25.2.2010   

EN

Official Journal of the European Union

C 47/1

(1)

On (2 December 2009) the Council examined the complement to the April 2009 update of the stability programme of Belgium (hereafter called ‘the complement’), which covers the period 2008 to 2012 (2), submitted by the Belgian authorities in response to an invitation by the Council included in its opinion of 7 July 2009 on the April 2009 programme. The current opinion updates that of July, taking into account the information contained in the complement to the April 2009 programme.

(2)

The collapse of world trade together with decreasing confidence, wealth effects and tighter credit conditions led to a sharp contraction of the economy in the last quarter of 2008 and the first of 2009. In the second quarter, the contraction was more limited and quarterly growth is expected to turn slightly positive in the second half of the year in view of the improved international environment. According to the Commission services′ autumn 2009 forecast, annual GDP is expected to contract by around 3 % in 2009 and turn positive in 2010 (0,6 %). In 2011, growth is projected to increase to 1,5 %, thus somewhat outpacing potential growth which has been reduced by the drop in investment and the rise in unemployment rate in the context of the crisis. The downturn will also have a significant adverse impact on public finances; according to the Commission services′ autumn 2009 forecast, the general government deficit set to deteriorate from 1,2 % of GDP in 2008 to around 6 % of GDP in 2009. The deficit is projected to stabilise in 2010 and 2011 taking into account (i) that the budgetary impact of the stimulus measures adopted at the end of 2008 in response to the EERP remains at 0,5 % of GDP in 2010, reflecting that the package includes permanent measures, and (ii) the consolidation measures adopted by the different government tiers in the context of their budgets for 2010 (0,75 % of GDP) and 2011 (0,25 % of GDP). However, the adverse composition of economic growth in 2010 with a further strong increase in unemployment, higher interest expenditure, as well as expenditure growth linked to population ageing (also reflecting measures taken in recent years to increase social benefits, including pensions), are expected to compensate completely the impact of consolidation measures on the headline balance.

(3)

The macroeconomic scenario underlying the complement envisages that, after expanding by 1,1 % in 2008, real GDP will fall by 3,1 % in 2009, before recovering to a 0,4 % growth rate in 2010. Thereafter, GDP growth is projected at 1,9 % in 2011 and 2,4 % in 2012. Compared to the April 2009 update of the programme, growth has been revised downward, especially in 2009. Assessed against currently available information (3), this new scenario appears to be broadly plausible; it might be slightly cautious for the period 2009-2010, but somewhat favourable for the outer years against most recent potential output estimates. While the Commission services′ autumn 2009 forecast also expects a gradual closing of the output gap after the downturn, the projected speed of the closing of the gap in the complement seems rather optimistic. The composition of growth is broadly plausible over the entire period covered by the complement. The forecast for inflation in the complement can be considered realistic. On the other hand, projected wage growth appears to be on the high side over the entire period as lower labour cost growth abroad might exercise more downward pressure on Belgian wages in a context of high unemployment. Finally, the employment growth projection for 2011 in the complement may also be slightly optimistic.

(4)

The complement contains a deficit target for 2009 of 5,9 % of GDP (in line with the Commission services′ autumn 2009 forecast). The increase in the deficit in 2009 compared to 1,2 % of GDP in 2008 mainly reflects the impact of the automatic stabilisers. This impact has been much more important than what an application of standard elasticities would suggest, and in particular includes a strong fall in corporate tax revenue. The expansionary measures in the budget for 2009 (0,5 % of GDP) and the fiscal stimulus packages set up by the regional and federal governments (0,5 % of GDP) were relatively contained in line with the limited room for manoeuvre stemming from the high debt level. Finally, the budgetary deterioration reflects also negative one-off measures of about 0,5 % of GDP, mainly following two Court decisions (4). As a result of these one-off measures and a larger-than-expected impact of automatic stabilisers, the current deficit target for 2009 is 2,5 % of GDP higher than the one included in the April 2009 update of the stability programme, while no additional expansionary measures have been taken. The structural deficit (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) on the basis of the information provided in the complement and recalculated by the Commission services according to the commonly agreed methodology, is projected to rise to 4,7 % of GDP in 2009 from 2,3 % in 2008. The Commission services′ autumn 2009 forecast expects a somewhat smaller increase in the structural deficit in 2009 (by 2 instead of 2,4 percentage points), mainly because the complement did not consider the 0,5 % of GDP impact of the Court decisions in 2009 to be one-offs.

