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Document 52012SC0052
COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium in response to the Council Recommendation of 2 December 2009 with a view to bringing an end to the situation of excessive deficit
COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium in response to the Council Recommendation of 2 December 2009 with a view to bringing an end to the situation of excessive deficit
COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium in response to the Council Recommendation of 2 December 2009 with a view to bringing an end to the situation of excessive deficit
/* SEC/2012/0052 final */
COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium in response to the Council Recommendation of 2 December 2009 with a view to bringing an end to the situation of excessive deficit /* SEC/2012/0052 final */
COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the
budgetary situation in Belgium in response to the Council Recommendation of 2
December 2009 with a view to bringing an end to the situation of excessive
deficit Accompanying the document COMMUNICATION FROM THE COMMISSION
TO THE COUNCIL Assessment of budgetary
implementation in the context of the ongoing Excessive Deficit Procedures after
the Commission services' 2011 Autumn Forecast
1.
Introduction
In 2009, public finances in Belgium
deteriorated substantially as a result of the global economic and financial
crisis that started at the end of 2008. To cushion the significant impact of
the crisis on the economy, the Belgian authorities adopted fiscal stimulus measures
in line with the European Economic Recovery Plan (EERP) with an estimated
annual budgetary impact of 0.5% of GDP in 2009 and 2010. As a result of these
measures and the impact of automatic stabilisers, the Commission services’ 2009
Autumn Forecast projected the government budget deficit to deteriorate to 5.9%
of GDP in 2009, from 1.2% of GDP in 2008. In 2010 and 2011, the deficit was
expected to stabilise at 5.8% of GDP. In addition, the authorities supported
the financial sector through capital injections as well as guarantees amounting
to about 19% of GDP. The debt ratio, which had been steadily reduced from
134.2% of GDP in 1993 to 84.2% of GDP in 2007, was projected to rise again from
89.8% of GDP in 2008 to 97.2% of GDP in 2009. Against this background, on 2 December 2009,
the Council decided under article 126(6) of the Treaty that an excessive
deficit existed and addressed recommendations to Belgium in accordance with
Article 126(7) of the Treaty with a view to bringing an end to the situation of
an excessive government deficit by 2012[1].
The Belgian authorities were recommended to implement deficit-reducing measures in 2010 as planned in the 2010 draft
budget and to ensure an average annual fiscal effort of at least ¾% of GDP in
2010-2012, which was also expected to contribute to bringing the government
gross debt ratio back on a declining path. In addition, the Council asked the
authorities to specify the measures that were necessary to achieve the
correction of the excessive deficit by 2012 and to accelerate the reduction of
the deficit and the debt beyond the fiscal effort if economic or budgetary
conditions turned out better than expected at the time the EDP recommendations
were issued. Furthermore, the authorities were recommended to strengthen the
monitoring mechanisms to ensure that fiscal targets are respected. In its recommendations, the Council established a deadline of 2
June 2010 for effective action to be taken in line with the provisions of
Article 3(4) of Regulation (EC) No 1467/97. In its Communication of 15 June 2010, the
Commission concluded that Belgium had taken effective action towards the
correction of the excessive deficit by 2012. In particular, Belgium had broadly
implemented the deficit-reducing measures in 2010 as
planned, totalling 1% of GDP and leading to an improvement in the structural
balance of ¼% of GDP. Furthermore, the 2010 headline
deficit was expected by the Commission services to come out lower than the
deficit for 2010 projected in the draft budget (5% of GDP instead of 5.6% of
GDP). The authorities had also outlined in some detail the consolidation
strategy by setting targets and indicating a number of measures supporting
them. However, the measures underpinning the envisaged consolidation path from
2011 onwards still had to be specified further in order
to reach the recommended average annual fiscal effort to correct the excessive
deficit by 2012 and to ensure that the debt ratio embarked on a downward path
by the end of the correction period. Moreover, Belgium still had to further strengthen monitoring mechanisms to ensure that fiscal targets are
respected. All in all, the Commission considered that no further steps in the
excessive deficit procedure of Belgium were needed at that time. In its
conclusions of 13 July 2010, the Council shared this view. This paper examines the progress made by
Belgium towards a timely and sustainable correction of the excessive deficit.
