Abstract
Selected Issues
Corporate Saving in the Netherlands1
The Netherlands’ current account (CA) surplus in percent of GDP is among the highest in the world. The non-financial corporation (NFC) net saving is the largest contributor to the CA surplus. To understand the high NFC saving, this chapter provides details of the sources and uses of the NFC saving, highlights the role of multinational corporations (MNCs), and discusses the implications to the external sector assessment and policy recommendations.
A. Introduction
1. The Netherlands has a long history of CA surpluses, however a surplus of more than 10 percent of GDP in recent years hit its highest level in decades. The Netherlands has been running CA surpluses since early 1980s, with a historical average at about 5 percent of GDP. From early 2000s, the surplus has been on a steady increasing path, reached its peak of 10.7 percent of GDP in 2012. Since then, the surplus dropped to 6.3 percent of GDP in 2015 and rapidly increased to 10.5 percent of GDP in 2017. The trade surplus in goods, at average of 10 percent of GDP over the last decade, is the biggest contributor to CA surplus. Export destinations are primarily European countries while the Netherlands incurs deficits with Asia and the United States. The balance of trade in services has been small deficits for a long time, but turned into small surpluses in last couple years, to some extent, contributing the resurging of CA surplus. Net income balances have been small and volatile.
Current Account
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS, DNB,Haver Analytics, and IMF staff calculations.Current Account
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS, DNB,Haver Analytics, and IMF staff calculations.Current Account
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS, DNB,Haver Analytics, and IMF staff calculations.2. High non-financial corporate (NFC) net saving is behind the high CA surplus in the Netherlands. Dutch households have high pension savings but also high debt through residential investment. Household net saving has improved since the global financial crisis (GFC), contributing to the rising CA surplus, but it started to decrease again in line with the recovery of house prices since 2014. On average, household net saving stays around ¼ percent of GDP over the past two decades. On the other hand, fiscal consolidation improved government net saving from about-5½ percent of GDP at the peak of GFC in 2009 to about 1 percent of GDP in 2017. Unlike many other countries, Dutch corporates have always been net savers, with an average net saving of around 6 percent of GDP since 2000. High NFC net saving is due to high gross saving as well as low corporate investment (see Section B).2
Net Lending and Borrowing by Sector
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS and IMF staff calculations.Net Lending and Borrowing by Sector
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS and IMF staff calculations.Net Lending and Borrowing by Sector
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: CBS and IMF staff calculations.3. The large Dutch international investment position (IIP) reflects its status as an international corporate center. Gross international assets and liabilities increased from close to 6 times of GDP in 2003 to more than 11 times of GDP in 2017, of which about 60 percent of assets and 50 percent of liabilities are foreign direct investment (FDI). Net IIP moved from a small negative position before 2009 to 60 percent of GDP in 2017, which is explained by the increase in net FDI position. About a half of Dutch foreign assets and liabilities belong to special financial institutions (SFIs), whose shares are directly or indirectly held by non-residents and whose activity is to receive funds from non-residents and channel them to non-residents on behalf of multinational corporations (MNCs) (DNB, 2004). However, even after adjusting for SFIs FDI would remain the largest component in IIP, especially in recent years. Due to the friendly business environment, proximity to major port routes, and favorable tax treaties, many MNCs locate their headquarters in the Netherlands, collect financial resources, and allocate FDI through the Netherlands.3
External Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.External Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.External Assets and Liabilities
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.
External Assets and Liabilities, excluding SFIs
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.External Assets and Liabilities, excluding SFIs
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.External Assets and Liabilities, excluding SFIs
(Percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Note: Positive numbers are assets; negative are liabilities.Sources: CBS, DNB, Haver Analytics, and IMF staff calcualtions.4. Understanding the fundamental reasons for high NFC net saving is important for the external sector assessment. In the Fund’s 2018 External Sector Report (ESR), the Netherlands’ external position was assessed as substantially stronger than implied by fundamentals and desirable policy settings, calling for policies to boost domestic demand. A better understanding of the high NFC saving could help identify more specific policy recommendations to foster effective external rebalancing. This chapter documents the sources and uses of corporate saving in the Netherlands, in comparison with other European advanced countries; examines the role of MNCs; and discusses how NFCs’ saving-investment balance reflects on the CA surplus, which also indicates the large impact of MNCs. The chapter concludes with implications to the external sector assessment.