(5)

The main goal of the medium-term budgetary strategy in the complement is to ensure a gradual return to a balanced budget by 2015. The complement does not explicitly mention the MTO and it also does not foresee Belgium’s original Medium Term Objective (a surplus of 0,5 % of GDP in cyclically-adjusted terms and net of one-off and other temporary measures) to be reached within the period covered by the complement. The headline deficit is set to stabilise at around 6 % of GDP in 2010 thanks to 0,5 % of GDP corrective measures, before gradually improving to 4,4 % of GDP by 2012 (on the back of consolidation measures amounting to 1 % in 2011 and 1,25 % in 2012). The complement mentions a target of 2013 for the deficit to be brought below the 3 % of GDP reference value, but it does not present a fully developed scenario for that year (5). The structural deficit in the complement, recalculated according to the commonly agreed methodology, is set to improve by around 0,25 percentage point both in 2010 and 2011 and by 0,5 percentage point in 2012. As the complement did not consider the 0,5 % of GDP impact of the Court decisions in 2009 to be one-offs, the structural balance would actually deteriorate by 0,25 % of GDP in 2010 (from – 4,2 % of GDP in 2009 to – 4,4 % of GDP in 2010). The structural adjustments foreseen in the complement are considerably smaller than the amounts of planned measures that are mentioned above. This reflects that the structural balance under unchanged policies would automatically deteriorate by on average 0,5 % of GDP per year as a result of the adverse composition of economic growth in 2010, higher interest expenditure, and higher spending linked to population ageing (also reflecting measures taken in recent years to increase social benefits, including pensions). According to the complement, the planned consolidation effort is equally based on increases in tax revenue (in particular of taxes on income and wealth) and reductions in expenditure (in particular of intermediate consumption, compensation of employees and social transfers in kind). The complement estimates government debt at 89,6 % of GDP in 2008, compared to 84 % of GDP in 2007, where the rise is largely the result of a significant stock-flow adjustment stemming from the bank rescue operations (6 % of GDP). The complement expects the debt-to-GDP ratio to rise further to about 104 % in 2011 where it broadly stabilises; this is substantially higher than in the April update (essentially due to the higher deficits). The Commission services′ autumn 2009 forecast projects a comparable increase in the debt ratio.

(6)

The budgetary targets are overall subject to some downside risks, mainly as of 2011. First, the macroeconomic environment is uncertain and therefore worse results than envisaged in the complement in 2011 and 2012 cannot be excluded. Second, the consolidation measures mentioned in the complement to back the targets are not sufficiently specified. While for 2010, it appears on the basis of the draft 2010 budgets of the different government tiers, agreed after the submission of the complement, that the amount of corrective measures exceeds the 0,5 % of GDP foreseen in the complement, as the sufficiently specified measures currently amount to around 0,75 % of GDP, for the later years, there is only little information available on the nature of the planned measures. Finally, the government offered sizeable guarantees to the banking sector which might drive up future deficits and debt to the extent that they are called, although some of the cost of government support to the financial sector could also be recouped in the future. On the other hand, mirroring the stronger-than-projected revenue fall in 2009, it cannot be excluded that tax revenue might be more dynamic than what would be implied by standard elasticities. In view of the risks to the budgetary targets, the evolution of the debt ratio may also be less favourable than projected in the complement.

(7)

The fiscal stance, as measured by the recalculated change in the structural balance of the complement and taking into account the above-mentioned risks, is expansionary in 2009, in line with the EERP, and broadly neutral for the rest of the programme period. In view of the risks related to the long-term sustainability of public finances, including the high level of government debt, which is moreover not sufficiently diminishing towards the reference value over the programme period, and important contingent liabilities following the measures to stabilise the financial system, the consolidation path should be considerably strengthened from 2011 onwards.

(8)

As regards the data requirements specified in the code of conduct for stability and convergence programmes, the complement has improved compliance with the requirements of the code of conduct although some gaps in the required and optional data remain (6).