Lower marginal effective tax rates on labour income and improve the fairness of labour taxation. High marginal effective tax rates hinder work incentives of low-income households and second-income earners.
Actions taken: The taxation of personal income will be adjusted in 2019 from three to two tax brackets, resulting in a lower effective tax rate for most households. In 2018, the general tax credit was increased for lower-income earners and the tax credit for all employed persons was raised.
Recommendations: Continue to lower the marginal effective tax wedge on labour income, particularly for low-income earners, for example by lowering social security expenses. Phase out the permanent self-employment tax deduction.
Ease employment protection for permanent contracts and reduce the discrepancies in protection across different types of work. The stringent employment protection legislation increases the prevalence of low-security temporary contracts and, together with tax incentives, pushes workers towards self‑employment.
Actions taken: Starting 2020, the applicable period for severance pay will be changed to begin on the first day of employment, giving temporary contract workers more similar protection to those on permanent contracts. Also starting 2020, the dismissal approval requirements will be adjusted to make dismissals marginally easier
Recommendations: Continue to lower the cap on severance payments and ensure that the dismissal system works efficiently to encourage the use of permanent contracts.
Better target active labour market policies. Public employment services play a limited role in providing job support and decentralised service delivery entails different levels of support across regions.
Actions taken: The public employment services provider will receive increased funding to deliver targeted services for workers currently receiving disability benefits and improved personal coaching to unemployed benefit holders starting 2018. Funding to municipalities to provide targeted activation and support programs has been bolstered.
Recommendations: Improve the targeting of employment support policies for vulnerable groups. Work towards a more coordinated approach in implementing activation policies across regions, in particular by promoting inter-regional mobility.
Increase the scope of the unregulated part of the house rental market. The rigid housing market hinders labour mobility, generating congestion and hampering housing investment and productivity
Actions taken: The reduction in mortgage interest tax relief was accelerated considerably and the tax on imputed rent has been lowered starting in 2018, which reduces the incentives for home ownership. From 2018, the approval procedure has been simplified and constraints removed for housing corporations which want to rent on the private market. Starting 2021, municipalities will have more control over zoning and the planning of the private rental market.
Recommendations: Support the supply of rental housing by further limiting rent regulation in the private market and increasing the weight of the property value in setting the maximum initial rent. Introduce tighter income conditions for social housing eligibility.
Increase direct public support for R&D. Private spending on R&D is low and public support is skewed towards tax incentives.
Actions taken: Additional spending is earmarked from 2018 onwards to promote the National Science Agenda through spending on universities, colleges and other knowledge institutions. Public funding to improve the digital infrastructure and to encourage participation in collaborative research at the global level has also been marginally increased from 2018 onwards.
Recommendations: Complement the well-designed tax incentives with more direct funding such as grants, loans and procurement to better cater to the various needs of businesses and ideas in different sectors and in different stages of development.