B. Sources and Uses of the Dutch Corporate Gross Saving
5. The rising Dutch NFC gross savings reflect increasing profit and, to a lesser extent, decreasing profit distribution. NFC gross savings, or retained earnings, is defined as gross value added (GVA) less costs of labor, taxes, interest and rent, dividends, and other net transfers (including reinvested earnings from FDI). From 1995 to 2012, the increase of NFC gross saving outpaced the increase of GVA, reflecting lower costs (including tax and net interest and rent) and lower net dividend payments. Since 2012, gross savings dropped slightly due to higher dividends and net transfers. The saving rate, defined as gross saving in percent of GVA, increased from 26 percent in 1995 to 35 percent in 2012 and dropped to 29 percent in 2016. Throughout the period, labor costs have been quite stable as a percentage of GDP, even though NFCs’ GVA has increased moderately, indicating a declining labor share in GVA.
Decomposition of NFC Gross Value Added
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.Decomposition of NFC Gross Value Added
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.Decomposition of NFC Gross Value Added
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.Gross Saving (GS) = Gross Value Added (GVA) – Cost of Labor – Taxes – Interest & Rent – Other Net Transfers – Net Dividends (1)
Net Saving = GS – Domestic Investment (2)
6. Compared with some advanced European countries, the Dutch NFC saving rate is among the highest. At the aggregate level, Dutch NFCs’ cost structure is similar to that of Danish NFCs; and Dutch NFCs’ saving rate was slightly lower with higher dividend payout. Relative to other advanced European countries, Dutch firms had either low costs, or low net dividend payout, or a combination of both. For example, German NFCs maintained very low costs (including labor, tax, net invest and rent), but on average paid much higher dividends than their Dutch peers. Compared with Swiss NFCs, Dutch firms enjoyed much lower labor costs. Overall, Dutch firms successfully contained their operational costs, enjoyed high dividends distributed by their subsidiaries, paid only moderate dividends to their own shareholders, and therefore maintained high savings.
Selected OECD Countries: Decomposition of NFC Gross Value Added
(percent of GVA, 1995–2016 averages)
Selected OECD Countries: Decomposition of NFC Gross Value Added
(percent of GVA, 1995–2016 averages)
| Labor cost | Tax | Interest and rent | Other net transfers | Net Dividend | Gross saving | Dividend paid | Dividend received | |
|---|---|---|---|---|---|---|---|---|
| NLD | 60 | 4 | 2 | 1 | 4 | 29 | 12 | 7 |
| DNK | 59 | 4 | 3 | 1 | 1 | 31 | 9 | 7 |
| SWE | 52 | 13 | 2 | 0 | 6 | 27 | 23 | 17 |
| IRL | 43 | 5 | 4 | 6 | 17 | 24 | 17 | 1 |
| CHE | 68 | 3 | 2 | -2 | 5 | 24 | 15 | 9 |
| GBR | 61 | 7 | 3 | -2 | 9 | 22 | 15 | 6 |
| DEU | 59 | 2 | 1 | 0 | 18 | 20 | 21 | 3 |
| LUX | 64 | 4 | 7 | 7 | -1 | 19 | 30 | 31 |
| FRA | 64 | 7 | 4 | 2 | 4 | 18 | 18 | 13 |
| ITA | 52 | 7 | 3 | 1 | 20 | 18 | 23 | 3 |
Selected OECD Countries: Decomposition of NFC Gross Value Added
(percent of GVA, 1995–2016 averages)
| Labor cost | Tax | Interest and rent | Other net transfers | Net Dividend | Gross saving | Dividend paid | Dividend received | |
|---|---|---|---|---|---|---|---|---|
| NLD | 60 | 4 | 2 | 1 | 4 | 29 | 12 | 7 |
| DNK | 59 | 4 | 3 | 1 | 1 | 31 | 9 | 7 |
| SWE | 52 | 13 | 2 | 0 | 6 | 27 | 23 | 17 |
| IRL | 43 | 5 | 4 | 6 | 17 | 24 | 17 | 1 |
| CHE | 68 | 3 | 2 | -2 | 5 | 24 | 15 | 9 |
| GBR | 61 | 7 | 3 | -2 | 9 | 22 | 15 | 6 |
| DEU | 59 | 2 | 1 | 0 | 18 | 20 | 21 | 3 |
| LUX | 64 | 4 | 7 | 7 | -1 | 19 | 30 | 31 |
| FRA | 64 | 7 | 4 | 2 | 4 | 18 | 18 | 13 |
| ITA | 52 | 7 | 3 | 1 | 20 | 18 | 23 | 3 |
7. However, Dutch firms spent the lowest share of their gross saving on domestic investment compared with their European peers. During the period between 1995 and 2017, about 10 percent of GDP per year was invested on capital formation by Dutch firms, which was not extremely low for an advanced economy. However, with the average gross saving rate at 17 percent of GDP, Dutch firms spent only 63 percent of their savings on domestic business investment. With similar gross savings in percent of GDP, Sweden and Danish firms spent 96 percent and 78 percent of their savings on domestic investment, respectively. With much lower gross savings in percent of GDP, French and Italian firms spent more than 120 percent of their saving on investment. Therefore, Dutch firms have the highest net saving rate (i.e., gross saving minus domestic investment) among European advanced economies.
