Higher wages, lower taxes will drive economy: Dutch Central Bank chief

Companies can help stimulate the economy by increasing worker wages well above the current low rate of inflation, said Klaas Knot, President of the Dutch Central Bank. An improvement in purchasing power is the best way for the Dutch economy to move forward, he said at the International Monetary Fund meeting on Friday.

This can be done through a reduction in taxes and higher wages, Knot is reported saying in Z24.

"Big companies are good on cash [right now] and the economy is improving. After years, there is room for an increase in purchasing power," Knot is quoted saying. As consumers have more money to spend companies will invest more, he added. "Over the last five years, disposable income was decreasing. It is not surprising that companies kept the money to themselves."

Knot also agreed that the economic recovery in Europe is pushed forward by the stimulus from the ECB, which he does not favor. “They are giving the recovery a push, this is undeniable. But I think the recovery was already there in the first place," he said.

A loose monetary policy leads to low and even negative interest rates, he added. "Risk now has no price. If that lasts too long, there will be excessive risk taking," he commented.