelters in the community, service-oriented government, and decisive and effective municipalities. The pact also contains a section on ‘European administrative effectiveness of municipalities’.

Like the national authorities, municipalities are working to reduce the regulatory and administrative burden. In the Netherlands, the VNG provides model bye-laws for municipalities to use. Wherever relevant they are screened for superfluous rules and adapted to meet the requirements of the Services Directive. The screening process will also involve other European legislation wherever necessary, particularly that pertaining to the internal market.

The provinces are focusing their contribution on increasing their appeal and improving the business and investment environment and the knowledge-based economy. To achieve these goals, they are launching and intensifying cooperation with knowledge institutes and the business community, creating attractive residential and working environments for a knowledge-based economy, encouraging entrepreneurship (e.g. by simplifying rules and implementing e-government), creating scope for enterprise and launching regional initiatives to raise the level of education among the working population to meet today’s demands. (See Annexe 3 for examples.)

There is also an intention to conclude an administrative pact between central government and the provinces.

3.4 Financial section

3.4.1 National

The following table contains updated information regarding the resources earmarked for microeconomic policy in the various ministries’ budgets for 2006-2011.

37 (OCW = Ministry of Education, Culture and Science; EZ = Ministry of Economic Affairs; LNV = Ministry of Agriculture, Nature and Food Quality; GSB = Major Cities Policy; VROM = Ministry of Housing, Spatial Planning and the Environment; V&W = Ministry of Transport, Public Works and Water Management) 2006 2007 2008 2009 2010 2011 Guidelines 7 and 8 OCW R&D, knowledge workers and innovation 233 333 270 307 245 224 EZ Knowledge and innovation 591 692 473 429 444 473 LNV Knowledge and innovation 245 258 239 242 234 225 GSB Major cities, knowledge-based economy 21 11 26 22 Guideline 9 BZK e-government 72 100 68 67 65 61 EZ Digital solutions/ICTAL 24 36 29 29 29 29 Promotion of sustainable production chains; LNV transparency and ICT 2 6 3 0 0 0 Guideline 10 VROM Urban renewal 129 526 323 139 86 84 Making regions and cities more attractive to EZ business 159 173 212 162 162 177 LNV Recreation in and around the city 50 85 79 80 80 49 GSB Major cities: physical/social infrastructure & safety 99 137 132 134 Guideline 11 VROM Environmental quality at local level 192 219 218 222 241 281 Using renewable resources, synergies between LNV environment and growth 466 447 505 500 471 414 EZ Renewable energy 819 1,004 757 1,009 1,048 1,094 Guideline 13 EZ Optimum market regulation and competition 17 16 21 16 16 16 EZ Strengthening the position of the consumer 2 1 0 0 0 0 Guideline 15 EZ Increasing and improving entrepreneurship 3 3 3 3 3 3 Improving entrepreneurship and the business LNV environment 18 5 6 8 6 6

Total 3,141 4,052 3,363 3,370 3,130 3,136

Guideline 16 V&W Building and maintaining roads in the network of major roads 1,925 2,516 2,865 2,857 2,999 1,429 V&W Constructing and maintaining waterways 407 537 474 559 584 650 V&W Constructing and maintaining railway lines 1,976 2,238 2,417 2,483 2,585 2,260

Total 4,308 5,291 5,756 5,899 6,168 4,339 Source: Government departments

38 Explanatory notes accompanying the table

Guideline 7/8 • OCW: This item is the sum of the relevant items under budget articles 6/7 and 16. Articles 6/7 concern the items under the heading ‘Society (business and civil-society organisations) making optimum use of the knowledge available in higher education and research and vice versa’. Article 16 relates to the items under the heading ‘Promoting scientific activities that contribute to the development of specific knowledge and/or to solving major social problems’. OCW also provided figures for Lisbon expenditure on ‘more researchers’. • EZ: This is the sum of all programme expenditure under policy article 2 (strong innovative capacity). • LNV: All programme expenditure items under Article 26.15 plus parts of Article 26.16 that do not pertain to funding of agricultural education programmes (WU, HBO-green, MBO-green, VOA, VMBO-green, basic financing for other knowledge institutes). • GSB: As in previous years, based on the estimated share in central government’s ‘broad objective-related payments’ (BDU) to the 31 large cities (G31) in the area of ‘economy’ that is used for the Lisbon objectives. Total amount varies from €18 to 40 million. Of this amount, an estimated 65% is for knowledge and innovation.

Guideline 9 • BZK: The following items have been added together from Article 7 (Innovation and Information Policy in the Public Sector): programme expenditure under Art. 7.2 (improving ICT facilities) and Art. 7.3 (upkeep and optimisation of ICT facilities). • EZ: All programme expenditure under operational objective 3 of Art. 10 (Development of facilities for electronic communication). • LNV: From Article 21 (Sustainable business practices): programme expenditure under ‘ICT policy programmes’ in Art. 21.15.

Guideline 10 • VROM: This item is the sum of parts of budget article 2 (Further development of urban areas of national importance) and Article 5 (Improving environmental quality in built-up areas). • EZ: This item pertains to operational objective 3 in Art. 3 (Making use of area-oriented economic opportunities). • LNV: This item comes from budget article 24.13 (Environment and the city). • GSB: As in previous years, the estimated share in central government’s ‘broad objective-related payments’ (BDU) to the 31 large cities (G31), in the areas of (1) Social Infrastructure and Safety and (2) Physical Planning, that is used for the Lisbon objectives. An estimated 15% of the Social Infrastructure and Safety funding is for use on the Lisbon objectives (the equivalent figure from the Physical Planning budget is 10%).

Guideline 11 • VROM: This item is the sum of parts of budget articles 4 (Improving the environmental quality of water and soil), 5 (Improving the environmental quality in built-up areas) and 8 (Improving external safety). • LNV: Sum of several budget items: (21.12) Promoting generally accepted production conditions and animal welfare, (21.13) Promoting sustainable production methods and operating systems including in biological agriculture, (21.14) Promoting sustainable catch quotas and breeding of fish and shellfish, (21.15) Promoting sustainable production chains, (23.11) Establishing the National Ecological Network (EHS), (23.12) Organising the EHS and (23.13) Managing the EHS. • EZ: Sum of items under operational objective 3 of Art. 4 (Sustainable energy management). Both the Renewable Energy Incentive Scheme (SDE) and its predecessor, the Electricity Production (Environmental Quality) Scheme (MEP) have been included this year because of the increased innovative content of the new subsidy scheme as regards energy production and the extra EU focus on climate-related problems.

Guideline 13 • EZ: Items are part of EZ budget article 1. The first item relates back to operational objective 2 (Promoting optimum market regulation and competition). Second item for operational objective 3 (Strengthening the position of the consumer).

Guideline 15 • EZ: The item is part of EZ budget article 3, especially operational objective 2 (Encouraging more and better entrepreneurship). The SMEs Credit Guarantee Subsidy Scheme (BBMKB) is a major component. In order to give a correct picture of government spending the figure is based on cash flows and adjusted for income under the aforementioned guarantee scheme. • LNV: This item is based on Article 21.11 (Improving entrepreneurship and the business environment).

Guideline 16 • V&W: Amounts are based on the parts of the V&W budget (Infrastructure Fund) for constructing and maintaining the various infrastructure modalities: network of major roads (Art. 12), network of major waterways (Art. 15), railway lines (Art. 13).

3.4.2 FES funds The Coalition Agreement (CA) sets out the intention to redesign the input and apportionment system for the Economic Structure Enhancing Fund ( Fonds Economische Structuurversterking , FES) to provide greater stability and good criteria to ensure that the investments made strengthen the economic structure. The most important changes that FES managers intend to make are as follows: - FES input will be fixed for this government’s term in office and will therefore no longer fluctuate with the price of oil, the euro-dollar exchange rate and production volume. - In accordance with the CA, the type of investments that may be FES-financed will be expanded to include renewable energy, water and spatial development.

39 - The CPB will continue to carry out assessments and, in the case of innovation proposals, a Committee of Eminent Persons will also participate in the assessment procedure. These changes implement the recommendations on this matter made by the Budgetary Margins Study Group and the Central Economic Committee (CEC). The Cabinet will decide on these changes in August 2007 when it adopts the 2008 FES budget. In addition, the FES Act will be amended in the near future. The CA calls for a new, future-proof input system to be developed for the FES during this government’s term in office. The Cabinet will decide in the next few months whether and, if so how, to incorporate a new input system in the amendment of the FES Act.

3.4.3 EU Structural Funds in the new period On 14 June 2007 the Minister for Economic Affairs received approval for the National Strategic Reference Framework for Structural Funds in the period 2007-2013. Five programmes will begin within this framework in 2007: a national programme financed by the European Social Fund, aimed at training and labour market policy (see § 4.5.2), plus four regional programmes (one per region), together amounting to €830 million from the European Structural Funds and co-financing worth at least that amount again. Within the National Strategic Framework, 80% of total expenditure is earmarked for Lisbon objectives. In the four regional programmes, the percentage varies between 62% and 66%, which is double the expenditure provided in the 2000-2006 programme period. The four regional programmes will start in September 2007 and run to the end of 2015. The priorities for each programme are innovation and attractive regions and cities. Each programme focuses on the innovation clusters that are strong in that particular region. The most important objective of the programmes is to increase the share of R&D expenditure in the Gross Regional Product. The fourth quarter of 2007 will see the launch of seven European Territorial Cooperation programmes in which the Netherlands is a participant. Four are cross-border programmes, two are transnational programmes and one is an interregional programme involving all the Member States. The Netherlands has received €247 million from the Structural Funds for these programmes.

40 4 Employment policy

The need to increase labour participation is obvious. The increasing shortage on the labour market places the economic development under pressure. Furthermore, when many persons are marginalised society suffers and social cohesion is jeopardised. An important social challenge is to increase the involvement of people in the labour process and/or in community activities is a major challenge for society. The current situation on the labour market offers opportunities to meet this challenge: employment is growing, unemployment is decreasing and more and more people who have a weak or weaker position on the labour market are finding jobs.