Selected OCED Countries: Uses of NFC Gross Saving
(percent of GDP, 1995–2016 averages)
Selected OCED Countries: Uses of NFC Gross Saving
(percent of GDP, 1995–2016 averages)
| Gross saving | Domestic nvestment | Current assets | Trade receivables | Net equity | Net debt/loan | Others | Investment-saving ratio | |
|---|---|---|---|---|---|---|---|---|
| NLD | 17 | 10 | 2 | 1 | 4 | -1 | 1 | 0.62 |
| DNK | 15 | 12 | 0 | 0 | 2 | -1 | 2 | 0.78 |
| SWE | 16 | 15 | 1 | 1 | -2 | -3 | 3 | 0.96 |
| IRL | 14 | 13 | 2 | 5 | -1 | 0 | -3 | 0.89 |
| CHE | 14 | 15 | 1 | 0 | 1 | 0 | -3 | 1.09 |
| GBR | 12 | 10 | 1 | 0 | 2 | -3 | 1 | 0.86 |
| DEU | 11 | 12 | 1 | 1 | 1 | -1 | -2 | 1.02 |
| LUX | 8 | 10 | 2 | 4 | 0 | -4 | -4 | 1.27 |
| FRA | 9 | 11 | 1 | 1 | 0 | -2 | -2 | 1.21 |
| ITA | 8 | 10 | 1 | 1 | 0 | -2 | -1 | 1.25 |
Selected OCED Countries: Uses of NFC Gross Saving
(percent of GDP, 1995–2016 averages)
| Gross saving | Domestic nvestment | Current assets | Trade receivables | Net equity | Net debt/loan | Others | Investment-saving ratio | |
|---|---|---|---|---|---|---|---|---|
| NLD | 17 | 10 | 2 | 1 | 4 | -1 | 1 | 0.62 |
| DNK | 15 | 12 | 0 | 0 | 2 | -1 | 2 | 0.78 |
| SWE | 16 | 15 | 1 | 1 | -2 | -3 | 3 | 0.96 |
| IRL | 14 | 13 | 2 | 5 | -1 | 0 | -3 | 0.89 |
| CHE | 14 | 15 | 1 | 0 | 1 | 0 | -3 | 1.09 |
| GBR | 12 | 10 | 1 | 0 | 2 | -3 | 1 | 0.86 |
| DEU | 11 | 12 | 1 | 1 | 1 | -1 | -2 | 1.02 |
| LUX | 8 | 10 | 2 | 4 | 0 | -4 | -4 | 1.27 |
| FRA | 9 | 11 | 1 | 1 | 0 | -2 | -2 | 1.21 |
| ITA | 8 | 10 | 1 | 1 | 0 | -2 | -1 | 1.25 |
8. The net saving accumulated by Dutch firms were mostly used for equity purchases. Dutch NFCs have large financial transactions, including equity and debt/loan issuances and purchases. Therefore, identifying the ultimate usage of NFCs’ net saving is not straightforward. For example, the net saving, at average of 7 percent of GDP during the period between 1995 to 2017, plus issuances of equity (4 percent of GDP) and debt/loans (6 percent of GDP), were used for purchases of equity (8 percent of GDP) and debt/loans (5 percent of GDP) and current assets (2 percent of GDP). On a net basis, most Dutch NFC net saving went to equity purchases. Firm’s financial transactions do not indicate whether equity was purchased from domestic firms or foreign firms. However, the co-movement of firm’s net equity purchases and net FDI flows indicates that Dutch firms use net saving for foreign equity purchases to a large extent.
