Dutch Opposition Leader Draws Flak for Economic

UNCLAS THE HAGUE 001004

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SIPDIS

STATE FOR EUR/UBI ERIC FALLS
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E.O. 12356: N/A
TAGS: ECON EFIN EINV ELAB NL
SUBJECT: Dutch Opposition Leader Draws Flak for Economic
Reform Ideas

REF: THE HAGUE 449


1. Summary: Opposition leader Wouter Bos used a May 1
speech and an appearance before a major social welfare
conference April 28 to outline his proposals for reforming
the Dutch welfare state. Social democrat Bos's ideas, which
generally carry forward the structural reforms (increasing
labor market flexibility, trimming early retirement
incentives, etc.) initiated by the current center-right
coalition, were nonetheless harshly criticized by the
current coalition parties, as well as by union leaders and
former PvdA VIPs. Despite the political flak, the PvdA
leader's ideas may help to further such reforms in a
possible future coalition government. End summary.

2.(U) According to current opinion polls, the opposition
Labor Party PvdA is likely to come out on top in the
Netherlands' 2007 general elections. Other parties
invariably reproach PvdA's leader and possible future Prime
Minister Wouter Bos for not saying where he stands. Last
week, Bos took the stage at a conference on the future of
the European welfare state to present his views on a number
of socio-economic issues. Bos' proposals to cut distorting
tax incentives essentially continue the present GONL's
efforts to increase labor market participation through
structural reforms. But with national elections only a year
away, members of the ruling coalition denounced his
proposals as going too far.


3. (U) Three leading Dutch think tanks brought together
international experts, including 2000 Nobel Prize Winner
James Heckman, to discuss the future of the European welfare
state. The conference addressed the challenges of aging,
globalization, and migration, and framed the choice for
Europe as one between a US-style limited welfare state, or a
Scandinavian model of social cohesion. Emboffs met with
some of the key speakers at this conference earlier this
year (reftel).


4. (U) Arguing that the composition of public spending is
more important to the sustainability of the welfare state
than is the level of spending, Bos proposes more spending on
education, research, and innovation. More controversial
measures include taxation of senior citizens to help fund
the state pension, restricting mortgage interest
deductibility, students paying back their grants according
to income, and amending the life cycle savings plan that was
introduced by the Balkenende government so that it is no
longer "abused" for early retirement. Bos would also lower
the administrative barriers to firing workers.


5. (U) COMMENT Prime Minister Balkenende's ruling coalition
government has spent the past two years implementing
structural reforms to increase labor participation,
especially among older workers, to trim eligibility for the
Netherlands' much-abused disability system, and to reduce
the maximum duration of unemployment benefits. Bos's
proposals can be seen as the next step in this direction,
and could help pave the way for a future coalition alliance.
But in the run-up to the next elections, government and
opposition remain in different corners, as Balkenende
demonstrated by criticizing Bos for taking away people's
certainties while increasing government control. Also, Bos'
proposals do not go down well with PvdA's traditional labor
union allies. He will need to bargain worker friendly
measures to accommodate their wishes. Education is crucial
to creating a more inclusive labor market, but labor laws
are important too. As keynote speaker James Heckman noted,
the US system's basis in individual incentives makes it
inclusive by nature, while Europe needs to address the
plight of those outside the labor market.

BLAKEMAN