The current expansionary fiscal stance remains broadly appropriate given the deteriorating growth outlook, the large positive headline budget surplus and the favourable debt trajectory. Increased fiscal spending has provided some support to growth, although the level of spending in 2018 was much lower than was previously budgeted. The strong fiscal position could be further utilised to boost potential output through targeted investments in R&D and innovation and to mitigate the projected slowdown in growth, which would help to reduce the largest current account surplus as a share of GDP in the OECD.
A further slowing of, or negative, housing price growth could contribute to vulnerabilities in the financial system, reflecting the currently high levels of household debt and the high exposure of domestic banks to mortgage lending. The accelerated phase-out of mortgage interest rate deductibility should be complemented with a further decrease in the loan-to-value ratio for new mortgages to reduce these vulnerabilities. Measures to increase the number of rental properties in the private residential market would help to alleviate supply issues in that segment.
To improve the fairness of taxation and income security across different employment types, tax deductions for self‑employment should be reduced and minimum sickness and disability insurance coverage for the self‑employed should be introduced. To improve labour market inclusiveness, employment support should be targeted at vulnerable groups and a more coordinated approach to implementing activation policies would improve inter‑regional labour mobility. Paid paternity leave should be further expanded and provisions to keep childcare affordable for two‑earner households should be strengthened to address the large gender disparity in part-time work.