Uses of NFC Gross Saving
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.Uses of NFC Gross Saving
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.Uses of NFC Gross Saving
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, and IMF staff calculations.C. Roles of MNCs
9. Dutch NFC gross savings are highly concentrated in a few companies. Based on financial statements of publicly listed firms, large firms contributed, on average, half of NFC gross savings during 2010–17.4 The top 24 firms (according to their total assets) contributed about 40 percent of total NFC gross savings. Just one company, Royal Dutch Shell plc (Shell), reported gross savings of about 2.8 percent of Dutch GDP in 2017, about 15 percent total NFC gross savings. Such calculations based on consolidated financial statements could overestimate Dutch MNCs’ gross savings in the Netherlands if not all consolidated profits are reported in the Netherlands. However, this is unlikely since most Dutch MNCs have their global or European headquarters located in the country.
NFC Gross Saving: Aggregate vs. Large Firms
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.NFC Gross Saving: Aggregate vs. Large Firms
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.NFC Gross Saving: Aggregate vs. Large Firms
(percent of GDP)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.10. MNCs allocate their saving to investment globally. During 2010 to 2017, the top 24 firms spent around 84 percent of their gross savings on investment either in the Netherlands or abroad. This compares with an average rate of domestic investment of only 54 percent. However, excluding Shell, the two investment ratios are similar. Between 2010 and 2017, Shell invested on average about 1½ times its gross savings, financed by debt or equity issuance, an amount close to 2.8 percent of Dutch GDP in 2016. 60 percent of this expenditure was for upstream investment (for exploration and research), of which only 17 percent was invested in Europe. Assuming that all its European investment was in the Netherlands, Shell would have contributed 1.8 percent of GDP to the Netherlands CA surplus in 2016. Similarly, other MNCs would invest globally, which would lead to higher net savings in the Netherlands than their consolidated net savings. Since other MNCs in the sample have similar investment-saving ratio as that in the national accounts, their contribution to the net saving would be higher than their contribution to the gross saving. Therefore, the low investment-saving ratio shown in the national accounts could be largely driven by MNCs investing a large fraction of their savings abroad rather than in the Netherlands.
11. MNCs’ investment intensity varies significantly across sectors. International evidence about large MNCs shows that companies in the energy, consumer staples, industrials, and communication services sectors have the largest contributions to gross saving. IT and health care sectors invested less than 20 percent of their savings. Low investment is correlated with large intangibles and stock buybacks, as firms keep high saving for R&D to maintain high level of intangibles or for stock buyback to boost shareholders’ wealth. High investment sectors, like energy and utilities, tend to issue debt to finance their investment.
NFC Investment-Saving Ratio
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.NFC Investment-Saving Ratio
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.NFC Investment-Saving Ratio
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: Eurostat, OECD, S&P Capital IQ, and IMF staff calculations.The Netherlands: Large MNC Activities by Primary Industry Classification
(2010–2017 average)
The Netherlands: Large MNC Activities by Primary Industry Classification
(2010–2017 average)
| Share in total gross saving | Investment-saving ratio | Stock buyback in percent of gross saving | Debt repay in percent of gross saving | Intangibles in percent of total assets | |
|---|---|---|---|---|---|
| Energy | 32.8 | 0.99 | 5.9 | -37.1 | 1.6 |
| Consumer Staples | 17.1 | 0.80 | 17.1 | -23.6 | 25.2 |
| Industrials | 15.7 | 0.39 | 16.5 | 12.9 | 40.2 |
| Communication Services | 12.4 | 0.46 | 7.0 | -67.5 | 46.8 |
| Information Technology | 8.0 | 0.14 | 36.0 | 4.2 | 35.6 |
| Materials | 6.1 | 0.62 | 5.9 | 3.8 | 19.8 |
| Health Care | 6.0 | 0.16 | 20.1 | 2.7 | 36.2 |
| Utilities | 1.9 | 3.21 | 3.4 | -152.0 | 0.9 |
The Netherlands: Large MNC Activities by Primary Industry Classification
(2010–2017 average)
| Share in total gross saving | Investment-saving ratio | Stock buyback in percent of gross saving | Debt repay in percent of gross saving | Intangibles in percent of total assets | |
|---|---|---|---|---|---|
| Energy | 32.8 | 0.99 | 5.9 | -37.1 | 1.6 |
| Consumer Staples | 17.1 | 0.80 | 17.1 | -23.6 | 25.2 |
| Industrials | 15.7 | 0.39 | 16.5 | 12.9 | 40.2 |
| Communication Services | 12.4 | 0.46 | 7.0 | -67.5 | 46.8 |
| Information Technology | 8.0 | 0.14 | 36.0 | 4.2 | 35.6 |
| Materials | 6.1 | 0.62 | 5.9 | 3.8 | 19.8 |
