Election should “focus on productivity, not spending power”

Outgoing central bank chairman Klaas Knot has urged politicians to make painful but necessary choices to safeguard the Dutch economy, warning that too much focus on spending power is distracting from the country’s long-term growth prospects.

In an interview with the NRC, Knot, who steps down as chairman of the Dutch central bank DNB on 1 July, said the Netherlands faces major structural bottlenecks that stand in the way of economic growth. These include the ageing workforce, a strained electricity grid and limits on nitrogen emissions.

“Our labour market is tight, with essentially full employment, so the challenges are on the supply side,” Knot told the paper. “Productivity growth will have to deliver, and that does not fall out of the sky. You need to invest in innovation and education, and you need reforms that reward entrepreneurship.”

He criticised politicians for focusing debates too narrowly on purchasing power and short-term concerns.

“The Dutch tax system is essentially the sum of a patchwork of group interests,” Knot said, arguing that a broader vision was needed to protect the public good. “And that will demand choices which will perhaps hurt some interests,” he said.

Knot suggested starting with tax reform, by lowering the burden on labour and shifting it more towards capital, alongside a wider use of valued added tax.

He also called for a push to expand the private rental market to help older people downsize and free up homes for younger families. This, he said, should be combined with building more homes to ease the housing shortage. “Further reducing mortgage tax relief should be a part of that,” he said.

Knot admitted these ideas would be politically sensitive, given a fragmented and short-term political landscape, but insisted stagnation was a real threat.

“Stagnation means decline,” he said. “The next election campaign, as far as I am concerned, should focus on improving labour productivity and asking where the Netherlands is going to earn its income in the future.”