In particular, it examines the budgetary developments since the Commission communication
to the Council on action taken of 15 June 2010. The assessment takes into
account all decisions publically announced by the Belgian government and
supplementary information provided by the authorities by 9 January 2012.
2.
Economic developments and outlook
Belgium felt the full impact of the global
economic recession in 2009 with real GDP contracting by 2.8%. The fiscal
stimulus and extra liquidity by the Eurosystem combined with state guarantees
to the financial sector helped to restore confidence and supported domestic
demand. Thanks to the pick-up in world trade, the recovery in 2010 was stronger
than expected, with GDP growing at 2.3% (compared to the 1.3% still expected in
the Commission services' 2010 Spring Forecast). Economic activity benefited
from a strong increase in net exports, driven by the strong economic recovery
of Germany, Belgium's main trading partner. The impact of the recession on
employment was relatively contained. A temporary decline in hours worked and a
decline in labour productivity per hour acted as a buffer. After a decrease of
0.2% in 2009, employment increased again in 2010 (by 0.8%). After the strong recovery in 2010 and the
first half of 2011, the Belgian economy slowed down considerably in the second
part of the year. Main factors contributing to this slowdown are the general
weakening of global activity and the sovereign debt crisis in the euro area,
which have depressed consumer and business confidence. In addition, there are
renewed concerns about the health of the banking sector and the impact on credit
growth. GDP growth is expected to have weakened further towards the end of 2011
and to remain weak in 2012 as the positive contribution of net exports is
expected to fade away so that only domestic demand remains supportive. Both the
Commission services' 2011 Autumn Forecast and the latest GDP projections of the
Belgian authorities expect a deceleration of GDP growth in 2012 to below 1%
(0.9% and 0.8% respectively) after having estimated 2.2% and 2.4% in 2011,
respectively. For 2013 a slight pick-up in GDP growth is foreseen by the 2011
Autumn Forecast which expects GDP growth to reach its potential by 2013 (1.5%),
while the latest available figures of the Belgian authorities (those which are
underlying the 2012 budget) are more optimistic, projecting growth of above 2%
by 2013[2].
Although employment creation picked up relatively quickly after the crisis, the
outlook on the labour market has recently become less positive and, according
to the Commission services' 2011 Autumn Forecast, the unemployment rate will
gradually rise again to about 8% in 2013, after the drop from 8.3% in 2010 to
7.6% in 2011. In view of the latest available information both domestically and
internationally, the probability that negative risks will materialise has
increased. Table
1: Comparison of macroeconomic developments and
forecasts || 2009 || 2010 || 2011 || 2012 || 2013 || Outturn || Outturn || COM AF 2011 || National projections || COM AF 2011 || National projections || COM AF 2011 || National projections Real GDP (% change) || -2.8 || 2.3 || 2.2 || 2.4 || 0.9 || 0.8 || 1.5 || 2.1 Contributions to real GDP growth || || || || || || || || Final domestic demand || -1.2 || 1.2 || 2.0 || 1.8 || 1.0 || 1.5 || 1.2 || NA Changes in inventories || -1.1 || -0.1 || 0.1 || 0.6 || -0.1 || 0.0 || 0.0 || NA Net exports || -0.5 || 1.1 || 0.1 || 0.0 || 0.0 || 0.1 || 0.3 || NA Employment (% change) || -0.2 || 0.8 || 1.2 || 1.2 || 0.4 || 0.7 || 0.5 || 1.0 GDP deflator (% change) || 1.2 || 1.8 || 2.3 || 2.3 || 2.1 || 2.2 || 2.2 || NA Notes: - COM AF 2011 – Commission services’ 2011 Autumn Forecast. National projections – Hoge Raad van Financiën – Bijwerking van het advies van maart 2011 ten gevolge van de gewijzigde economische context, October 2011. - The growth forecast of the Federaal Planbureau, Economische Vooruitzichten 2011-2014, of September 2011 was 2.4% for 2011 and 1.6% for 2012. Sources: Commission services, national authorities Nonetheless, it
should be noted that in 2009 and 2010 real GDP growth turned out better than
expected in the Commission services’ 2009 Autumn Forecast, the latest available