| Health Care | 6.0 | 0.16 | 20.1 | 2.7 | 36.2 |
| Utilities | 1.9 | 3.21 | 3.4 | -152.0 | 0.9 |
12. MNCs’ retained earnings (or gross saving) should be attributed to their ultimate shareholders, but this may not be feasible in practice. Dutch MNCs are largely owned by foreigners. If foreigners own the shares as portfolio investors, or if they own controlling shares indirectly through a Dutch company, the retained earnings corresponding to their ownership shares are not recorded as a primary income outflow in the CA. For instance, if the largest investor of a Dutch MNC is a Dutch holding company, most of the MNCs retained earnings will be attributed to Dutch residents even if the holding company is owned by foreigners. Taking Shell as an example again,5 the largest shareholder in Shell is Nederlands Centraal Instituut Voor Giraal Effectenverkeer BV (a Dutch holding company), holding 41.2% of the shares. The second largest investor is BlackRock Investment Management (UK) Ltd., holding 4.7% shares, who would be classified as a portfolio investor. Therefore, all retained earnings of Shell are attributed to Dutch residents. However, according to Eggelte et al. (2014) around 90 percent of Shell shares are owned by foreigners. Due to complicated holding structures of MNCs, it is difficult to allocate retained earnings to their ultimate shareholders around the world.
D. From the Saving-Investment Balance to the CA
13. Large exports, particularly re-exports, reflect MNCs’ activities. Major Dutch exports are manufactured goods, mainly machinery and transport equipment, food and fuels, and their primary destinations are other European countries (e.g. Germany, France, United Kingdom, and Belgium). The list of top export products is consistent with major MNCs’ primary business sectors, such as industrials, IT, consumer staples, and energy. More than 40 percent of Dutch exports are re-exports, as the port of Rotterdam, the largest port in Europe, provides a prime location for good transport in, out, and within Europe for MNCs. OECD (2017) shows that foreign-owned firms in the Netherlands are more export intensive than domestic-owned firms, and MNCs play an important role in foreign market penetration. The significant amount of goods transferred via the Netherlands is largely for geographic reasons but could also be related to profit shifting. Like intangible assets, movable tangible assets, such as transportation equipment (a major Dutch export category), could be used for tax planning as their legal ownership could be assigned to a leasing company resident in a low tax jurisdiction.
Netherlands: Exports by Product
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.Netherlands: Exports by Product
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.Netherlands: Exports by Product
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.
Netherlands: Exports by Country
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.Netherlands: Exports by Country
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.Netherlands: Exports by Country
(Percent of total)
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Sources: WITS.14. The small primary income balance implies that a large part of dividends is paid to foreigners. As discussed above, Dutch firms’ profits include a significant part of dividends from their foreign subsidiaries, which seems inconsistent with the small net primary income balance. However, dividends paid by Dutch firms could also go to their foreign investors, particularly within MNCs’ networks. Both dividends received and paid by Dutch firms are within the range of large gross investment income flows (around 30 to 40 percent of GDP), derived from even larger stock positions. When the primary income flows are driven by MNCs, depending on how the dividends are distributed within MNCs’ networks, the net balances may not match to the rising stock position.
E. Conclusion
15. The high Dutch CA surplus is driven by high corporate saving, which is dominated by a few MNCs. The Netherlands is an attractive location for MNCs partly due to its favorable international corporate taxation regime. Dutch NFCs, particularly MNCs headquartered in the Netherlands, receive substantial dividends and interest payments from their foreign subsidiaries, which are exempted from domestic corporate taxes under the “double participation exemption”.6 MNCs’ savings are used for global investment through foreign equity purchases, which are again subject to exemption on capital gains on foreign equity. As a result, the Dutch BoP registers high corporate net saving. While MNCs are domiciled in the Netherlands, they are largely owned by foreign shareholders. In principle, retained earnings should be attributed to foreign shareholders, thereby giving rise to CA outflows, but this may not be feasible in practice due to MNCs’ complicated holding structures, potentially leading to an overestimate of the CA surplus. Large trade surpluses and small primary income balances are consistent with the dominance of MNCs in the Netherlands’ external positions.