The Lisbon objectives, to which the Netherlands is committed, serve as a guideline for increasing labour market participation. However, the new Cabinet wants to do more. On 27 June 2007, the Cabinet consulted with the central employers’ and employees’ organisations as represented in the Labour Foundation ( Stichting van de Arbeid ) and with the Association of Netherlands Municipalities (Vereniging van Nederlandse Gemeenten , VNG) about increasing labour market participation. This meeting – dubbed the Participation Summit – resulted in a tripartite policy commitment by which all the parties acknowledge the urgency, analysis and challenges. The Cabinet and the social partners – each from its own responsibility – are fully committed to increasing the effective labour supply, increasing the adaptability of the labour market and creating opportunities for vulnerable groups. Their shared ambition is to help large groups of people who are currently unemployed find jobs in the near future. In the medium-term recommendations by the Social and Economic Council (SER), the central employers’ and employees’ organisations have pledged to strive for a participation rate of 80% by 2040. In view of demographic developments, however, the Cabinet aims to achieve this rate of participation by 2016. The Cabinet and the Labour Foundation intend to take a substantial step in that direction between now and 2011. In its Policy Programme, the Cabinet pledged to help 200,000 people find jobs during the Cabinet’s current term in office.

Furthermore, the Cabinet, the Labour Foundation and the VNG have agreed to examine in the course of 2007 in which way regional cooperation can be improved. Municipalities will work to bring employers, educational institutions, employees, the Centre for Work and Income (CWI) and the Employee Insurance Implementing Body (UWV) together and make concrete performance agreements on joint efforts, quality and effectiveness of service provision to employers and jobseekers. In addition, the Cabinet and the VNG have made agreements aimed at helping approximately 75,000 people off social assistance benefit and 25,000 people who are not entitled to benefit to enter the labour market by 2011. In addition, the Cabinet is providing funding for 10,000 bridging jobs for people who have been reassessed and whose benefit, as a result of that one-time reassessment process, has either been reduced or terminated. Employers and employees will also be incorporating arrangements in their collective labour agreements (CAOs) pertaining to employment for those who are only partially fit for work.

The objectives described above demonstrate the broad scope of the agreements made with the social partners and municipalities with respect to participation in the labour market. The Cabinet is of the opinion that in pursuing this course it is complying with the recommendation to give more attention to flexicurity, which focuses on a joined-up approach to tackling the four components that are involved.

41 Project “Everyone takes part” The ‘Everyone takes part’ project is aimed at ensuring that the target of helping 200,000 more people find jobs by 2011 is met, and that the joint efforts to that end agreed with municipalities and the social partners come to fruition. The project will bring the policy subjects and the relevant parties in society together. A robust package of measures covering three areas – labour market participation, participation in society and entrepreneurship – will be deployed to achieve the objectives. The main focus will be on helping people off benefit. In its efforts to shape these measures, the Cabinet will work closely with the parties involved, e.g. municipalities, implementing agencies and other organisations. The detailed project plan will be published on Opening of Parliamentary Day 2007.

4.1 The current situation and most important challenges

Before addressing the current situation and the most important challenges on the Dutch labour market, the relevant European priority areas will be outlined. In the 2007 Spring Council conclusions, the European Council confirmed the need to strengthen economic and social cohesion throughout the Union and emphasised the importance of the social dimension in the EU. The Lisbon Agenda must take more account of the common social objectives of the Member States.

The reporting in this chapter and the National Strategic Report on Social Protection and Social Inclusion (NSR) normally complement each other. However, EU Member States are not required to submit an NSR in 2007. Because a new Cabinet has taken office, the Netherlands will report on the most important new policy areas regarding social inclusion, pensions, health care and long-term care in the form of a short letter to the European Commission.

In light of the demographic changes which the Member States are faced with, the European Spring Council also decided to establish an "Alliance for Families" where ideas and knowledge regarding family-friendly measures and best practices may be exchanged among Member States. This chapter reports on the measures that the Netherlands has taken in order to tackle the challenges posed by demographic changes. For example, the fourth Balkenende Cabinet attaches much value to child and family-friendly policy and for that reason decided to appoint a special Minister for Youth and Family (see the section on Youth).

The Netherlands supports the attention of the EU to the flexicurity theme and has undertaken a great deal in this respect in recent years. The Flexibility and Security Act of 1999 ( Wet flexibiliteit en zekerheid ) has given employers more options for concluding and terminating flexible contracts and enhanced the certainty and formality of the employment relationship for employees. However, flexicurity is more than a legal framework governing the use of different types of contract and the related dismissal protection. The Netherlands advocates the other components of flexicurity described by the Commission in its communication on the issue: life-long learning, active labour market policy and a modern social security system. This chapter describes the measures – which largely originate from the Participation Summit – that are being to taken to shape a broad and cohesive flexicurity policy.

The conclusions of the Spring Council are otherwise also in line with the European Commission’s Annual Progress Report. The Report is positive about the general employment situation in the Netherlands and the high employment rate of the country as a whole. It also praises the measures the

42 Netherlands has taken to reform the incapacity for work scheme and pension systems and to raise education levels. The Report concludes that the challenge lies in improving the labour supply. The European Commission has called upon the Netherlands to take additional measures to increase participation among older workers, women and vulnerable groups in particular. If the existing measures aimed at increasing participation in terms of hours do not eventually result in significant improvements, the Commission indicates that additional measures need to be considered.

Guideline 17: To implement an employment policy aimed at creating full employment, improving the quality of work and labour productivity and strengthening social cohesion.

The Cabinet endorses the priorities set out by the Commission and wants to take full advantage of the favourable economic situation. After several lean years, the rate of economic growth was 3% in 2006. The prognosis for both 2007 and 2008 is 2.75%. Unemployment has been falling steadily since mid- 2005 and, as of May 2007, the Netherlands boasts the lowest unemployment rate in the entire EU. Since 2006 labour market participation has increased sharply. More and more people with a weak or weaker position on the labour market are finding jobs. With a total participation rate of 74.3% and 67.7% of women participating, the Netherlands met the first two Lisbon objectives in 2006. There is gradual growth in the rate of participation among older workers, but at 47.7% last year it was still over two percentage points lower than the Lisbon objective.

Despite this relatively good baseline situation, participation needs to be increased further, partly to compensate for demographic ageing. That is why the Netherlands has committed itself to stricter targets, based on national statistics that count only jobs of at least 12 hours a week. By this calculation, the rate of participation is considerably lower, as table 4.1 shows. The table also shows a disappointing trend in participation among minorities. While participation among the other three groups has grown significantly along with the economy in the last two years, this has not been the case for minorities. One reason is that minorities quite often have a relatively low level of education and the participation rate among people with a low skill level is below average. Another issue is that ethnic minorities are overrepresented in sectors where growth in employment is lagging behind (agriculture and industry). In addition, employers may have a preference for ethnic Dutch candidates, who are then more likely to be hired during an economic upturn. This last reason may coincide with the fact that ethnic minorities are on the average unemployed for a longer time. The duration of unemployment can also negatively affect an individual’s chances of getting a job. Discrimination probably plays a role, too. Recent figures, however, show that the position of ethnic minorities on the labour market is now improving slowly.

Table 4.1: Progress in meeting national participation objectives (net participation rate, jobs ≥ 12 hours p. w.) National objective 2002 2003 2004 2005 2006 Total 64.8 64.2 63.3 64.5 65.7 Women 65% in 2010 53.6 53.9 53.6 54.1 55.8 Older workers (55- 45% in 2010 37.4 38.0 39.2 39.7 41.7 64) Ethnic minorities “A proportional increase” 49.1 47.4 46.5 46.9 46.7 Source: CBS

43 The current situation on the labour market offers opportunities to take significant steps forward in the next few years. The Cabinet is creating opportunities for these groups, for example by making work more attractive financially, increasing the options for combining work and care, improving the employability of people aged 45 and older, stimulating diversity policy and combating discrimination.

4.2.1 Increasing labour supply

Guideline 18 Promote a lifecycle approach to work Guideline 19 Ensure inclusive labour markets, make work more attractive and make work financially interesting for job seekers, including the disadvantaged, and the inactive Guideline 20 Improve matching with labour market needs

The growing shortage on the labour market brings direct pressure on economic development. If the shortages become too large, the labour market could overheat. Experiences during the last economic boom showed that circumstances can deteriorate significantly and rapidly if nothing is done. A decline in competitiveness, rising unemployment, increasing social benefit claims and rapid depletion of public finances are real threats with a long-term negative impact.

In order to sustain the welfare state it is therefore essential to do as much as possible to increase labour market participation. In the Netherlands, women account for nearly three-quarters of the unused labour potential (in hours), with inactive women accounting for one half and women in part- time work for the other half of the total number. Over 30% of the unused labour potential is made up of people aged 55 and older. Non-Western ethnic minorities account for a disproportionate share of this unused potential. The strategy aimed at increasing the rate of participation among women, older workers, young people and vulnerable groups is described in detail below.

Labour migration could also help expand the labour supply. On 1 May 2007 the Netherlands abolished all the restrictions blocking access to the labour market for workers from the eight Central and Eastern European countries that acceded to the EU in May 2004. A transition period of, in principle, two years applies to workers from Bulgaria and Romania. In addition, the Knowledge Migrant Scheme has been expanded (see chapter 3).

4.2.1 Women

Although a relatively large number of women are in employment, women’s participation in terms of hours is below the EU average because of the high preponderance of part-time work. There are a number of reasons for the amount of part-time work. First, working (or working more hours) is not always sufficiently rewarding, so financial incentives play a key role in raising women’s participation (in terms of hours). Another issue is that many women choose to stay at home and take care of their family instead of working part-time or full-time. While the availability of affordable, good-quality childcare is important, it is not enough to persuade this group of women to join the work force because, according to the Social and Cultural Planning Office (SCP), opinions about child-rearing play a major role in deciding who assumes the role of caring for the children. The Cabinet acknowledges the importance of taking a comprehensive approach, as called for in the Gender Pact, and is implementing the following measures to achieve this approach.

44 Financial incentives Financial incentives play an essential role in women’s decisions concerning employment. To increase participation in terms of hours it is therefore very important to ensure that working, or working more, is sufficiently rewarding. This is why the Cabinet has decided to phase out the transferability of the general tax credit by 5% a year over a period of 20 years. This period is relatively long because the impact on income is considerable: the tax credit is €2,043 in 2007.

