A New Fiscal Challenge for the Dutch
By MICHAEL HODIN,
Posted: April 26, 2012
The aging Dutch population is dramatically shifting the demographic balance of a country with a below-replacement birthrate of 1.7. Yet the lack of fundamental structural reforms is an underlying reason for the fiscal difficulties facing the Netherlands, one of Europe’s most stable economies.
Greece, Spain, Italy, and Portugal are already at their fiscal edge, and the French elections show just how polarized France has become, especially toward European austerity. Now, the Netherlands is threatening to join the ranks of the other “Club Med” countries of Europe.
At The Hague, talk is of austerity, predictably. Which programs should be cut, which reeled back? The key idea, of course, is reduction. Behind the German-led austerity philosophy, debt can be solved by reducing spending. But while this view has merit, it ignores the significant and structural sovereign issue of an aging population and the disconnect between 20th-century social welfare programs and 21st-century aging populations.
Instead, the Netherlands can and should look to its aging population as a path for economic growth. Aging populations are the world’s greatest untapped economic resource. In the Netherlands, 15 percent of the population is currently over 65, and by 2050, that number is set to reach 26 percent. With over a quarter of the population set to “retire” by mid-century, the Dutch can save their national economy if they enable the aging to grow GDP.
Last May, the Council of Ministers of the Netherlands adopted a proposal to raise the official retirement age to 66 in 2020, which would save the government roughly $1 billion. But it’s barely a drop in the bucket. People need to continue contributing to economic growth into their 70s and 80s. While the Netherlands plans to raise retirement age to 68 by 2040, the ratio of workers to pensioners is still projected to be about two-to-one, which is both unsustainable and anti-growth.
The private sector must also respond to demographic changes. BMW, as just one example, has done this in Germany, and now Dutch companies may follow suit. Seniors need to be encouraged and given incentives to remain in the workplace, even if they have passed the ever-more irrelevant state-established retirement ages.
If the Dutch can merge their world-famous forward-thinking social sensibility with their well-established fiscal prudence, they may end up creating a model for the rest of Europe and the world. As we begin the 21st-century era of aging populations, perhaps the crisis in the Netherlands is also an opportunity. Can the Dutch give us the “promise” side of the recent Davos-launched book, Global Population Aging: Peril or Promise – and can they overcome the “peril”?
Michael W. Hodin, Ph.D., is Adjunct Senior Fellow at The Council of Foreign Relations and Executive Director of The Global Coalition on Aging.