16. Separating MNCs’ activities from the Dutch CA for the external sector assessment would help identify underlying policy distortions. Rising corporate saving is a global phenomenon, which could be related to rising market power or profit shifting, possibly associated with rising intangible asset intensity. Granular information on MNCs’ activities in the Netherlands is needed to further disentangle global factors and domestic policy distortions. Separating MNCs’ activities would help identify imbalances of other economic sectors. The small and medium enterprises (SMEs) are stagnant and remain financially constrained. Small household net saving hides the fact that households are still highly leveraged, and their consumption constrained by a stagnating disposable income. Therefore, improving statistics and separating MNCs’ activities from both internal and external accounts would help identify domestic policy distortions and address imbalances effectively.
References
Chen, P., Karabarbounis, L, and Neiman, B., 2017. “The global rise of corporate saving,” Journal of Monetary Economics, Vol. 89(C).
CPB, 2015, “Causes and Policy Implications of the Dutch Current Account Surplus,” CPB Policy Brief 2015/05.
DNB, 2004, “Direct Investment Technical Expert Group: Background paper on Special Purpose Entities,” Background Paper Issues #9 and 11, Prepared by Balance of Payments and Financial Accounts Department, DNB.
Eggelte, J., Hillebrand, R., Kooiman, T., and Schotten, G., 2014, “Getting to the Bottom of the Dutch Savings Surplus”, DNB Occasional Studies Vol. 12-6.
OECD, 2017, “Netherlands, Trade and Investment Statistical Note”.
Prepared by Ruo Chen (EUR). The author is grateful to helpful comments and suggestions from the authorities. The author would like to thank Anvar Musayev for superb research assistance.
CBS revised national accounts and balance of payments statistics in September 2018. The analysis in the rest of this chapter relies on statistics from the OECD for cross-country comparison. However, OECD data does not reflect the latest update, showing slightly lower net saving by NFCs and higher saving by financial corporations. Nevertheless, the main results stay the same.
According to CPB (2015), the main reasons for MNCs location are “market size, agglomeration and clustering effects, business climate, institutional quality, socio-political stability, and labor force characteristics” while the favorable tax system is “one of the least relevant motives.”
The definition of gross saving of firms follows the calculation in Chen et al (2017).
Shareholder information is taken from London Stock Exchange as of November 16, 2018.
The “double participation exemption” refers the tax exemption of both dividends paid by foreign subsidiaries and capital gains on the disposal of foreign equity, which was designed to avoid double taxation.
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Appendix I. Data and Tables
The Netherlands: Key Parameters of the Dutch Pension System, 2018
The Netherlands: Key Parameters of the Dutch Pension System, 2018
| Mandatory | |||||
|---|---|---|---|---|---|
| 1st pillar | 2nd pillar | ||||
| Pension parameter | Minimum pension | Disability and survivors benefit | Occupational | ||
| Provider | Public | Public | Private | ||
| Coverage | All residents (not means tested) | 90% active workers | |||
| Funding | DB/PAYG | DB/PAYG | Hybrid DB | ||
| Pensionable age | Increasing to 67 by 2021, then linked to life expentancy | 68 in 2018 | |||
| Beneficiaries | |||||
| Millions (2016) | 4.04 | ||||
| Benefit formula | average of all salaries | ||||
| Accrual rate, annual | 1.875 | ||||
| Annual benefit per person, gross | |||||
| Maximum (in eur, 2017) | 103,317 | ||||
| Average (in eur, 2017) | 14,737 | ||||
| Percent of GDP per capita | |||||
| Expenditure (2016) | |||||
| Billions eur | 37.5 | 13.5 | 41.1 | ||
| Percent of GDP | 5.3 | 1.9 | 5.8 | ||
| Indexation post-retirement | minimum wages | CPI | |||
| Contributions (2016) | |||||
| Contributors (millions) | 8.89 | ||||
| Contribution rate (average) | the AOW franchise | employers 17, workers 7 | |||
| Contributions (gross, billions) | 49.6 | 31.2 | |||
| Percent of GDP | 7.0 | 4.4 | |||
| Interest rate on contributions (monthly, Dec 2017) | |||||
| Size of fund (in 2017) | |||||
| Billions eur | 1620 | ||||
| Percent of GDP | 220 | ||||
| Non-indexed funding ratio (2017) | 103/105 (regulatory min) | ||||
The Netherlands: Key Parameters of the Dutch Pension System, 2018
| Mandatory | |||||
|---|---|---|---|---|---|
| 1st pillar | 2nd pillar | ||||
| Pension parameter | Minimum pension | Disability and survivors benefit | Occupational | ||
| Provider | Public | Public | Private | ||
| Coverage | All residents (not means tested) | 90% active workers | |||
| Funding | DB/PAYG | DB/PAYG | Hybrid DB | ||