In addition, the Cabinet will introduce an Income-Based Supplementary Combination Tax Credit (IAACK) on 1 January 2009, aimed at lowering the marginal tax rate of the partner with the lowest level of income and thus increasing the labour supply in terms of hours. Further consultations will be held with the social partners regarding the substance and precise structure of the tax credit.

Finally, the income-based child tax credit will be converted into an extra allowance payable from the ‘parents’ budget’ as of 1 January 2008. The problem with the child tax credit is that working people with a low income are unable to (fully) ‘cash in’ on the credit, whilst those on social assistance benefit are able to do so. Converting the credit into the parent’s budget will therefore increase the incentive to accept work for single parents and single-income households with children who are claiming social assistance benefit (i.e. those in the ‘unemployment trap’).

Childcare Act The Childcare Act ( Wet Kinderopvang )8 provides funding for, and guarantees the quality of, childcare. The Act focuses on parents. They receive an income-based contribution from the government towards the costs of childcare. This childcare allowance is for parents who either combine work and care or are involved in a programme aimed at participation in the labour market. Parents may select any childcare organisation that is registered with the municipal authorities. The employer’s contribution was made mandatory in 2007, which has simplified the application procedure considerably for parents. This mandatory employer’s contribution, combined with the increase in the government contribution, has significantly reduced the costs of childcare for parents in recent years.

School boards are required by law to ensure a proper link-up between school hours and approved childcare from the start of the 2007/2008 school year.

Day nursery facilities, playgroups and programmes for pre-school and early-school education (VVE) are largely aimed at the same target group: children up to 4 years of age. However, each of these types of childcare has developed in its own way, due in part to separate legislative systems and other funding frameworks. Those who combine work and caring for a child will still be entitled to benefit under the Childcare Act. At the same time, the current low entry threshold for the playgroup system will also remain. The funding and quality of day nursery facilities and playgroups will be equalised and the quality level as a whole will be raised. Opportunities will be created for broad-based facilities that offer both a day nursery (supervision, education and care) and a playgroup (play, interaction, stimulation of development). These facilities will play a key role in enabling parents to combine work and care and in combating language difficulties by offering qualitatively tested VVE programmes.

8 In the Childcare Act, ‘childcare’ is defined as a day nursery or crèche for children up to four years old, out-of- school care for primary school pupils and childminding services provided by a registered agency for children up to 13 years old.

45 There is scope for different implementation methods - based on the local situation - in the measures introduced to harmonise the facilities for children up to 4 years old.

Task Force ‘Part-time Plus’ The Cabinet will establish a task force before 1 January 2008 aimed at encouraging more women to work and encouraging working women to work more hours. This Task Force ‘Part-time Plus’ will focus on cultural aspects, part-time jobs with longer working hours, labour market participation by women not currently in paid work, education and division of care responsibilities.

Pay disparities Pay disparities between men and women discourage women from participating in the labour market. This is one of the reasons why it is very important to combat these differences. Adjusted pay disparities are caused by unequal treatment of men and women. The Netherlands feels strongly that pay disparities should be corrected because they imply gender discrimination, which is against the law. Unadjusted disparities are partly the result of the difference in status between men and women on the labour market: for example, women tend to occupy lower-ranking positions than men. From a point of view of emancipation it is important to reduce the difference.

In 2004, compared to 2002, there was almost no change in either the unadjusted or adjusted pay disparity between men and women.

Table 4.2.1: Unadjusted and adjusted pay disparities between men and women 2002 2004 Unadjusted Private sector 22% 21% Public sector 15% 14% Adjusted Private sector 7% 7% Public sector 3% 4% Source: Labour Inspectorate

In March 2007 the equal pay working group “ Gelijke beloning, dat werkt! ” (“Equal pay works!”) presented its final report and recommendations to the Minister of Social Affairs and Employment. The working group comprised of, among others, representatives of employers’ and employees’ organisations, the Equal Treatment Commission. The Minister of Social Affairs and Employment sent the Equal Pay Progress Report and a response to the recommendations to the Lower House in June 2007. One of the results is that the equal pay website gelijkloon.nl will remain online for the next three years. In addition, the Ministry of Social Affairs and Employment is involved in the organisation of an annual Equal Pay Day, aimed at raising awareness of pay disparities and potential solutions.

In September 2007 the Cabinet will present a new Emancipation Policy Document. In the document employers will be called upon by government to step up their efforts to enable women to achieve senior positions. It is also important for public sector as employer to set a good example by promoting women to senior positions. Initiatives to this end will be supported by the government. In close consultation with employers, measures are being taken to keep women in the 35-40 age group in the work force and to increase the rate of re-entry and re-integration.

4.2.2 Older workers The rate of participation in the 55 and older age group is still too low: 41.7% in 2006. It is even lower among those aged 60-64: 20.8%, which is nearly 40 percentage points lower than the 55-59 age group (58.1%). The main causes are early retirement (despite the abolition of tax benefits for early- retirement/pre-pension schemes), relatively high wage costs and negative perceptions. Nevertheless, rising participation statistics demonstrate that the measures are having an effect. The Cabinet is taking further measures to boost the policy.

Encouraging continuation of work / discouraging early retirement The Early Retirement (Adjustment of Tax Treatment) and Life-Course Savings Scheme Act (Wet aanpassing fiscale behandeling van VUT/prepensioen en introductie levensloop , ( Wet VPL )) came into effect on 1 January 2006. One of the objectives of this Act is to encourage people to continue working for a longer period of time and to discourage early retirement. Recent figures for 2005, 2006 and part of 2007 show an increase in labour market participation among older workers, which would suggest that the Act is having the intended effect. According to the CPB, recent reforms of the incapacity benefit system (WAO/WIA) are also playing a major role in raising the average retirement age.

Table 4.2.2: Average retirement age (55-64 year olds) 2000 2001 2002 2003 2004 2005 2006 60.8 60.7 61.0 60.7 60.8 60.7 61.0 Source: Ministry of Social Affairs and Employment (based on CBS figures)

Participation bonus and a means-based contribution In order to ensure that the state old-age pension (AOW) remains linked to the cost of living in the future, older people with a relatively high income will be asked to contribute. This only applies to those born after 1945 (i.e. those who will be 65 years old starting in 2011). This is possible by continuing working for a longer period of time or by paying an extra levy. As freedom of choice is paramount, the system has two components: a positive incentive for people to continue working for a longer period of time and a means-based contribution.

‘45 Plus’ Action Plan The Cabinet has drawn up an action plan to reduce unemployment among people aged 45 and older by at least 1.1 percentage points (30,000 people) by December 2008. The action plan contains a range of measures that should lead to additional placements. The Centre for Work and Income (CWI) is deploying 300 advisors to provide services for people in this age group. In addition, agreements have been made to intensify cooperation between the parties involved in the reintegration process: CWI, UWV (Employee Insurance Schemes Implementing Body), municipalities and other relevant parties, such as employers’ organisations, ABU and Boaborea (representatives of temporary work agencies and reintegration companies respectively). The Ministry of Social Affairs and Employment is supporting the implementation of the action plan by means of an action team and a national steering group.

4.2.3 Young people In the spring of 2005 the European Council adopted a European Youth Pact within the framework of the Lisbon Strategy. The Youth Pact draws attention to the need to increase youth participation in the

47 labour market. In the spring of 2007 the European Council reiterated the need to combat poverty and social exclusion, particularly among children, and emphasised that all children must have equal opportunities. The Council has also established an Alliance for Families. The new Cabinet is pleased that Europe is paying more attention to youth and family, within the context of the Lisbon Strategy and in other ways. The Cabinet has appointed a Minister for Youth and Family because it considers a comprehensive approach to youth and family policy to be extremely important.

Unemployment among young people has fallen in recent years, from an average of 13.5% in 2004 to an average of 10.7% in 2006. The statistics also show that while youth unemployment is decreasing faster than the overall unemployment level, it is still twice as high as the average unemployment level. While unemployment is falling among both ethnically Dutch and ethnic minority young people, it remains considerably higher among the latter. In 2006 the unemployment rate was 22.3% among 15 to 24-year-olds in the non-Western minority working population compared to 9.3% among the young ethnically Dutch working population.

‘Youth Unemployment’ Task Force The Youth Unemployment Task Force reached its target of helping 40,000 young people find jobs and was therefore disbanded in the spring of 2007. According to CWI statistics, the number of young unemployed jobseekers fell from 65,000 to fewer than 30,000. The Task Force advised the new Cabinet to sustain efforts to reduce youth unemployment, especially now. Its recommendations include tackling the hard-core youth unemployment at local level, introducing national evaluation criteria for preparatory secondary vocational education (VMBO) and senior secondary vocational education (MBO), and establishing campuses. The Cabinet will be implementing these recommendations.

All opportunities for all children On 28 June 2007 the Minister for Youth and Family sent his programme “All opportunities for all children” to parliament. In this programme, the Minister describes his youth policy priorities for the Cabinet’s current term. One of those priorities concerns the transition from school to work.

Every young person needs to be properly prepared for his or her future. The link between school and work is an important part of this preparation. We need to prevent young people dropping out of school without obtaining a basic qualification, because it makes them vulnerable in the labour market and reduces their chances of a good future. Ethnic minorities are over-represented among early school leavers and the unemployed. Section 4.4 describes efforts to reduce the drop-out rate and strengthen the connection between education and the labour market.

4.2.4 Vulnerable groups Measures to increase employment among vulnerable groups are aimed at minorities, people who are partially able to work and recipients of social assistance benefit. It is important to provide these groups with financial incentives, training and other assistance. More specifically, the Cabinet intends to introduce an Earned Income Tax Credit (EITC) on 1 January 2009. By reducing the marginal tax rate at the lower end of the labour market, more people will be encouraged to work. This section therefore begins by presenting the most recent figures on the inactivity trap and the marginal tax burden. Section 4.4 provides information on training measures.

48 Inactivity trap and the marginal tax burden Replacing the child tax credit with an extra allowance payable from the ‘parent’s budget’ reduces the danger of families with children falling into the unemployment trap. This new system partly solves the problem of how to “cash in” on the extra money for single parents with an income of less than 120% of the minimum wage and this problem is completely solved for single parents on 120% of the minimum wage and single-income households with children.