at the time of adoption of the Council recommendation addressed to Belgium
under Article 126(7) of the Treaty (see Table 2 below). This forecast
foresaw a contraction of 2.9% in 2009, followed by a hesitant recovery to 0.6%
growth in 2010. This compares with an actual contraction of 2.8% in 2009, which
was very close to the forecast, but was followed by a much more vigorous recovery
to 2.3% in 2010. For 2011 the picture is similar: at the time of the Council
recommendation, real GDP growth was expected to come out at 1.5%, while the
expected outturn according to the 2011 Autumn Forecast is 2.2%, albeit with
downside risks. Thus, macroeconomic conditions in the period 2009-2011 have
been better than expected and would have been supportive to implement and
accelerate the fiscal consolidation recommended by the Council against a less
favourable macroeconomic scenario at the time. Table 2: Comparison of real GDP growth forecast at
the time of the
Council recommendation (COM AF 2009) and the actual outturn (COM AF 2011) || 2009 || 2010 || 2011 COM AF 2009 || -2.9% || 0.6% || 1.5% Outturn (COM AF 2011) || -2.8% || 2.3% || 2.2%* Notes: COM AF 2009 – Commission services’ 2009 Autumn Forecast; COM AF 2011 – Commission services’ 2011 Autumn Forecast. * This figure represents the best approximation to the actual outturn of real GDP growth in 2011, although a slight downward revision is plausible given the worse than expected economic situation in the last quarters of the year. Source: Commission services
3.
budgetary situation and projections for the
period 2011-2013
The general government deficit, which had
increased to 5.8% of GDP in 2009, declined to 4.1% in 2010. Thanks to the better-than-expected
macroeconomic outturns this outcome was substantially lower than the objective
of 4.8% of GDP planned by the Belgian authorities in the January 2010 update of
the Stability Programme (SP), two months after the Council had decided that an
excessive deficit existed in Belgium and recommended to end the excessive
deficit situation. However, the structural effort in 2010 was only ½ a
percentage point which represents two-thirds of the annual average reduction
recommended by the Council (¾% of GDP).
3.1.
Estimated outturn for 2011
In the Commission services' 2011 Autumn Forecast,
the general government deficit was estimated at 3.6% of GDP in 2011, 0.5
percentage points lower than in the previous year. This outcome is in line with
the official target specified in the 2011 update of the SP. However, at 0.4% of
GDP, the estimated annual average change in the structural budget balance in
2010-2011 is only about half of the annual average fiscal effort recommended by
the Council (see Table 3) despite the fact that macroeconomic conditions both
in 2010 and 2011 were better than expected at the time of the Council
recommendation. Table 3: Comparison of fiscal efforts,
change in the structural balance (% of GDP)
based on the Commission services' 2011 Autumn Forecast Average annual change of structural balance 2010 -2011 || Average annual change ofstructural balance 2010-2012 || Additional average annual effort needed to correct the excessive deficit || Average annual fiscal effort recommended by the Council || Deadline for correction Uncorrected || Corrected || Uncorrected || Corrected 0.4 || 0.4 || -0.1 || -0.1 || 1.6 || 3/4% in 2010-2012 || 2012 Notes: - The additional average annual effort (i.e. on top of measures already included in the 2011 Autumn Forecast) is calculated for the period from 2011 until the deadline for correction (2012). - The uncorrected average annual change in the structural balance is the estimated change in the structural balance from the Commission services' 2011 Autumn Forecast. The corrected average annual change in the structural balance is the uncorrected average annual change in the structural balance plus a correction factor capturing the effect of revisions to potential output growth between the projections at the time of the EDP recommendations and the Commission services' 2011 Autumn Forecast (see European Commission (2004) Public Finances in EMU – 2004, European Economy, Brussels; and European Commission (2006) Public Finances in EMU – 2006, European Economy, Brussels). Source: Commission services
3.2.