| Pensionable age | Increasing to 67 by 2021, then linked to life expentancy | 68 in 2018 | |||
| Beneficiaries | |||||
| Millions (2016) | 4.04 | ||||
| Benefit formula | average of all salaries | ||||
| Accrual rate, annual | 1.875 | ||||
| Annual benefit per person, gross | |||||
| Maximum (in eur, 2017) | 103,317 | ||||
| Average (in eur, 2017) | 14,737 | ||||
| Percent of GDP per capita | |||||
| Expenditure (2016) | |||||
| Billions eur | 37.5 | 13.5 | 41.1 | ||
| Percent of GDP | 5.3 | 1.9 | 5.8 | ||
| Indexation post-retirement | minimum wages | CPI | |||
| Contributions (2016) | |||||
| Contributors (millions) | 8.89 | ||||
| Contribution rate (average) | the AOW franchise | employers 17, workers 7 | |||
| Contributions (gross, billions) | 49.6 | 31.2 | |||
| Percent of GDP | 7.0 | 4.4 | |||
| Interest rate on contributions (monthly, Dec 2017) | |||||
| Size of fund (in 2017) | |||||
| Billions eur | 1620 | ||||
| Percent of GDP | 220 | ||||
| Non-indexed funding ratio (2017) | 103/105 (regulatory min) | ||||
The Netherlands: Trust in Institutions, 2000–18
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
The Netherlands: Trust in Institutions, 2000–18
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
The Netherlands: Trust in Institutions, 2000–18
Citation: IMF Staff Country Reports 2019, 045; 10.5089/9781484398579.002.A001
Appendix II. The DNB Households Survey (DHS)
Variables Description
The dependent variables DC1 and DC2 are constructed from the responses reported in variables dnb95 and dnb96 in the survey. DC1 takes the value of 1 if the individual has indicated that he/she is willing to take a risk related to the pension income in exchange for paying a lower premium; DC2 is a dummy that takes the value of 1 if the respondent has expressed a preference for managing pension savings individually.
The variable age is constructed from the variable birth less the year of the survey. It is used to construct 5 dummies for the main age groups. Individuals who are older than 67 are dropped from the estimation.
The educational dummies reflect completed education level of respondents which is grouped into “low” if the respondent has completed primary education or below or special education (a limited number of individuals in the survey report it). Other dummies encompass university, pre-university and vocational education at high and intermediate level.
Female is a gender dummy that takes the value of 1 if the respondent is female.
Children is a dummy variable indicating that the respondent reported having children when the value is 1.
Married is a dummy which takes the value of 1 if the individual lives in a registered partnership and 0 if the individual is divorced, living in an unregistered partnership, widowed or has never been married.
Health is a step dummy indicating the self-reported health status of the individual. It takes the value of 1 if the reported health status is excellent,2 if good, 3 if fair, 4 if not so good, and 5 if poor.
Informed is a step dummy variable taking the value of 1 to 6 depending on how informed the individual feels about his/her future pension arrangements. A lower value is associated with feeling better informed.
The variable tax is the implied overall tax burden, calculated as a difference between gross and net income and divided by the net income. We also use the variable income tax ib – calculated based on the taxable components of the total gross income and includes the social security premiums – to construct an alternative measure of tax burden.
Total gross and the total net income – btot and ntot – are calculated based on a large number of reported sources of income on a personal level. They include all forms of income: from work, benefits (social assistance and social insurance), scholarships, tax credit, rental etc.
Employment status dummies:
Employee takes the value of 1 if the individual is employed on a contractual basis or works in own business.
Self-employed takes the value of 1 if the individual is self-employed, freelancer or in a free profession and 0 otherwise.
Unemployed takes the value of 1 if the individual is looking for a job after having lost one or looking for the first job.
Other work takes the value of 1 if the individual performs households, voluntary, unpaid, or other work, is not a student, retiree, employee or self-employed.
Psychological traits variables: respondents in the survey are asked to express agreement over statements on their personality on a scale of 1 to 7 (from extremely uncharacteristic to extremely characteristic). Coverage and the number of questions may vary across years.
Risk averse - mean of values (between 1 and 7) associated to answers on 6 questions depicting personal traits linked to risk aversion.
Patient- mean of values (between 1 and 7) associated to answers on 12 questions depicting personal traits linked to patience.