The introduction of the ‘parent’s budget’ makes the situation slightly worse as regards the re-entry trap for families with children on the minimum wage because low-single-income households will now be able to benefit fully from the parent’s budget (whereas they previously had a “cashing in” problem). The income position of single-income households on the minimum wage therefore improves because of the parent’s budget, whereas the income position of double-income households remains the same. This means that there will be less difference between single-income households and double-income households at the minimum wagelevel. However, there is less risk of being caught in the re-entry trap for people earning just above the minimum wage level.

The figures for the poverty trap were adjusted following the survey carried out by the Ministry of Social Affairs and Employment (SZW) entitled “The poverty trap: a new way of looking at an old problem” (De armoedeval: een nieuwe kijk op een oud probleem ”). The intended growth in labour market participation can be achieved to a significant extent through growth in part-time jobs, so the focus is now more on the part-time trap for double-income households. The figures have also been adjusted to take account of the finding that working people usually earn more than the minimum wage. The extent to which income would increase as a result of one extra day’s work per week determines whether the part-time trap applies. The part-time trap remains almost entirely unchanged.

Table: Poverty trap figures Percentage improvement

2007 2008 Difference* Unemployment trap (Improvement in income by accepting work instead of remaining on social assistance benefit**) Accepting work that pays the minimum wage Single-income household with children 0% 2% 1% Single person 14% 13% 0% Single parent (starts working 4 days a week) -4% -2% 2% Accepting work that pays 120% of the minimum wage Single-income household with children 6% 6% 0% Single person 23% 23% 1% Single parent (starts working 4 days a week) 2% 10% 8%

Re-entry trap (Improvement in income if non-working partner starts working 2½ days a week***) Head of household and partner on minimum wage 17% 16% -1% Head of household and partner on 120% of minimum wage 21% 25% 3%

Part-time trap for lowest-earning partner (Improvement in income by working 1 day extra a week***) Head of household on minimum wage Partner starts working 3 days a week instead of 2 (on the minimum wage) 8% 9% 0% Partner starts working 4 days a week instead of 3 (on the minimum wage) 8% 9% 0% Head of household on average income Partner starts working 3 days a week instead of 2 (on the minimum wage) 7% 7% 0% Partner starts working 4 days a week instead of 3 (on the minimum wage) 8% 7% 0% Partner starts working 3 days a week instead of 2 (on 120% of the minimum wage) 9% 9% 0% Partner starts working 4 days a week instead of 3 (on 120% of the minimum wage) 9% 9% 0% Partner starts working 3 days a week instead of 2 (average income) 13% 12% -1% Partner starts working 4 days a week instead of 3 (average income) 9% 9% 0% * The figures have been rounded off and therefore do not always reflect the actual difference between the figures in the first two columns. ** Based on a full-time job (5 days a week) unless otherwise indicated. *** Based on a household with 2 children aged between 6 and 11 years old. Source: Ministry of Social Affairs and Employment (SZW) calculations

Minorities The policy aimed at increasing participation by minorities in the labour market focuses primarily on young people. An average low level of education is by far the most important reason for the low rate of participation in the work force among ethnic minority young people. A broad-based programme is being developed to reduce language disadvantages and prevent early school leaving. The Social and Economic Council has observed that the problem is not a lack of policy, but a need to improve the implementation of existing policy. The drive to combat early school leaving (‘ Aanval op de uitval ’) will be continued and reinforced through cooperation between government, parents, schools, business (for traineeship placements and on-the-job training placements), social workers, youth services, municipalities, police and the Ministry of Defence. See section 4.4.1 for more information.

Tackling discrimination is another priority. Exclusion is frequently caused by unintentional mechanisms. The Cabinet therefore supports the recommendation of the Social and Economic

50 Council to develop a strategy aimed at raising awareness of prejudices and reinforcing positive perceptions across society. The outcome of the discrimination monitor this autumn will be used as the basis for developing an appropriate strategy in consultation with the social partners and organisations representing minorities.

Finally, the Cabinet will be presenting its Integration Delta Plan aimed at improving the quality of integration so that more people will be able to complete the integration process at a higher level and participate economically, socially and culturally in society. To achieve this goal, it is important to recognise that needs and preferences differ from group to group. With this in mind, groups of immigrants will be more clearly defined and suitable approaches will be tailored to their needs (see also the letter ‘National Strategy Report’, which was sent to the European Commission mid- September).

Partially able to work (WIA/WVP/VLZ) The introduction of the Work and Income (Capacity for Work) Act (WIA) on 29 December 2005 was an important step towards a more activating social security system. It is regarded as the final step in a policy process spanning several years. This process included the introduction of the Eligibility for Permanent Incapacity Benefit (Restrictions) Act (WVP), the Continued Payment of Wages During Illness Act (VLZ) and the reassessment operation. The graph below illustrates the developments in inflow and volume in recent years and demonstrates the effect of the various measures. With the introduction of the VLZ in 2005, the employer’s obligation to continue paying salary was extended from one to two years. As a result of this change, the number of new claimants in the WAO incapacity benefit system was very low in 2005. All these measures have helped reduce the number of new incapacity benefit claimants. The reassessment of WAO benefit recipients began in 2004 and will continue until the end of 2008.

Figure 1 Development of WAO and WIA volume

INSTROOM… = INFLOW/OUTFLOW: NUMBER x 1,000; LOPEND… = CURRENT: NUMBER x 1,000; Instroom… = Inflow WAO+WIA; Uitstroom… = Outflow WAO+WIA; WAO+WIA-ers… = Year- end WAO + WIA recipients

According to a survey of reassessed incapacity benefit recipients, 52% of those whose benefit was reduced or terminated were working eight months after reassessment. Table 4.2.4 below shows that 36% of the 2005 cohort were working at the time of reassessment and 51% were employed 18 months later. In the 2006 cohort, 42% were employed at the time of reassessment and 52% were working

51 eight months later. The percentage of working recipients in the 2006 group is higher at every assessment point (0, 4, 8 months) than in the 2005 group. A larger percentage was already working during the reassessment. This rise can also be attributed to more effective assistance and a better jobs market.

Table 4.2.4: Percentage of benefit recipients in work after 4, 8 and 18 months (2005 and 2006 cohorts) Upon Group reassessment After 4 months After 8 months After 18 months 2005 cohort 36% 41% 44% 51% 2006 cohort 42% 47% 52%

A larger percentage (compared to the 2005 group) were still working after eight months: 6% lost their job as compared with 11% in the 2005 group. In addition, the income position improved slightly.

Those working at the time of the reassessment consider their health to be fairly good and have fewer health problems. At the same time it can be seen that the labour market position of the majority of those working at the time of the reassessment is still not always stable (temporary contracts and agency work; some are looking for other work). This is due in part to the distance between the labour market and those being reassessed.

In the coalition agreement the new Cabinet announced the following policy intentions, some of which have since been implemented. Just like the benefits for people who are fully and permanently unable to work under the IVA system, the benefits for those fully unable to work under the WAO, WAZ and Wajong systems were also increased from 70% to 75% with effect from 1 July 2007. In addition, the upper age limit of 50 (on the reference date of 1 July 2004) for application of the amended Assessment Decree in the reassessment operation has been lowered to 45.

The lowering of the age limit is linked to the fact that older people with an occupational disability who have been unemployed and receiving disability benefit for a longer period of time usually have a weaker position on the labour market. They therefore do not have to be reassessed according to the new, stricter standards. Those in the 45-50 age group who have already been reassessed under the amended Assessment Decree are officially reassessed using the old Assessment Decree. As a result of this measure the old Assessment Decree applies to all those aged 45 or older on 1 July 2004, which is a group of 116,000 people. It is important that the reassessment process for the 45-50 age group continue as normal to identify what those under 50 and on occupational disability benefit can still do and where necessary to encourage and help these people to find employment if the reassessment shows that that they are fully or partially fit for work.

Reassessed people on occupational disability benefit who are not employed and have no immediate prospects of employment are entitled to follow a reintegration programme. The period of benefit received under the Provisional Income Allowance Scheme ( Tijdelijke regeling Inkomensgevolgen ) has been extended from 6 to 12 months if the person cooperates with the reintegration programme. A total of 10,000 bridging jobs lasting one year are created for allocation first of all to those people from the above-mentioned groups who still have no prospect of employment after 12 months.

52 The premium differentiation for employers ( Pemba ) will be abolished as of 1 January 2008. In doing so, the Cabinet is honouring the agreements it made with the social partners. The conditions for abolishing Pemba were that the number of new claimants under the IVA system (the section of the Work and Income according to Labour Capacity Act for people fully and permanently unfit for work) would be limited to a maximum of 25,000 people annually and that employers’ and employees’ organisations affiliated to the Labour Foundation (Stichting van de Arbeid ) would have made sufficient agreements (in collective labour agreements (CAOs)) regarding the obligation to continue payment of wages in the event of illness. The new system contains sufficient financial incentives for employers to keep people in employment.

Persons entitled to social assistance benefit The Work and Social Assistance Act (WWB) was introduced in 2004. The main point is that both the budgetary and the policy responsibility have been largely transferred to the municipalities. Municipalities have on the one hand a reintegration budget that can be used for a wide range of purposes and on the other hand they carry the risk with regard to the budget for social assistance benefit payments. At the same time the standards for benefit amounts are guaranteed at national level. The total evaluation for the period 2004-2007 will be published at the end of this year. Some sub-reports have already been published.

One such sub-report is the second quantitative analysis (April 2007), which shows that the positive results of the initial years continued in 2006. In December 2006 the number of people claiming social assistance benefit was 302,000, compared to 336,000 in December 2003 immediately prior to the introduction of the Work and Social Assistance Act. The sub-report also shows that the number of new claimants remained stable and the number of people no longer claiming increased in 2003 and 2004, whereas in 2005 the number of new claimants fell and those no longer claiming benefit remained stable. In addition to the favourable economic situation, a possible explanation for the fall in the number of new claimants is the new ‘gatekeeper’ function performed by the CWI: the CWI checks thoroughly whether someone is entitled to benefit and if possible helps clients to find a job immediately, even before they receive their first benefit payment. The stability of the number of people no longer claiming benefit does not mean that people with a greater distance to the labour market no longer stop claiming benefit: in 2005 there was a sharp increase in the number of people who stopped claiming who had been receiving benefit for two to five years. A qualitative study (May 2007) shows that almost half of the municipalities have already shifted their attention to the more difficult groups and almost one third of the municipalities are intending to do so in the short term. This means that topics such as social activation, care and subsidised employment will become more important.

