PRESS RELEASE
24 May 2004
In its latest report, published today, the SER Committee of Socio-Economic Experts (CSEE) urges that an adequate EU policy is essential if the Netherlands and the other member states are to ensure sustained higher economic growth. Such a policy is particularly important for a small country like the Netherlands, which, due to its open economy, depends heavily on successful cooperation within Europe. An effective EU policy can be particularly beneficial in ensuring an efficient internal market and in creating a European ‘knowledge area’.
The report considers how EU policy can contribute to higher growth and what the member states themselves (either together or separately) need to do. It deals with a number of topics, specifically the completion of the internal market, the harmonisation of corporate taxation, ‘Social Europe’ (the social ‘acquis’), better utilisation of labour potential, and the knowledge-based economy. The position of the new member states is considered separately in relation to each topic. It is important that these member states be able to continue to catch up in terms of growth. In its report, the CSEE seeks to indicate specifically why and how the Netherlands, against the swelling tide of Euroscepticism, can benefit from a properly functioning EU. Given the country’s relatively small domestic market and its relatively large number of internationally operating companies, an efficiently operating internal market is particularly important for the Netherlands.
Purpose of the report
The CSEE was moved to write this report by its concern about current sluggish economic growth and its consequences for the sustainability of Europe’s welfare states. This concern has been exacerbated by growing public doubt about the usefulness of European policy and the benefits that the Netherlands derives from its membership of the EU. Institutions and policies will need to adapt to cope with major challenges, such as the ageing of the population, economic globalisation and rapid technological developments. Higher economic growth is absolutely essential; and if that growth is to be realised, then labour potential will need to be used more effectively and labour productivity growth will need to improve rapidly. To achieve this, says the report, better use should be made of the socio-economic opportunities offered by the EU.
European policy
The CSEE believes that more needs to be done to complete the internal market. The way in which EU regulations are made and implemented should be improved. Better implementation is particularly needed in the areas of the allocation of government contracts, the free movement of labour from the new member states (preferably before 2007), and competition in the network sectors. Improving regulations governing the internal market will call for greater mutual respect and trust on the part of member states, as well as a stronger commitment to agreements made in the past. The administrative burden involved also needs to be lightened to encourage entrepreneurship and boost economic activity. The burden is made particularly heavy when member states allow existing legislation to remain in force alongside European legislation.
European knowledge area
Two factors that are especially important for future economic growth are knowledge and innovation. In this connection, the report argues for the creation of a European knowledge area, an internal market for knowledge. To create this, and to ensure that there will be free movement of knowledge (i.e., students, researchers and ideas) within a reasonable timeframe, strong powers will need to be exercised at EU level. The CSEE therefore makes the following recommendations:
- Student exchanges should be encouraged more vigorously, with greater investment being made in the relevant programmes. To make the field of research and development more attractive for people from outside the EU, researchers and scientists should be granted a residence permit for the whole of the EU in an accelerated process.
- The Dutch government intends to promote, during its EU presidency, the establishment of an independent European Research Council with a substantial research budget, an initiative that deserves support. In the CSEE’s view, the funding of research projects should be based solely upon merit. That will lead to the creation of centres of excellence, which will make Europe an attractive location for top researchers from all over the world.
- The structure of the framework programmes (currently the main instruments of EU knowledge and innovation policy) needs to be considerably improved. The limited involvement of industry and commerce, the bureaucratic procedures required, and the multiplicity of objectives are aspects that deserve particular attention. Moreover, the CSEE suggests that in order to ensure improvement, the programmes need to be systematically evaluated. It also recommends that the various pan-European programmes be better coordinated.
- The creation of a genuine European knowledge area would require the allocation of additional financial resources. This should be achieved primarily by reallocating existing funds in the EU budget. Naturally, where aspects of a national basic research programme are transferred to a new European Research Council, one would expect the relevant national research funds to be also transferred to that Council’s research fund.
Modification of the corporate taxation regime
The efficient working of the internal market is frustrated by the existence of a large number of tax barriers for companies. There is insufficient coordination between member states in the field of corporate taxation. The best solution would be to harmonise the basis on which companies are taxed and to define minimum rates. This would reduce the cost of transactions for companies and safeguard the supportive function of corporate taxation.
It would also prevent companies from benefiting on two fronts: profiting from good collective provisions but not contributing to them sufficiently through taxation. The CSEE urges the Dutch government to be more proactive in the matter of corporate taxation within the EU. Any revisions of Dutch corporate taxation should take account of EU factors from the outset. The CSEE sees no reason for an immediate cut in the rate of corporate tax to sustain the Netherlands’ position as a location for businesses in the face of competition from new member states. This is not to deny that such a cut might not be desirable, but given the necessity of funding such a cut, its priority would need to be assessed in a broader context.
What do member states need to do?
If the European economy is to perform better, member states will also need to undertake certain essential measures themselves, particularly in respect of investment in research and development, more effective use of labour potential, and social policy regarding the new member states. Member states have agreed on a number of policies to increase participation in the labour market, but they are not implementing them properly, either because they are unable to do so, or because they are not giving them any priority. The problem is not that the European Commission is not exerting enough pressure on member states. Rather, national governments need to incorporate the agreed measures into their programmes and specific policy proposals, so that national parliaments can hold them to account on these points. In other words, national parliaments should be much more closely involved in the evaluation of policy. Member states should also be more able to set their own objectives, allowing a measure of customisation.
No ‘social dumping’
The CSEE does not expect differences in levels of social security between the new and old member states to lead to any ‘social dumping’. It does not believe that companies choose their preferred location on the basis of lower average social security expenditure. And, as happened earlier in the case of the southern member states, there will be a gradual convergence towards the average level of social security spending in the older member states. This is because, if welfare levels rise, pressure to increase spending on health care and care of the elderly will inevitably grow, in part in response to the ageing of the population. The EU does not need to compel this by prescribing minimum norms for social security expenditure. After the expansion, member states will continue to retain sufficient leeway to structure their social security systems as they see fit.
CSEE
The Committee of Socio-Economic Experts is the only SER committee comprised solely of independent experts. The Committee issues a report every two years on a topic selected by the Executive of the SER. The report is intended to assist thinking within the SER, the Dutch government and the organisations that make up the various ‘social partners’ of the government (notably employers’ organisations and unions). The Committee is chaired by Professor A.H.J. Kolnaar. At the time of publication of this report, the other members of the CSEE were Professor A.F.P. Bakker (of De Nederlandsche Bank), Professor C. van Ewijk (of the Netherlands Bureau for Economic Policy Analysis), Professor J.H. Garretsen, Professor K.P. Goudswaard, Professor R.A. de Mooij, Professor L.F. van Muiswinkel, Professor J.L.M. Pelkmans and Professor P.J. Slot.