Deficit projections for 2012-13
The Belgian authorities announced in the
course of 2011 a deficit target of 2.8% of GDP for 2012 without indicating at
the time the measures that would allow reaching this objective. Since there was
no budget for 2012 at the cut-off date of the Commission services' 2011 Autumn Forecast,
this forecast was made under the no-policy-change assumption. On this basis,
the deficit was projected to rise by 1 percentage point of GDP in 2012,
reaching 4.6% of GDP, which is substantially above the 3% of GDP reference
value of the Treaty. In 2013, again assuming that no further measures would be
taken, the deficit was projected to decline marginally to 4.5% of GDP, while
the structural deficit would remain broadly constant at 4.0%. On 27 November 2011, after the cut-off date
of the 2011 Autumn Forecast, the incoming Prime Minister Di Rupo announced an
agreement on the 2012 budget. The draft budget was submitted to Parliament on
21 December 2011. It aims to bring the deficit to 2.8% of GDP (of which 2.4%
for Entity I, i.e. the federal government and social security, and 0.4% of GDP
for Entity II, i.e. regions, communities and local authorities). The draft budget contains measures
representing, according to the authorities, a consolidation effort amounting to 2.7% of GDP, relative
to the baseline deficit assumed by the government of 5.6%
of GDP in ESA terms (of which 5.2% of GDP is for Entity I). This baseline
notably takes into account the view presented in the latest report of the
"Monitoring Committee" that healthcare spending would grow in 2012 at
the maximum legally possible rate, i.e. by 4.5% a year in real terms (with
inflation measured by the rise in the so-called "health index", which
excludes car fuel as well as alcohol and tobacco products). According to the authorities, the
allocation of the consolidation is as follows: 42% of estimated savings would
fall on expenditure reduction, 34% on extra revenues and 24% on so-called
"diverse" other measures, which essentially consist in additional
revenues not generated by increases in taxation, such as levies from the
nuclear electricity producers and from banks but also non-tax revenues and
revenues from fight against tax evasion (see Table 4). The budgetary
package also includes structural measures in labour market policy, with an
increase in the degree of degressivity of unemployment benefits and extra
measures to increase "activation" of older workers. Further
structural reforms are envisaged in the pension system: (i) the early
retirement age is planned to be brought to 62 years (instead of 60) and (ii)
early retirement is foreseen to be possible after a career of 40 years (instead
of 35 years). Table
4: Main budgetary measures for 2012 (as presented in the budget) Revenue || Expenditure · Reform of the system of "notional interests": 0.4% of GDP · Increase in the taxation of dividends and interests: 0.2% of GDP · Fighting tax evasion: 0.2% of GDP · Abolition of bank secrecy: 0.1% of GDP · Increase in VAT on pay-TV and introduction of VAT on services of notaries and bailiffs: 0.05% of GDP · Taxation on houses freely put at the disposal of company bosses: 0.05% of GDP · Increase in excise duties on tobacco products: 0.05% of GDP · Reform of the taxation on capital gains inside companies: 0.05% of GDP || · Suppression of the subsidy for clean cars: -0.1% of GDP · Reduction in transfers to railways: -0.1% of GDP · Reduction in development aid expenditure: -0.05% of GDP · Slower increase and additional savings in healthcare spending: -0.6% of GDP Note: Budgetary impact as reported in the 2012 budget and additional information provided by the national authorities. A positive sign implies that revenue / expenditure increase. The Commission services forecast for 2012
had shown a deficit of 4.6% of GDP based on a no-policy change basis. In broad terms, the gap with the Commission
services forecast can be in particular explained by differing projections of
health care expenditure under unchanged policies. Based on past trends the
Commission forecast had assumed a development in healthcare spending that was
substantially less dynamic than the maximum rate permitted, which in turn was
taken as the baseline by the Belgian authorities. In recent years, the actual
increase in healthcare spending had been substantially lower than the maximum
growth permitted (4.5% plus inflation); this suggests that a part of the
healthcare savings compared to the maximum permitted growth are already
captured in the Commission Autumn Forecast by the no-policy-change assumption. As a result of the above, for the sake of
simplicity and comparability, the starting point of this updated Commission