In addition to the Work and Social Assistance Act evaluation, the plans drawn up by the new government in early 2007 have also affected the implementation of the Act. A study is currently being carried out into the possibilities for further financial and policy-based decentralisation of the Work and Social Assistance Act. No interim results are available yet from this study. In addition, the possibility of setting up a Participation Fund is being considered; in the first instance such a fund would bring together three streams of financing (Work and Social Assistance Act integration budget, civic integration funds and education funds). This will increase the options for local authority spending and there will also be a changeover to long-term budgets.

Peer review of the Work and Social Assistance Act On 4 and 5 June thirteen EU countries met to discuss the Work and Social Assistance Act and its application in their respective countries. The first day consisted of an introduction by the Ministry of Social Affairs and Employment, and an introduction by Tof Thissen, Chairman of Divosa, followed by comments from the Dutch independent expert. In the afternoon working visits to Rotterdam took place to projects within the framework of the activating approach under the Act. A speech by the city of Rotterdam alderman responsible for Social Affairs ended the day’s proceedings. On the second day there was detailed discussion in groups about the implementation of the Work and Social Assistance Act. This showed that there was a great deal of interest in the Act’s funding model and in the ‘gatekeeper’ function. Attention was drawn to the importance of proper monitoring of the results of the Act and the distribution of best practices used by municipalities in the Netherlands. Many participants were also impressed by the political drive of the Netherlands to introduce the Work and Social Assistance Act. Both those present from other countries and the Netherlands’ representatives found the peer review useful and informative.

The budget that the municipalities receive to introduce the Work and Social Assistance Act has been split into a part for the payment of benefits and a part for the funding of reintegration. On the basis of preliminary data, municipalities were left with approximately €209 million in 2006 (of the estimated total of €1,629 million). This is slightly less than in 2005. This amount is on top of the amount that was carried over from 2005 (€591 million). It is expected that a part of this amount will be returned to the State as the carryover regulation has been exceeded.

The reasons for the underspending have been investigated. The main reason for the surplus is the fall in expenditure in the municipal budget (e.g. faster reduction of subsidised jobs than expected). Other reasons appear to be uncertainty about the future budget, resulting in a conservative budget. To give municipalities more certainty about their future budget the budgets will be set for four years instead of annually starting 2008.

4.2.5 Balance between work and private life An improvement in the opportunities to combine work and private life (e.g. care tasks) can also make a positive contribution to both male and female participation in the labour market. The amendments with regard to the life-course savings scheme and the parental scheme are important in this respect.

Life-course scheme The starting point of the life-course savings scheme introduced as of 1 January 2006 is that employees should be able to better spread the time they spend on work and other purposes in accordance to their own judgment over the course of their lives. In 2006 a total of 5.5% of employees took part in the scheme.

The new Cabinet has announced that it intends to expand the scope of the life-course savings scheme so that it provides better support for the opportunities for (permanent) participation in the labour market. A decision in this regard is not expected before early 2008.

Parental scheme The parental leave tax credit was introduced at the same time as the life-course savings scheme. Parents who participate in the life-course savings scheme and make use of their statutory right to

54 parental leave may obtain a tax benefit by means of a levy discount amounting to half the minimum wage for each hour of leave taken. In 2007 this results in a sum of approximately € 650 per month if full-time parental leave is taken. In the coalition agreement the new Cabinet has expressed the intention to extend the parental leave and the parental leave discount as included in the life-course savings scheme from 13 to 26 weeks and to investigate the possibility of a benefits regulation for maternity leave for self-employed women and their partners who work with them.

4.3 Increasing adaptabilty

The increasing dynamism in the global economy and the process of globalisation are placing new demands on the labour market. The first requirement is that wage costs develop in a way that ensures a competitive price for (export) products. In addition, employment contracts and the Working Hours Act must allow room for flexibility without endangering job security, and employers and employees must invest in the employees’ continued employability. Meanwhile, it is important to invest in social innovation (see chapter 3) and good working conditions. This contributes to creating and sustaining a high-quality work force.

Guideline 21 Promote flexibility combined with employment security and reduce labour market segmentation, having due regard to the role of the social partners Guideline 22 . Ensure employment-friendly labour cost developments and wage-setting mechanisms

4.3.1 Employment contract During the Participation Summit a wide variety of measures were agreed (see above, section 4.1). In order to actually achieve the increase in participation, the Cabinet deems a broad approach along various different lines to be necessary. For example, there is a desire for improvement and greater clarity in respect of the institutions that determine the operation of the labour market. In that light, the Cabinet has provided the Labour Foundation (Stichting van de Arbeid) with proposed changes in employment law vis-à-vis the rules that apply to termination of labour contracts and has suggested reconsidering the rules that apply to employees with a temporary contract. The Labour Foundation was asked to provide an advice regarding a Cabinet proposal in this regard by 1 September 2007.

The foremost wish of the Cabinet is to simplify the rules for terminating an employment contract. The current system consists of several procedures that can be followed (in sequence or otherwise) in the case of a dismissal. The legal system is increasingly involved in the dismissal process and in practice high severance pay is frequently awarded. Viewed from the perspective of the employers, the current system forms a potential impediment to employing staff (on a permanent contract). There are therefore good reasons to look for better, simpler arrangements to govern the termination of employment. On the other hand, the Cabinet realises that protection from dismissal contributes to a healthy working atmosphere and the willingness of staff to invest in their own capacities in the interests of the company. Therefore, protection from dismissal is not only in the interest of employees but also of employers. If there is a change, a proper balance must therefore be found.

An advice consists of the following elements. Firstly, the employment contract could be terminated (if there are legitimate grounds to do so) without having to ask the court for permission. The employer would then be obliged to pay severance pay to the employee. In the case of a dismissal on economic

55 grounds, the law does not oblige the employer to pay severance pay, on condition that the dismissal has been approved in advance by the Centre for Work and Income (CWI). The severance pay due under the law is maximised. A mutual training requirement will also be implemented, obliging employers to train employees, and employees to undergo the training. The employers would be able to set off these costs against the severance pay up to a quarter of a month's wages per year of employment. Finally, the legal status of temporary employees will be improved by reducing the difference in protection between employees with a permanent contract and employees with a temporary contract.

4.3.2 Responsible development of wages (wage costs) Responsible development of wages (costs) has long been one of the basic premises with regard to the policy advocated by the Labour Foundation and the Cabinet and therefore it was also a topic at the Participation Summit. The social partners at the local level are responsible for the details, based in part on the economic situation in general and the revenue and competitive position of the individual branch of industry or individual company in particular.

In 2006, the average total contract wage increase was 1.8%, both in terms of individual increases and over the year as a whole. Viewed by economic sector, the individual contract wage increase varies from 1.3% in the agriculture and fishing sector to 2.2% in the construction sector. If one ignores the employer’s contribution to the life-course savings scheme, then contract wages increased by 1.4% in 2006, both in terms of individual increases and over the year as a whole.

Based on preliminary figures (according to the wage data for 2007 in 51 collective labour agreements (CAOs), which apply to just over 2.2 million employees) the average contract wage increase for 2007 is 1.8% in terms of individual increases and 1.7% over the year as a whole. Given the improved economic climate and the increasing shortage of labour on the market, these are responsible contract wage agreements.

One of the conclusions reached at the Participation Summit was that a differentiated wage (cost) policy offers more possibilities to adequately respond to changing economic conditions. The Labour Foundation has therefore recommended not only structural wage adjustments, but also results-based forms of remuneration that respond to the economic cycle and notions that indicate the importance of a motivational wage policy, whereby flexibility of employment, qualifications, and experience of the employee are also taken into account. As with any form of results-based remuneration, points requiring attention include transparency and the need for it to be possible to justify the differences in remuneration between groups and individuals based on objective criteria.

4.3.3 Other issues

Revision of the Working Hours Act The Working Hours (Simplification) Act came into force on 1 April 2007, giving employers and employees more room to reach agreements about working and break times. Removing legal barriers is intended to provide room for renewal of the labour system and thereby for improvement of business results. The amendments to the law were made after consultation with the Social and Economic Council (SER) and consultations with the social partners.

56 Working Conditions Act The Revised Working Conditions Act came into force on 1 January 2007. With a view to this Act resulting in more effective working conditions policy, the government will provide a clear legal framework (with as few rules and administrative burdens as possible) by setting target-based conditions. Employers and employees determine the details of these conditions for their sector or company (which are then laid down in occupational health and safety catalogues). The revised Act entails greater possibilities and responsibilities for employers and employees, fewer rules, and therefore fewer administrative burdens.

4.4 Promoting human capital Under the influence of trends such as globalisation and technological advancement, the economic environment – including the labour market – is becoming ever more dynamic. In order to be able to participate in a dynamic labour market and to increase productivity, it is extremely important that people possess sufficient human capital because that makes it easier for them to enter the labour market (after they have completed their initial education), as well as to change jobs later in their careers whether that is voluntary or as a result of compulsory redundancy. Although a great deal of policy has been developed in these areas in recent years, further steps are still necessary. The Cabinet’s policy choices are set out below.

Guideline 23 Expand and improve investment in human capital. Guideline 24 Adapt education and training systems in response to new competence requirements.

4.4.1 Investing in human capital Reducing school dropout rates, obtaining a basic qualification and the work-study requirement. Young people who drop out of their training without obtaining a basic qualification have fewer chances on the labour market, participate less, and more frequently end up drawing on the social security system. The Cabinet therefore wants to half the number of early school leavers from 71,000 in 2002 to 35,000 in 2012. The documents published to accompany the project aimed at reducing the number of students leaving school early (‘ Aanval op de uitval ’) states that the Cabinet views cooperation from the parties on the ground, such as educational institutions, industry, municipalities, Centres of Expertise for Vocational Education in Trade and Industry (KBBs), and the youth care system as extremely important in achieving this goal. However, parents and children will also have to contribute to these efforts. In addition, it is important that young people who stop their training (e.g. to work) still obtain a basic qualification. This requires a joint effort by the young person, his or her employer, and the government.

The Cabinet wants to encourage educational institutions to give a more deliberate form to the existing career orientation, mentoring, coaching, and personal guidance and create more differentiated educational programmes, more flexible curricula, and more possibilities to change educational programmes in the interim. Employing curriculum recommendations for early school leavers who are now working may also encourage these young people to still obtain a basic qualification.