Controlling - mean of values (between 1 and 7) associated to answers on 13 questions depicting personal traits linked to locus of control.
Mindful- mean of values (between 1 and 5) associated to answers on 18 questions depicting personal traits linked to consciousness.
In some instances, the values needed to be recoded and missing variables in certain years replaced with average responses from previous years.
DHS Questions on Pensions
(dnb94)
Which of the below mentioned statements applies to you most?
1. I do not worry about my pension arrangements, we’ll see by then.
2. It is important to know that my pension is taken care of, without knowing the details.
3. I keep well informed about any developments regarding my pension.
4. I don’t know.
(dnb95)
Which of the below mentioned statements applies to you most?
1. I’d I rather pay more premium for a guaranteed pension (money for pension mainly invested in bonds).
2. I’d rather pay less premium for a pension that on average is equally high or is expected to be equally high, but for which the final pension payment can be higher or lower due to the higher risk of the chosen investment form (money for pension mainly invested in stocks).
3. I don’t know.
(dnb96)
Which of the below mentioned statements applies to you most?
1. I’d rather determine myself what is done with the pension premiums I pay, so that the final pension payment depends on the decisions I made.
2. I’d rather decide which pension fund manages my pension premiums for me.
3. Building up my pension I gladly leave to the pension fund of my employer.
4. Not applicable.
5. I don’t know.
(dnb207a)
In 2012, it has been decided to increase the general old-age pension age. To make sure that the general old-age pension remains affordable, which of the following measures appeals to you most?
1. A lower general old-age pension.
2. An increase of the old-age pension premium for people working.
3. Increase the age on which I will receive the general old-age pension.
(dnb207b)
Which of the two remaining measures appeals the most to you thereafter?
1. A lower general old-age pension.
2. An increase of the old-age pension premium for people working.
3. Increase the age by two years on which I will receive the general old-age pension.
(dnb116)
Will you adjust your conduct if the pensions are cut down, for example through an adjustment on the indexation, postponement of the retirement age or a different pension system?
1. Yes, I will put more money aside for my pension.
2. No, I will see what I’ll do when it happens.
3. No, I think I can make ends meet fairly easily with the pension I will have.
4. Other.
5. I don’t know.
(dnb210)
Suppose your pension fund makes a choice between increasing the pension premium or increase the risk of the investment, as a result of which the exact amount of your pension becomes less certain (there is a 2.5% chance that it will be 10% lower). Will you change your savings behavior if the fund chooses an investment mix with a higher risk but the premium remains the same?
1. Yes, I will put more money aside towards my pension.
2. No, I will see what I’ll do when it happens.
3. No, I think I can make ends meet fairly easily with the pension I will have.
4. Other.
5. I don’t know.
Prepared by Izabela Karpowicz.
However, pension funds have used overly optimistic assumptions about expected returns which allowed them to circumvent nominal cuts (Wills Tower Watson, 2018; and DNBulletin 2017). Pension funds’ financial positions have been improving recently as favorable developments in the equity and foreign exchange markets have been offsetting the negative consequences of the decline in interest rates. The funding ratio was 108.4 percent in mid-2018, against the statutory minimum of 104.2 percent (DNB, June 2018).
On the contrary, the actuarial fairness principle, on the opposite of the range of social contracts, may be the only viable solution to this change.
Union representatives on pension boards are also engaged in wage negotiations, thus, the wage and pension policies are closely linked and redistribution across generations is achieved by means of both policy tools.
The estimated cost of this compensation is 55 billion euros.
The tax exemptions for DC schemes may also have pushed some employees away from regular contracts for which participation in the 2nd pillar is mandatory.
The DHS is administered by CentERdata (Tilburg University, The Netherlands). The main questions on pensions and the range of available answers are reported in Appendix II.
Li and others (2016) report that only around 7 percent of self-employed in their sample were affiliated with the occupational pension system in 2010. Knoef and others (2017) show that self-employed build less wealth than employees through the 2nd pillar, in particular at higher income levels, while their net replacement rates are lower.
See Appendix II for more detail on the construction of variables.
See, for instance Simoes and others (2015), for an extensive review of literature.
However, while income may suffer from endogeneity (the aggregate income variable includes retirement income), tax could display multicollinearity with income and employment status.
See Appendix II for more detail.
Consumer confidence in the banking sector and employers is also high and rising, according to the latest figures. (Banking Confidence Monitor 2017, The Dutch Banking Association; Statista 2018, The Edelman Trust Barometer, 2018).
