IMF warns Dutch worker tax hikes could slow economic growth
The International Monetary Fund warned that the Dutch government's plans to raise taxes on workers could worsen labor shortages and slow economic growth as the Netherlands faces mounting economic risks from the war in the Middle East.
In its annual review published Wednesday, the IMF said the Dutch economy enters 2026 in a relatively strong position but is facing new pressure from higher energy prices, weaker consumer confidence, and slowing investment due to the conflict in the Middle East. The IMF was especially critical of the coalition’s planned “freedom contribution,” which is designed to help pay for higher defense spending by increasing social insurance contributions and limiting how much income tax brackets are adjusted for inflation.
“These measures raise taxes on work, lowering labor participation and hours worked in an economy that is already under pressure from aging,” the IMF said. “They also increase wage costs.”
Fabian Bornhorst, head of the IMF mission to the Netherlands, also questioned the government’s priorities. “I would first address the bottlenecks when it comes to the housing market or energy,” Bornhorst said. He pointed to the overloaded electricity grid, which is making it difficult for companies to secure grid connections.
The IMF warned against broader measures such as price caps, VAT reductions, and fuel tax cuts, calling them inefficient, costly, and difficult to reverse.
The fund also said inflation in the Netherlands is now expected to remain above the European Central Bank’s 2 percent target for longer than previously anticipated because of higher energy prices.
Headline inflation is projected to rise to 2.9 percent in 2026 and remain elevated at around 2.5 percent in 2027 and 2028 before easing back toward target levels, the IMF said. In a severe scenario, inflation could exceed baseline projections by 0.8 percentage points in 2026 and 2.3 percentage points in 2027.
The IMF also renewed criticism of the Dutch mortgage interest deduction. “That is an expensive measure,” Bornhorst said. “Gradually phasing out mortgage interest deductibility would increase revenues and resolve bottlenecks in the housing market.”
The IMF forecast Dutch economic growth of 1 percent in 2026 and 1.3 percent in 2027 in its baseline scenario, assuming the conflict remains limited in duration. But it said growth in both years could be “roughly halved” in a more severe scenario involving a prolonged conflict and sharply higher oil and gas prices.
The organization described the outlook for the Dutch economy as “unusually uncertain.” It said higher energy prices are squeezing household budgets, increasing business costs, and weakening domestic demand.