The Labour Foundation recommends that the parties to collective labour agreements make arrangements about offering possibilities for obtaining a basic qualification to employees who do not have one. The greatest portion of the funding would be provided by the government because most people can obtain their basic qualification via the regular budgeted programmes. However, funding of

57 PLAR (Prior Learning Assessment and Recognition) procedures and offering customised work are paid for by industry. In that case, Training and Development Funds can be deployed. Implementing a qualification requirement for young people up to 18 years old will contribute to increasing the number of young people with a basic qualification. The qualification requirement applies as of 1 August 2007.

In addition to the basic qualification, social partners can make arrangements concerning the starting level in the sector. A sector starting level is the minimum level of education required to start a career in that sector. The level can be both above as well as below the level of the basic qualification. For the group of young people for whom the level of the basic qualification is too ambitious, a sector starting level below the level of the basic qualification can serve as a useful boost onto the labour market. Where possible, these young people can subsequently obtain further qualifications via PLAR.

In addition to the qualification requirement, a work-study requirement will apply to young people up to 27 years of age. This will remove their right to social assistance benefits and instead oblige municipalities to offer them training or work.

Table 4.4.1: EU Educational Goals for 2010 Situation in 2003 Situation in 2006 Target for 2010 Netherlands EU Netherlands EU Netherlands EU Percentage of early school 14.2 16.0 12.9 15.1 8 10 leavers Percentage of 20-24-year-olds 75.0 77.1 74.7 77.7 85 85 with a higher secondary education diploma Percentage of adults that 16.4 9.0 15.6 10.1 20 12.5 participate in lifelong learning Source: Eurostat

Promoting lifelong learning (LLL) Lifelong learning is important to help the working population continually adjust to the wishes and demands of industry and to help workers to move on to higher positions. Training is essential for both job seekers and workers. Workers must be encouraged to continue to invest in their own employability during their entire career. The primary responsibility in this regard lies with the employers and the employees. The Cabinet wants to create the right parameters for lifelong learning. An important role will be played by the Learning and Working Project Directorate ( Projectdirectie Leren en Werken), which has been established to promote lifelong learning. The Lisbon goal of 12.5% participation in lifelong learning was indeed achieved in 2000, but the Dutch goal of 20% in 2010 (table 4.4.1) has not yet been achieved.

On 26 September 2006, the national media campaign “Development works” (“Ontwikkeling werkt”) was started in order to bring work and study to the attention of employers, employees, and job seekers. On the same day, an online marketplace for training also went live: www.opleidingenberoep.nl . This Internet portal gathers together information about training programmes, professions, courses, work placements/work-study positions, and job openings in the Netherlands. The portal provides information for users in every phase of life and thereby contributes to “lifelong learning.”

In addition, in April 2007, €15 million was made available for the Temporary Incentive Scheme to Promote Learning and Working. The objective of this scheme is for (more) educational institutions, companies, and municipalities to organise (more) dual programmes, PLAR procedures, and work- study helpdesks.

Finally, in the 2006-2007 academic year, the first Associate Degree (AD) programmes started. AD programmes are two-year higher professional education (HBO) programmes leading to a new legally recognised degree known as the Associate Degree (AD). People with an AD have a qualification for the labour market and the option to finish the HBO bachelor’s programme within two years (i.e. without any ‘academic delay’). The AD programmes are intended in particular for students in senior secondary vocational education (MBO) and workers for whom the prospect of “four more years of study” is not attractive. A total of 24 AD programmes started in 2006-2007. A further 33 will start in 2007-2008. This is one of the Cabinet's activities that is aimed at increasing the proportion of the Dutch working population with a higher education diploma.

The Cabinet will also: - Enhance the quality of PLAR based on the quality code and encourage development of PLAR demand and supply (on a regional basis); - Set up customised programmes (in line with PLAR) for workers in senior secondary vocational education (MBO) and higher professional education (HBO); - Further extend and enhance work-study helpdesks and the resulting regional coordination; - Encourage schools to offer customised post-initial education; - Further develop the post-initial education market by directing demand.

4.4.2 Adaptation of the education and training system Better alignment between educational programmes and the labour market Improvement of the alignment between educational programmes and the work for which young people are being trained requires young people to be well trained technically for a profession that is needed on the labour market. This requires schools and businesses to collaborate more intensively, in particular in terms of academic and professional orientation and work placements. Much can be gained from more intensive advice and guidance during academic programmes. Career discussions should begin during the training phase. The educational programmes should be designed such that a continuous career path, as it were, is achieved from the person’s educational programme into and including his or her career. Of course, the importance of broad-based training must not be overlooked in this regard either. Cooperation between the educational institutions and industry also offers possibilities in respect of community service work placements.

Alignment of the educational system and the labour market: The brokering function In the framework of the national SME apprenticeships initiative, the G4 have gained experience in matching supply and demand in work placement positions and apprenticeships. The work broker plays an important role in this process by encouraging companies to participate in the apprenticeship programmes and outlining the need for staff. The work broker is also in contact with educational institutions and job seekers in order to match supply and demand. Successful methods typically feature investment in long-term relationships with employers, whereby a demand-oriented approach and a focus on business management are key. Adequate

59 collaboration and harmonisation on the “work floor” in the schools and government departments (Economic Affairs, Education, and Social Affairs and Employment) have also proven to be extremely important.

More specifically, the Cabinet will improve the alignment between education and the labour market by: - Starting an experiment in decompartmentalisation between preparatory secondary vocational Education (VMBO) and secondary vocational education (MBO); - Having MBO institutions offer courses with a broad initial phase; - Improving the parameters for lateral inflow into the education system; - Encouraging teacher placements in industry; - Assessing the possibilities for closer collaboration between educational institutions and industry in the form of business schools within the two learning tracks in vocational education; - Introducing a new funding system for vocational training and adult education (BVE). The new system will be tested before it is definitively implemented.

Within higher professional education (HBO), the link between education and the labour market has been improved by enhancing the “knowledge bridge” between universities of professional education and SMEs (Regional Action and Focus on Knowledge-Based Innovation (RAAK), HBO lectors). In addition, the Study and Enterprise Partnership ( www.lerenondernemen.nl ) has been launched with various actions to promote entrepreneurship and industriousness throughout the entire education system. The actions focus on educational institutions, students, and teachers. Centres of Entrepreneurship are being established in the higher education system.

Investing in excellence There is also a challenge for the future at the top end of the education system as regards the level and growth of participation in higher education in the Netherlands. The Netherlands wants to give more room to pupils and students who are capable of much more and encourage them to excel.

In specific terms, the Cabinet wants to achieve this aim by: - Programmes such as ‘Talent Shines’ (‘Talentkracht met Sprankelkracht’) and ‘Technological Expansion in Primary Education’ (‘Verbreding Techniek in het Basisonderwijs ’); - Establishing a national network of schools for gifted pupils; - Introducing a more in-depth Mathematics D course in August 2007; - Implementing the ‘ technasium ’ concept (science and technology institution at VWO and HAVO level) in more locations; - Participation of a number of schools in Certi Lingua (command of more foreign languages); - Giving more room for children who excel at sports and in cultural subjects in specialist sports schools (known as ‘LOOT schools’ in Dutch) and schools focussing in particular on cultural subjects.

4.5 Other issues 4.5.1 Financial section 2006 2007R 2008R 2009R 2010R More and better jobs: guidelines 17 to 20 Reintegration budget Incapacity for work 0.3 0.3 0.3 0.3 0.2 Unemployment Insurance Act (€ billion) (WW) 0.2 0.1 0.1 0.1 0.1 Work and Social Assistance Benefits Act (WWB) 1.6 1.6 1.6 1.5 1.4 - employment Sheltered Employment Act 2.2 2.3 2.3 2.3 2.3 - activation Centres for Work and Income 0.4 0.4 0.2 0.2 0.2 Benefit costs Incapacity for work 12.6 12.6 12.6 12.3 12.1 (€ billion) WW 3.8 3.1 2.9 2.8 2.7 WWB 4.2 3.9 3.8 3.6 3.6 Benefit years Incapacity for work 866 832 815 805 795 (*1000) WW 234 182 156 149 142 WWB 317 294 283 275 270 Early Retirement/Pre- Total budgetary effect (€ pension (VUT/PP) billion) 0.795 1.08 1.055 1.22 1.425 Life-course savings Government contribution 2 scheme (€ billion) 0.42 0.54 0.64 0.68 0.69 Number of participants in savings facility (million) 0.35 0.55 0.75 0.85 0.95 Childcare (€ million) Government contribution 1 921 1592 1628 1667 1707 Human capital: guidelines 23 and 24 Reducing the number of early school leavers (€ million) - 85 186 186 186 Lifelong learning (€ million) - 29 5 2 2 Increasing the number of people with a higher secondary education certificate (€ million) 9 4 14 13 13 1) Including obligatory employer’s contribution as of 2007

4.5.2 ESF As part of the National Strategic Reference Framework for the programme period 2007-2013, a national programme is being launched targeting education and labour market policy using funds from the European Social Fund. The aim of this project is to contribute to achieving the objectives of the Lisbon strategy as regards increasing the labour supply and investing in human capital. The total amount involved is approximately €830 million in subsidies over the period from 2007 to 2013.

The ESF subsidies help to increase the labour supply by enhancing the possibilities for providing job seekers with better tools for finding work. In this regard, the Cabinet is chiefly focused on groups that are represented to a lesser degree in the labour market and/or are at a disadvantage on the labour market, such as women, older workers, ethnic minorities, and the partially disabled. Extra reintegration resources will also be available for groups that cannot or cannot easily be reached via regular reintegration channels and for groups for whom mediation is not yet possible (prisoners). Via the ESF,

61 schools can contribute to enhancement of the chain of responsibilities for special secondary education and practical education by collaborating with labour market organisations to better prepare their students to move on to the labour market. The subsequent aid from the schools will be focused on better cooperation with these organisations, whereby the students’ social engagement will grow.

With regard to investment in human capital, one of the uses for ESF subsidies will be for education up to and including the senior secondary vocational education level 4 (MBO-4). By naming the Education and Development Funds (O&O Funds) as the applicant, the social partners have also directly involved themselves in concrete employment policy. The funds are expected to play a coordinating and directing role: they must ensure that the financing is deployed in a manner that benefits all businesses in the sector. These funds also have an understanding of the educational needs of the less well educated in their sector. In addition, O&O Funds can provide co-financing because businesses pay contributions to an O&O Fund.