services assessment is the updated no policy-change baseline of the authorities
in ESA terms of 5.2% of GDP for Entity I. Disregarding
the difference in baseline, the main divergences between the Belgian
authorities' estimates of the measures and those of the Commission services are
listed in Table 5. They include: ·
A difference of slightly less than 0.1% of GDP
in the estimate of additional tax revenues, of which about half on the reform
of notional interests and the other half on the increase in the tax on
dividends and interests. In both cases, a small reduction in the tax base can
be expected as a result of behavioural changes of companies and households in
response to the increase in taxation, which is foreseen by the Commission
services to slightly reduce the expected return of the measures compared to
what is assumed in the budget. ·
A difference of slightly more than 0.1% of GDP
in the estimate of savings in expenditure of which about 0.03% of GDP concerns
the Federal State and 0.07% the social security. As far as the expected savings
in Federal State spending are concerned, the divergence is due in particular to
the introduction of a contribution from sub-federal government levels for the
pensions of their civil servants (the so-called
"responsibilisation"): this measure will reduce the transfers of the
Federal State to the Pension fund of the civil service and hence its deficit
but will increase the expenditure of the sub-federal government levels by the
same amount, thus without any direct effect on the deficit of the general
government. This accounts for 0.02% out of the 0.03% of GDP divergence on
savings in Federal State expenditure. ·
As far as the social security is concerned, on
top of the change in the growth norm (explained above during the discussion of
the different baselines), the budget foresees savings in healthcare amounting
to EUR 418 million (slightly more than 0.1% of GDP) and supported by specific
and binding measures, so that this estimate can be accepted. By contrast, the measures
that would allow saving an additional EUR 320 million in healthcare (the "underutilisation"
estimated for 2011 and extrapolated for 2012) have been only specified for
about EUR 70 million at the moment. Thus the Commission services could not take
into consideration so far the savings not yet supported by specific measures, which
leads to another divergence amounting to EUR 250 million. This divergence largely
explains the 0.07% of GDP difference between the Belgian authorities' and the
Commission services' estimates of savings in healthcare. ·
A difference of 0.06 pp of GDP in the assessment
of the return of the "other" measures. In particular, the return on
the fight against tax evasion, how desirable it can be, often falls short of
expected returns. The divergence between the Belgian authorities' and the
Commission services' estimates on this issue amount to about 0.04% of GDP. As
far as the second-round effects of additional job creation are concerned, the
Commission services' estimate is slightly lower (by 0.02% of GDP) than that of
the Belgian authorities (0.1% of GDP). In sum, the Commission services estimate
the ex-ante reduction in the deficit resulting directly from the measures in
the budget to be about ¼% of GDP lower than the Belgian authorities[3]. This implies that the
Commission assessment is in large part in line with the budget. It notably
includes its projection of interest payments, despite the relatively high increase
of interest rates which this projection implies (+10.7%). However, such an
assumption may be regarded as prudent, which is warranted in the context of
financial market uncertainties and a relatively large refinancing of debt in
2012 (about EUR 33.7 billion or 8.8% of GDP) of long term debt
and 28.3 billion or 7.4% of GDP of short-term debt). To these divergences on the expected return
of the consolidation measures, it should be added the ex-post increase in the
deficit that will result from the impact of the
adjustment package on growth, which does not seem to have been taken into
account in the draft budget. The impact of the consolidation on growth can be
estimated at about 0.3% of GDP. This assumes relatively low multipliers taking
into account the nature of the measures and the large openness of the economy
as well as high savings and tax rates and there is therefore some risk that
this second round effect might eventually turn out to be somewhat higher. Consequently, the effect on the deficit
is estimated at around 0.15% of GDP, using the 0.54 sensitivity coefficient (of
the government balance to changes in GDP growth) computed by the Commission
services[4].
