The economy of the Netherlands is 76.8 percent free, according to our 2008 assessment, which makes it the world's 13th freest economy. Its overall score is 1.9 percentage points higher than last year, reflecting improved scores in five of the 10 economic freedoms. The Netherlands is ranked 6th out of 41 countries in the European region, and its overall score is much higher than the regional average.

The Netherlands enjoys very high levels of investment freedom, trade freedom, financial freedom, property rights, business freedom, freedom from corruption, and monetary freedom. The average tariff rate is low; non-tariff barriers include European Union subsidies. Business regulation is efficient. Virtually all commercial operations are simple and transparent. Inflation is low, and foreign investment is actively promoted. The financial sector is highly developed and has been a European banking hub for centuries. The judiciary, independent of politics and free of corruption, has an exemplary ability to protect property rights.

The Netherlands could do better in government size and fiscal freedom. Total government spending is almost half of GDP. The government has been working to liberalize the labor market, but impediments to reform, such as extensive unemployment benefits, still exist.

Background:
The Kingdom of the Netherlands is a wealthy country and home to a number of prominent multinational companies. Unemployment is low, and there are few restrictions on foreign direct investment. Rotterdam is by far Europe's largest port in terms of cargo tonnage and one of the largest ports in the world. A robust, modern agricultural sector exports high-quality foodstuffs, and other exports include metal manufactures and chemicals. As a founding member of the European Union, a key architect of the Treaty of Amsterdam, and an enthusiastic supporter of further European integration, the Netherlands stunned its fellow EU members by decisively rejecting the draft European Constitution in June 2005.

Business Freedom - 88%

The overall freedom to start, operate, and close a business is protected by the Netherlands' regulatory environment. Starting a business takes an average of 10 days, compared to the world average of 43 days. Obtaining a business license takes less than the world average of 19 procedures and 234 days. Closing a business is easy.

Trade Freedom - 86%

The Netherlands' trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 2 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 service sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Supplementary biotechnology and pharmaceuticals rules exceed EU policy. Consequently, an additional 10 percentage points is deducted from the Netherlands' trade freedom score.

Fiscal Freedom - 51.6%

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 was reduced to 25.5 percent effective January 2007. Other taxes include a value-added tax (VAT), a tax on insurance contracts, and a real estate tax. In the most recent year, overall tax revenue as a percentage of GDP was 38.2 percent.

Freedom from Government - 38.2%

Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 45.4 percent of GDP. Efforts to reform welfare spending have led to an improved budget balance.

Monetary Freedom - 86.9%

The Netherlands is a member of the euro zone. Inflation is low, averaging 1.6 percent between 2004 and 2006. Relatively stable prices explain most of the monetary freedom score. 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. An additional 5 percentage points is deducted from the Netherlands' monetary freedom score to account for these policies.

Investment Freedom - 90%

The Netherlands promotes foreign investment, except in railways, the national airport, and public broadcasting, with some of the world's most liberal policies, including fact-finding trips and consulting services. There is no screening, 100 percent foreign ownership is allowed in areas where foreign investment is permitted, and foreign investors receive national treatment. Commercial laws are straightforward. Environmental restrictions are tight, and restrictive changes in EU policy may dictate Dutch policies in the future. 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 are subject to reporting requirements.

Financial Freedom - 90%

The financial system is subject to little government regulation. Dutch financial firms have an ever-expanding international reach and offer a variety of financial services, even real estate. 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 due to intense competition and saturation. The government guarantees loans for small to medium-size enterprises that lack sufficient collateral. EU banks receive privileged treatment. Capital markets are well developed and partner with other international exchanges. Four Dutch companies account for almost 50 percent of total Amsterdam capitalization.

Property Rights - 90%

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

Freedom from Corruption - 87%

Corruption is perceived as minimal. The Netherlands ranks 9th out of 163 countries in Transparency International's Corruption Perceptions Index for 2006. Dutch law implementing the 1997 OECD 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 Freedom - 60.5%

Restrictive employment regulations hinder employment opportunities 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.

 

Netherlands

  • Rank: 13
  • Regional Rank: 6 of 41
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Chart 1: Netherlands


Chart 2: Netherlands


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Quick Facts
  • Population:
        
    16.3 million
  • GDP (PPP):
        
    $533.4 billion
    1.5% growth in 2005
    1.0% 5-yr. comp. ann. growth
    $32,684 per capita
  • Unemployment:
        
    6.6%
  • Inflation (CPI):
        
    1.5%
  • FDI (net inflow):
        
    –$75.8 billion
  • Official Development Assistance:
        
    None
  • External Debt:
        
    $1.9 trillion
  • Exports:
        
    $427.9 billion
    Primarily machinery and equipment, chemicals, fuels, foodstuffs
  • Imports:
        
    $374.7 billion
    Primarily machinery and transport equipment, chemicals, fuels, foodstuffs, clothing