62 Annexe 1 Structural indicators/position of the Netherlands This annexe gives the Netherlands’ score on the short list of 14 structural indicators. For several years, the Netherlands has been compared to the EU 25 average and the Eurozone average. The data comes from Eurostat’s “Structural Indicators Database”. Statistics Netherlands (CBS) gathered the data.

1. GDP per capita GDP in purchasing power parities per capita. Index: EU 25 = 100 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 EU 25 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Eurozone 110.2 110.3 110.8 110.4 108.6 107.7 107.2 106.5 106.3 106.0 (f) 105.2 (f) 101.2 (f) Netherlands 121.3 121.5 123.0 124.3 127.1 125.3 124.6 124.1 123.3 123.9 124.4 (f) 125.4 (f)

The Netherlands is expected to come in third in the EU in 2008 on this indicator (the same as in 2007).

2. Labour productivity GDP in purchasing power parities per worker. Index: EU 25 = 100 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 EU 25 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Eurozone 110.6 110.4 110.2 109.0 107.8 107.0 106.7 106.0 106.1 105.9 (f) 105.2 (f) 101.3 (f) Netherlands 104.0 103.6 104.0 105.0 107.0 105.7 106.2 107.6 107.9 107.9 (f) 107.7 (f) 108.8 (f)

The Netherlands is expected to come in seventh in the EU in 2008 on this indicator (the same as in 2007).

3. Labour participation Number of workers as a percentage of the total number in the 15-64 age group 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 EU 27 62.2 62.5 62.3 62.5 62.9 63.4 EU 25 : : 60.6 61.2 61.9 62.4 62.8 62.8 62.9 63.3 63.8 64.7 Eurozone 58.1 58.2 58.6 59.3 60.6 61.7 62.2 62.4 62.6 63.0 63.5 64.5 Netherlands 64.7 66.3 68.5 70.2 71.7 72.9 74.1 74.4 73.6 73.1 73.2 74.3

The Netherlands came in second in the EU in 2006 on this indicator (the same as in 2005).

4. Labour market participation of older workers Number of workers as a percentage of the total number in the 55-64 age group 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 EU 27 36.9 37.7 38.5 40.0 40.7 42.2 EU 25 : : 35.7 35.8 36.2 36.6 37.5 38.7 40.2 41.0 42.5 43.6 Eurozone 32.8 33.1 33.2 33.3 33.7 34.2 35.2 36.5 37.9 38.6 40.4 41.7 Netherlands 28.9 30.5 32.0 33.9 36.4 38.2 39.6 42.3 44.3 45.2 46.1 47.7

The Netherlands came in eleventh in the EU in 2006 on this indicator (the same as in 2005).

5. Gross domestic expenditure on R&D

63 As a percentage of GDP 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EU 25 : 1.81 (s) 1.79 (s) 1.79 (s) 1.80 (s) 1.86 (s) 1.86 (s) 1.92 (s) 1.90 (s) 1.90 (s) 1.86 (s) 1.85 (s) Eurozone : 1.78 (s) 1.77 (s) 1.77 (s) 1.79 (s) 1.84 (s) 1.85 (s) 1.87 (s) 1.88 (s) 1.88 (s) 1.86 (s) 1.86 (s) Netherlands 1.97 1.99 2.01 2.04 1.94 2.02 (r) 1.90 (r) 1.80 (r) 1.72 1.76 1.78 (p) :

The Netherlands came in tenth in the EU in 2004 on this indicator (the same as in 2003).

6. Educational level of young people Percentage of the population aged 20 to 24 who have completed secondary education 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 EU 25 : : : 74.8 (i) 76.3 76.1 76.5 76.6 76.9 (p) 76.9 77.7 Eurozone : : : 71.2 72.5 72.2 72.6 72.6 72.9 (p) 73.1 73.7 Netherlands 67.6 70.3 72.9 72.3 71.7 72.1 73.3 74.5 74.2 (p) 74.6 74.7

The Netherlands came in twentieth in the EU in 2006 on this indicator (2005: 19th).

7. Price levels Price levels for consumption by private households, including indirect taxes (EU 25 = 100) 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 EU 25 100 100 100 100 100 100 100 100 100 100 (p) 100 (p) 100 (p) Eurozone 106.5 106.2 103.1 102.2 101.6 99.9 100.3 101.1 102.9 102.7 (p) : : Netherlands 110.4 106.8 103.3 103.6 105.0 104.2 104.0 105.3 106.6 105.2 (p) 105.2 (p) 103.1 (p)

The Netherlands came in eighth in the EU in 2006 on this indicator (2004: 5th).

8. Private sector investment Gross fixed capital formation by the private sector as a percentage of GDP 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EU 25 16.9 17.0 17.1 17.5 18.0 18.4 17.9 17.2 16.8 17.0 17.4 Eurozone 17.7 17.6 17.6 17.9 18.4 19.0 18.5 17.7 17.4 17.6 18.1 Netherlands 17.3 17.9 18.6 18.6 19.5 19.0 18.3 17.2 16.6 17.1 16.1

The Netherlands shared twentieth place with the UK in the EU in 2005 on this indicator (2004: 24th).

9. Risk of poverty In percentages after social transfers 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EU 25 : : : 15 (s) 16 (s) 16 (s) 16 (s) : 15 (s) 16 (s) 16 (s) Eurozone 17 (s) 16 (s) 16 (s) 15 (s) 15 (s) 15 (s) 15 (s) : 15 (s) 17 (s) 16 (s) Netherlands 11 12 10 10 11 11 (i) 11 (i) 11 (i) 12 (i) : 11 (b)

The Netherlands came in third in the EU in 2005 on this indicator (the same as in 2003).

10. Long-term unemployment

64 The number of people who were long-term unemployed (12 months or more) as a percentage of the total working population 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 EU 25 : : : 4.4 4.1 3.9 3.8 3.9 4.1 4.1 3.9 3.6 (p) Eurozone 5.4 5.4 5.4 5.0 4.4 3.9 3.6 3.6 3.9 4.0 3.8 3.6 (p) Netherlands 3.1 3.0 2.3 1.5 1.2 0.8 0.6 0.7 1.0 1.6 1.9 1.7

The Netherlands came in eighth in the EU in 2006 on this indicator (2005: 7th).

11. Distribution of regional participation in the labour market Coefficient of variation in unemployment percentages among regions (NUTS 2 level) within countries 1999 2000 2001 2002 2003 2004 2005 EU 25 13.3 13.4 13.5 13.3 12.9 12.2 11.9 Eurozone 13.3 12.9 12.7 12.1 11.5 10.5 10.5 Netherlands 2.3 2.2 (b) 2.3 (p) 2.2 2.3 2.3 2.0

The Netherlands came in first in the EU in 2005 on this indicator (the same as in 2004).

12. Total greenhouse emissions Percentage of change since the baseline year and targets in accordance with the Kyoto Protocol/EU Council Decision for 2008-2012 (in CO2 equivalents). Baseline year = 100. 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 EU 25 91.9 91.9 92.1 94.1 92.7 92.2 90.6 90.5 91.4 90.7 92.0 92.7 Netherlands 103.6 103.6 105.2 109.2 105.6 106.3 100.8 100.4 101.1 100.2 100.8 101.6

As a result of the entry into force of the Kyoto Protocol and the flexible mechanisms (by which countries can purchase a portion of their reductions from abroad), the Netherlands’ position within the EU is more positive than is shown in the table. Taking into account reductions purchased from other countries, the Netherlands is expected to achieve its Kyoto objective of -6% vis-à-vis the 1990 level.

13. Energy intensity Gross domestic consumption of energy divided by GDP (constant prices, 1995 = 100) kgoe (kilogram of oil equivalent) per 1000 Euros. 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 EU 25 231.34 230.39 234.98 227.58 224.16 214.94 208.76 209.71 206.51 207.56 204.89 : Eurozone 198.13 199.02 202.69 198.34 196.61 191.97 188.63 190.04 184.89 186.3 184.74 : Netherlands 229.26 231.17 233.22 221.28 211.71 202.13 198.46 200.66 201.09 202.19 201.99 195.55

The Netherlands came in eighth in the EU in 2005 on this indicator (the same as in 2004).

14. Volume of freight transport Index of domestic freight transport in relation to GDP; measured in ton-km/GDP (in constant 1995 euros), 1995 = 100 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

65 EU 25 : 100 99.2 (s) 101.0 (s) 101.4 (s) 100.7 (s) 100.4 (s) 99.4 (s) 100.3 (s) 99.7 (s) 104.7 (bs) 104.6 (s) Eurozone 95.3 (s) 100 99.9 (s) 101.3 (s) 103.3 (s) 104.1 (s) 104.7 (s) 104.5 (s) 105.3 (s) 103.6 (s) 109.7 (bs) 109.8 (s) Netherlands 100.2 100 99.3 101.8 104.3 105.2 98.9 96.8 94.9 (r) 96.0 (r) 105.5 101.3

Eleven of the twenty-five EU countries experienced a fall in 2005 in the ratio of ton-km to GDP vis-à- vis 1995. The Netherlands’ percentage in 2005 was above the percentage in 1995.

Legend: : = not available f = forecast s = Eurostat estimation p = preliminary value b = break in the series r = revised value i = the data cannot be properly compared because of different survey conditions

66 Annexe 2 EMCO indicators

Differences in unemployment percentages for groups with a disadvantage on the labour market 2004 2005 2006 General unemployment percentage 6.5 6.5 5.5 Young people (15-24 years old) 13.5 13.1 10.7 Women 7.4 7.7 6.8 Ethnic minorities 16.1 16.4 15.5 Less well educated people 9.2 9.8 8.4 People with an occupational disability 10.5 10.5 10.3 Source: Statistics Netherlands (CBS)

Differences in degrees of participation for groups with a disadvantage on the labour market 2004 2005 2006 General degree of participation 63.3 63.2 64.5 Young people (15-24 years old) 39.3 38.3 38.9 Women 53.6 54.1 55.8 Ethnic minorities 46.5 46.9 46.7 Less well educated people 45.8 44.3 45.5 People with an occupational disability 41.1 39.5 39.6 Source: Statistics Netherlands (CBS)

Vacancies per unemployed person 2004 2005 2006 Vacancies (x 1,000) 118 150 195 Number of people unemployed (x 1,000) 479 483 413 Vacancies per unemployed person 0.25 0.31 0.47 Source: Statistics Netherlands (CBS)

Comprehensive approach: Shortfall percentage * 1 2006 % young people unemployed > 6 months and without support reintegrating as a percentage of the total population of young people unemployed > 6 months 63% % adults unemployed > 12 months and without support reintegrating as a percentage of the total population of adults unemployed > 12 months 69% Source: Employee Insurance Implementing Body (UWV) and municipalities * preliminary figures 1 As of 2007 (2006 results), the degree of comprehensiveness (indicator 8: new start (a)) has been replaced by the shortfall percentage. A comparison with prior years is therefore not currently possible. Figures calculated using the old method are expected to be available at the end of 2007 to make a comparison possible.

