IMF says Dutch economy is recovering, but more needed in climate change fight

The strong economic recovery of the Netherlands justifies the Cabinet's decision to stop the massive coronavirus economic support packages. But the continuing direction of the coronavirus pandemic remains "uncertain" and politicians in The Hague will have to remain ready to reactivate support programs such as the NOW scheme if necessary, according to researchers from the International Monetary Fund (IMF).

In their annual survey of the state of the Dutch economy, they wrote that the prospects for the Netherlands look good. This year, the economy is likely to grow by 3.8 percent, followed by a gain of 3.2 percent next year. In addition, according to the experts, the labor market is "strong", with more vacancies than unemployed people. They also think it is a good thing that a large part of the population has been vaccinated, and that the business community can therefore return to more normal circumstances.

With these estimates, the IMF is slightly less optimistic than the latest estimate by the Central Planning Bureau (CPB), but the prognosis is significantly more positive than the IMF previously thought was possible. The researchers further note that they have not yet included strong economic data from last week in their calculations. The economic picture may therefore look even more favorable.

Not of this alters the fact that the government's short-term priority should continue to be the support of the economy, according to the IMF. This means hat viable companies should not needlessly go bankrupt, for example. The researchers also mention promoting investments, and policies that enable employees to quickly find a new job after being laid off. The latter is important because unemployment will probably increase to a limited extent in the near future.

The IMF economists of indicate that they consider it wise for the government to maintain the loan guarantee program for the time being. In their view it is also good that a generous scheme for repaying tax debts has remained, and that the government is providing support for, nightclub operators and others for a longer period of time. Support for nighttime hospitality businesses will continue for the time being as the catering industry must remain closed daily from midnight to 6 a.m. because of the remaining coronavirus measures.

Stronger climate policy still needed

The IMF is also calling on the Netherlands to strengthen its climate policy. Current Dutch policy will not likely meet the national climate targets. The Dutch direction is also not entirely in line with the European climate ambitions that European Commissioner Frans Timmermans presented in July.

In a new report on the Dutch economy, the IMF calls the Dutch climate agenda ambitious. But with all the measures taken it will not likely be possible to reduce greenhouse gas emissions by 49 percent in 2030, and by 95 percent in 2050, compared to 1990 levels.

Timmermans' proposals, whereby emissions must be reduced by 55 percent by 2030, sometimes clash with Dutch policy. A change of course will be necessary in various areas in order to comply with the European plans, which are still being developed.

The IMF is not the first to notice this. The Netherlands Environmental Assessment Agency (PBL) recently pointed this out as well. Brussels, for example, wants to make the use of large quantities of green hydrogen mandatory, and according to the planning office this does not fit well with current Dutch policy.

The researchers at the IMF propose to introduce surcharges for CO2 emissions in the energy sector as part of the Dutch plan. It will also be important to take a tougher approach to emissions in agriculture. However, the experts do find it important that vulnerable households are protected against rising costs energy costs.

The fund indicates that additional government investment and well-coordinated planning and regulations are needed to put energy transition in the Netherlands on the right track. Experts at the IMF regard the money that the Cabinet recently released on Budget Day for climate investments as a step in the right direction.

In the report, the experts also came up with a series of other recommendations for government policy. Many of these have already been mentioned by the IMF. For example, the institute again emphasizes that homeowners still enjoy too many tax benefits. Like the Dutch Central Bank, the fund has long been in favor of moving home ownership and associated debt from box 1 to box 3 for tax purposes. Homeowners would then pay just as much tax on their home as they pay on their savings.