Actually, once the differences in baseline have been accounted for, this second
round effect constitutes the most sizeable divergence between the deficit
estimates of the Belgian authorities and of the Commission services: starting
from the budget estimate of 2.8% of GDP, this factor alone would be sufficient
to bring the deficit in the immediate neighbourhood of the 3% of GDP reference
value, so that any - even marginal - additional increase in the deficit would
push it above that threshold. Finally, since the Commission Services 2011
Autumn Forecast assumed a growth of 0.9% of GDP while the budget assumes 0.8%,
a 0.05% of GDP positive correction is applied to the current calculations so
that the assessment uses the same underlying growth forecast as the Autumn
Forecast. Table
5: Main divergences in 2012 between Belgian authorities'
and Commission services' estimates (COM Jan 2012) || Budget estimates || COM Jan 2012 || Difference EUR millions || % GDP || EUR millions || % GDP || EUR millions || % GDP Divergences on tax revenues || 3,550 || 0.93 || 3,242 || 0.85 || -308.2 || -0.08 Divergences on expenditure || 2,782 || 0.73 || 2,306 || 0.60 || -475.6 || -0.12 Of which Federal state || 1278 || 0.33 || 1,145 || 0.30 || -133.1 || -0.03 Of which Social security || 878 || 0.23 || 611 || 0.16 || -267.3 || -0.07 Divergences on diverse measures || 2,557 || 0.67 || 2,274 || 0.60 || -282.9 || -0.07 Total divergences on measures || 8,889 || 2.33 || 7,822 || 2.05 || -1,066.7 || -0.28 Effect on the deficit of slower growth due to the consolidation || - || - || 577 || -0.15 || -577.1 || -0.15 Effect on the difference in growth assumptions (0.8% versus 0.9%) || - || - || -206 || -0.05 || +206.2 || -0.05 Total difference || - || - || - || - || -1,437.6 || -0.38 General government deficit before freeze || -10,690 || -2.8 || -12,128 || -3.2 || -1,437.6 || -0.38 Whereas the draft budget and the implied
second round effects would, according to the Commission assessment, have led to
a deficit of around 3¼% of GDP (without taking into account the base effect
from 2011 and the impact of the recent deterioration of the macroeconomic
environment in the EU and Belgium specifically), further measures were decided on 6 January 2012 and implemented by a circular on 9 January and
published in the Moniteur Belge. In particular, ahead of the budget control
exercise planned for February, which can be expected to decide on savings
measures based on a new assessment of the budgetary situation based on the
outcome in 2011 and the deteriorated macroeconomic environment, the government
has decided to freeze an additional EUR 1.3 billion of expenditure (about 0.35%
of GDP). It concerns notably a freeze of EUR 280 million of the
"interdepartmental provision", EUR 125 million of healthcare spending,
EUR 400 million of transfers to the SNCB group, EUR 120 million of government
investment and the postponement of the purchase of helicopters for the Defence
Department (EUR 102 million). Taking this additional measure into account
including some second round effects, the Commission services estimate that the
general government deficit will come out at about 2.9% of GDP, thus below the
3% of GDP threshold. In 2013, according to the Commission
services' 2011 Autumn forecast, the public deficit would have been 4.5% of GDP
under the same "unchanged policy" assumption used for 2012. Taking
into account the 2012 draft budget and the additional measures subsequently
decided, it is now likely that the deficit would decline to about 2¾% of GDP,
as a result of the lasting impact of the measures entered into force in 2011,
of the effect of additional measures scheduled to enter into force in 2012 and
of the recovery in growth after the slowdown in 2012 as foreseen in the
Commission Services' 2011Autumn Forecast. Table
6: Comparison of budgetary projections, including impact of measures
announced/taken post Commission services' 2011 Autumn Forecast,
general government balance (% of GDP) || 2010 || 2011 || 2012 || 2013 COM AF 2011 || -4.1 || -3.6 || -4.6 || -4.5 2012 Budget || -4.1 || -3.6 || -2.8 || -1.8* COM Jan 2012 || -4.1 || -3.6 || -2.9 || -2 ¾ * April 2011 update of the Stability Programme Sources: Commission services and Belgian authorities On the basis of the Commission services'
2011 Autumn Forecast the annual average change in the structural budget balance
over the adjustment period 2010-2012 was estimated at -0.1% of GDP (see Table
3). Taking into account the Commission services' updated assessment of the 2012
budget, i.e. should the expected deficit decline below 3% of GDP in 2012 as a
result of the consolidation measures announced in the draft budget and in the
decision of 6 January, the structural effort in 2012 would amount to about ½%