Long-term unemployment 2004 2005 2006 % of young people unemployed longer than 6 months 39 39 37 % of adults unemployed longer than 12 months 44 49 52 Source: Statistics Netherlands (CBS)

Bottlenecks in work and care 2004 2005 2006 Population aged 15-64 (x 1,000) 10,925 10,943 10,964 of whom: not capable of at least 12 hours’ work a week due to care or household tasks (x 1,000) 647 586 491 Not - not capable of working more than 11 hours per week (x 1,000) 168 159 available Not - not capable of working (x 1,000) 479 427 available Source: Statistics Netherlands (CBS)

68 Bijeenkomst Nationale Lissaboncoördinatoren 18 September 2007

Bouwstenen voor discussie

1. The assessment of the current state of implementation of the renewed Lisbon strategy

Lissabon in historisch perspectief Talking about results so far please allow me to briefly go back in time a little further, to the start of the strategy in 2000. Most of us were very sceptical, to say the least, about the first part of the strategy from 2000 to 2005.

I agree the well known goal of wanting to become the most competitive, knowledge intensive economy in the world by 2010 was, let’s understate it, somewhat ambitious. But it was the year 2000, the new economy was booming with high economic growth and excellent prospects. Many were convinced we could level with the US and even outpace it.

Shortly after the favourable economic cycle moved downwards, with a lot of cynicism about Lisbon as a result. Was this fully justified? I don’t think so. In terms of reforms things were actually not that bad. Some major social economic reforms were implemented in the late nineties, e.g. reforms related to the development in part time work, employment protection legislation and pensions.

Currently the economic situation is more rosy. As the Commission rightly states, the current economic upturn is probably partly cyclical, but there also seems to be a real structural improvement underlying it, based on these earlier reforms.

Good results in terms of reforms and certain economic indicators As chairman of the working group country exams under the Economic Policy Committee (advisory committee to the Ecofin Council), I was struck by the many reforms that are taking place in all Member States. Things are certainly happening. Please allow to give you some examples.

1 o A great number of countries are gradually increasing their statutory retirement age; Germany, Denmark, the UK to name a few. o And many are linking pensions or retirement age to life expectancy, such as quite recently in France, Austria and Finland. They are following the example of Sweden, Latvia, Italy and Poland, who already started these reforms in the late 1990s. o Also access to early retirement schemes has been tightened in many ways in many countries past years. o And Lisbon has certainly stimulated the development of a comprehensive approach towards tackling structural unemployment, by offering school leavers or people who have become unemployed a job or training within several months. o The reduction of the administrative burden is spreading throughout the EU. At least 18 Member States currently are using the standard cost model at an increasing number is setting quantitative targets. Lifting on this success we have set this year at the Spring Council also an important target for the administrative burden from EU-legislation (25% in 2012). o Most of us have great difficulty in reaching the target for R&D, but also in this field I see a lot of action has been taking. Most member states have introduced tax incentives to stimulate R&D, and are stimulating networking and public-private partnerships, for example through the creation and development of innovation poles and networks.

And some of the reforms started since the late nineties actually seem to start to pay off. Look at the rise in participation of older workers and women since 2000, despite the economic downturn in those years. This rise certainly seems to have something to do with earlier reforms and appears to be more than the result of cyclical change. We might even reach our target for 50% participation of older workers and 60% participation of women in 2010. Who would have thought that some years ago?

Role of Lisbon in stimulating reforms

2 Did Lisbon help to stimulate reforms? This is a difficult question to answer. I certainly think that Lisbon has helped to create a certain mindset, an atmosphere in which Member States are stimulated to speed-up reforms, to learn from each other and to inspire each other with good policies. There seems to be some kind of “convergence of ideas”. The examples I just mentioned are illustrating this as they are all spreading throughout the EU.

And look at the very concrete targets we have set for ourselves in the area of business start-ups. In 2006 we agreed it should be possible to set-up a business within one week all over the EU and we agreed companies should only need one contact point at the government to do it. Currently all Member States are taking initiatives to create one-stop shops and to facilitate business start-ups. Maybe not just because of these targets but I am convinced these targets gave existing national, as well as local and regional initiatives, extra impetus and urgency. I know it did in the Netherlands.

Lisbon remains the right way forward; our answer to globalisation Does Lisbon remain the right way forward? I believe it does. It is our answer to ageing and globalisation. Lately there is much to do about globalisation. It has become a buzzword in the new millennium. Of course globalisation is nothing new. But it is fair to say that global economic change is speeding up, and the stakes are increasing. And so is anxiety for globalisation among the public. Markets are consolidating as a consequence of globalisation, with mergers, take-overs - often from upcoming economies - and outsourcing having a direct impact on peoples jobs.

Let’s not forget globalisation has done us a lot of good: rising exports, cheaper products, new consumer markets, new jobs. At the same time we should take care of potential losers. And we must make sure the EU is equipped to gain from globalisation to the maximum extend.

I am convinced that protecting markets is not a good answer in the long run. But at the same time we should not lean-back and do nothing. “Laisser-faire” will not bring us where we want to be either. We need to work together to

3 create a climate in which our business can prosper and in which employees are well equipped to switch to competitive jobs. We already have a shared view on the priority area’s in which action should be taken: knowledge and innovation, business environment, labour markets and energy & climate.

Lisbon provides the right framework for simultaneous action. Although we are already doing a lot, we are not doing nearly enough, and we are not doing it fast enough!

2. The launch of the next cycle (2008-2010), in particular the preparation of the interim report of the Commission to the European Council

No fundamental review of the process Please let’s not talk about reforming the process again. We had a fundamental review of the process only two years ago and it appears to be much too early for a drastic overhaul of the process at this stage. The integrated guidelines remain relevant and they are sufficiently broad and neutral to cover any potential challenges. What matters is that we speed up the implementation of reforms in Europe. This should be the focus for the next three years.

And let’s not forget we adopted country specific recommendations and points to watch this year for the first time. I for one, am very curious what Member States have done with these recommendations. This years round of evaluations will be important to see to what extent the recommendations are contributing to the reform process.

I agree with the Commission we should leave the country specific recommendations and points to watch untouched. They have a multi-annual reach, as it will take more than one year for Member States to deal with them. Of course it should be possible to make small changes, where justified.

The priorities for the next cycle We have identified priorities for the EU rather recently at the 2006 and 2007 Spring Council: knowledge and innovation, business environment, labour

4 market and energy and climate. I think these areas remain our priorities for the next few years as well. Why are these still the right priorities?

If we look at the three pillars for income per head (number of people employed, hours worked, and labour productivity per hour) we see the gap with the US still remains, on all three pillars.

When it comes to labour participation in persons we are certainly moving in the right direction. But considering the decline in our population in coming years the full use of our labour potential remains one of the major challenges for the next cycle. And a particular boost will have to come from increasing the number of hours worked, where the gap with for instance the US remains wide. If Europeans worked two hours longer a week - which would still be less than on some other continents or 30 years ago - EU GDP could increase by about 6%. It actually strikes me that the issue of working more hours still seems somewhat underexposed in discussions about EU-priorities.

In addition we need to increase incentives in benefit systems and increase the adaptability of the labour market, making it more flexible while at the same time investing more in continuous education and training of workers.

When it comes to labour productivity growth we are not catching-up with the US. To speed-up labour productivity growth we need to ease the regulatory burden on business regulations. First of all we need to reduce red tape and make serious efforts to reach our 25% reduction target for administrative burdens from EU-legislation. Second of all we need to raise competition and reduce obstacles to the internal market, in particular in network industries.

Finally we all agree about the major energy challenges facing us today, i.e. climate change, our increasing dependence on imports, the strain on energy resources and access for all users to affordable, secure energy. We have set some ambitious targets at the 2007 Spring Council in this area. We have the big challenge ahead of us to reach the targets in a way which allows our EU industries to become leading players on the emerging global markets for low

5 carbon and energy-, and recourse efficient product, services and technologies. A Level playing field and stable long term goals are of great importance for our industry to be able to make the necessary investments. Competitive markets, harmonised market-based instruments -including ETS, innovation stimulation - including by use of product standards and EU-funding are crucial.

It is now important to focus on the implementation. That is why we should not change the guidelines. However I do think the priorities for the next three years deserve a special place, perhaps in a political introduction to the guidelines.

The Community Lisbon programme An area where I think delivery of the Lisbon strategy is still somewhat disappointing is the Community Lisbon Programme. Results are mixed at best. There has been some progress - for example the services directive - but when it comes to a key EU-initiative such as the Community patent, discussions drag on for years without result. Governments do not seem to feel responsible enough for good results at Community level. An interesting question in the debate about the next Lisbon cycle will be how we, Member States, can increase ownership for the Community Lisbon Programme.

Increasing ownership for the Lisbon strategy Ownerhip for the Lisbon strategy is important, not only by national governments, but also by social partners and local and regional governments. To give you an example, in my country social partners send their own separate Lisbon document to the European Commission. And local and regional governments have an increasingly important role in national policies, for example in our social benefit scheme. They seem to see Lisbon goals as a perspective for their policies, both when it comes to policies on labour participation as to policies to create an attractive business climate at regional level.

Conclusion Thus, overall, the main message should be to leave things (guidelines, recommendations, priorities) broadly as they are. Not a very sexy message.

6 But one which is justified by the facts, the need for stability and the need to focus on full implementation of reforms.