2009 Index of Economic Freedom

Quick Facts

Population:

• 16.3 million

GDP (PPP):

• $597.4 billion
• 3.0% growth
• 1.4% 5-year compound annual growth
• $36560 per capita

Unemployment:

• 3.2%

Inflation (CPI):

• 1.6%

FDI Inflow:

• $4.4 billion

The Netherlands' economic freedom score is 77, making its economy the 12th freest in the 2009 Index. Its overall score is 0.4 point lower than last year, reflecting minor score decreases in five of the 10 economic freedoms. The Netherlands is ranked 5th out of 43 countries in the Europe region.

The Netherlands enjoys very high levels of business freedom, trade freedom, monetary freedom, investment freedom, financial freedom, and property rights. Business regulation is efficient. Virtually all commercial operations are simple and transparent. Foreign investment is actively promoted, and 100 percent foreign ownership is allowed in sectors where foreign investment is permitted. Monetary stability is well maintained, and the highly developed financial sector serves as a European banking hub. The judiciary, independent of politics and free of corruption, has demonstrated an exemplary ability to protect property rights.

The Netherlands could do better in fiscal freedom and government size. Minor tax reforms in 2008 adjusted the three corporate tax brackets. Efforts to reform welfare spending have led to an improved budget balance, but overall government spending remains high. High welfare spending and increased public spending on an aging population are likely to create financial problems and hurt fiscal stability.

Background Back to the top

Home to a number of prominent multinational companies, the Netherlands is a prosperous country with low unemployment. Rotterdam is one of the largest ports in the world and by far Europe's largest port in terms of cargo tonnage. A robust, modern agricultural sector exports high-quality foodstuffs in addition to the traditional tulips; other exports include metal manufactures and chemicals. Though the Netherlands is a founding member of the European Union and an enthusiastic supporter of further European integration, its voters rejected the draft European Constitution by a decisive margin in June 2005.

Business Freedom 86.5 Back to the top

The overall freedom to conduct a business is protected under the Netherlands' regulatory environment. Starting a business takes an average of 10 days, compared to the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days. Closing a business is easy.

Trade Freedom 85.8 Back to the top

The Netherlands' trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some services sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Supplementary biotechnology and pharmaceuticals rules exceed EU policy. Ten points were deducted from the Netherlands' trade freedom score to account for non-tariff barriers.

Fiscal Freedom 50.9 Back to the top

The Netherlands has high income tax rates and moderate corporate tax rates. The top income tax rate is 52 percent, and the top corporate tax rate has been reduced to 25.5 percent. Other taxes include a value-added tax (VAT), a real estate tax, and environmental taxes paid directly through suppliers. In the most recent year, overall tax revenue as a percentage of GDP was 39.5 percent.

Government Size 36.2 Back to the top

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 46.1 percent of GDP. There are 37 state-owned enterprises. Water and energy utilities are owned by local governments. Increases in already high welfare spending threaten fiscal stability.

Monetary Freedom87.0 Back to the top

The Netherlands is a member of the euro zone. Inflation is low, averaging 1.6 percent between 2005 and 2007. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. The government also regulates energy prices, pharmaceutical prices, and housing rents. Five points were deducted from the Netherlands' monetary freedom score to account for policies that distort domestic prices.

Investment Freedom90.0 Back to the top

Foreign investors receive national treatment, and 100 percent foreign ownership is allowed in areas where foreign investment is permitted. There is no pre-screening requirement. Commercial laws are straightforward; however, elaborate corporate protective measures against hostile takeovers may block acquisitions or takeovers by Dutch and foreign investors. Other regulations and restrictions in both Dutch and EU policy can add to the cost of investment. There are no restrictions on or barriers to current transfers, repatriation of profits, purchase of real estate, or access to foreign exchange. Capital transactions are not restricted, but they are subject to reporting requirements.

Financial Freedom90.0 Back to the top

The Netherlands' well-developed and competitive financial system is subject to little government regulation. Easy access to financing is available for domestic as well as foreign businesses. Dutch financial firms have an ever-expanding international reach and offer a variety of financial services. Three conglomerates (ABN Amro, Rabobank, and ING Bank) account for about 75 percent of lending. There are few formal barriers to foreign banks, but foreign participation in retail banking is minimal because of intense competition and saturation. The government guarantees loans for small to medium-size enterprises that lack sufficient collateral. Capital markets are well developed and partner with other international exchanges.

Property Rights90.0 Back to the top

Private property and contracts are secure, and the judiciary is sound. Citizens and foreigners purchasing real property receive equal treatment. Intellectual property rights are generally protected, but the piracy of optical disc media by organized criminal organizations is a concern.

Freedom From Corruption90.0 Back to the top

Corruption is perceived as minimal. The Netherlands ranks 7th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Dutch law implementing the Organisation for Economic Co-operation and Development's 1997 Anti-Bribery Convention makes corruption by Dutch businessmen in landing foreign contracts a penal offense, and bribes are no longer deductible for corporate tax purposes. Low-level law enforcement corruption is not believed to be widespread or systemic.

Labor Freedom63.3 Back to the top

The Netherlands has relatively rigid labor regulations that hinder employment and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is relatively costly and difficult. Restrictions on the number of work hours are moderately flexible.