of GDP. The cumulative effort over the period 2010-2012 would thus come out at
about 1½% of GDP, around ¾% of GDP lower than the recommendation of the Council
(2¼% over three years). This implies that the annual average effort of 0.5% of
GDP is well below the ¾% of GDP recommended by the Council. However, while this assessment is not based
on a full update of the 2011 Autumn Forecast, the economic situation seems to
be changing significantly. In particular, in view of the latest available
information, the macroeconomic scenario supporting the 2012 draft budget (with
expected real GDP growth of 0.8% in 2012) could be too optimistic. The additional
decline in consumer and business confidence recorded in recent months are reflecting
more negative prospects for private consumption and investment, so that the
growth expectations for the fourth quarter of 2011 and the first half of 2012
are lower than expected in September or October 2011[5] when the macroeconomic
projections underlying the budget as well as the Commission services autumn
forecast were carried out. Specifically, the latest projections of the National
Bank of Belgium (NBB) released on 14 December 2011 already present a picture of
a Belgian economy growing by only 0.5% in 2012. Moreover, the quarterly growth
figures of the second and third quarter of 2011 have been revised downwards, resulting
in a lower carry-over into 2012 of about 0.2 pp. At present, a more realistic
growth forecast for 2012 could be that of close to zero growth[6]. Furthermore, the latest forecast from the
National Bank of Belgium indicates that the government deficit might have
turned out at 4.2% of GDP in 2011, substantially higher than the 3.6% of GDP on
which the 2012 budget was built. About half of this upward revision would be
explained by recurrent factors, the rest being due to additional, presumably
non-recurrent spending related to the support of Dexia. The 2012 deficit could
thus increase by about 0.3 pp. due to the base effect stemming from the higher
deficit in 2011. Additionally, as the Treaty reference
values for the deficit and debt apply to the general government as a whole, the
effort cannot be limited to Entity I (federal government and social security)
but should also include Entity II (regions, communities and municipalities). However,
the federal level has limited means to control and rein in the spending of the
regions and communities and therefore, a higher deficit from those government
tiers than the currently planned 0.4% of GDP for 2012 cannot excluded at this
point in time. Moreover, implementation risks might be
higher than expected given the nature of certain key measures (such as fight
against fraud or the increase in efficiency of the administration). Finally,
there is a risk that the second round effect of the measures in the budget and
the subsequent expenditure freeze may be higher than expected.
3.3.
Debt developments
According to the Commission services' 2011
Autumn Forecast, gross general government debt, which reached 96.2% of GDP in
2010, is projected to continue to rise over the forecast horizon on the back of
the persisting deficits and exogenous factors like the take-over of the Belgian
subsidiary of Dexia. Debt projections also include the
impact of guarantees to the European Financial Stability Facility (EFSF),
bilateral loans to Greece and the participation in the capital of the European Stability
Mechanism (ESM) as planned on the cut-off date of 2011 Autumn Forecast. Under the no-policy-change scenario, on which the Commission
services' autumn 2012 forecast has been based, gross public debt was expected
to reach just above 100% of GDP by 2013. Based on this preliminary estimate of
the 2012 deficit but taking also into account additional factors that are
likely to have increased the debt in 2011 (like the Dexia take-over which
according to the NBB might represent around 0.3% of GDP), the debt ratio will
probably remain just below 100% in 2012 and possibly also in 2013. Beyond 2013 and under the assumption of no
further policy changes, the debt ratio would be on an increasing path and reach
114 % of GDP by 2020. However, an additional annual structural fiscal consolidation
of 0.5 p.p. of GDP from 2014 onwards in order to reach the MTO would almost
stabilise the debt ratio, reaching 101 % of GDP in 2020. A more ambitious
consolidation effort (of 1 p.p. per annum) would set the debt ratio on a
declining path from 2015 onwards in Belgium. [1] OJ L 125, 21.5.2010, p. 34. All EDP-related documents
for Belgium can be found at the following website: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm.
[2] Note that this estimation was based on a more
optimistic growth figure for 2012 (1.6%), so the growth expectations for 2013
are likely to be revised downward by the Belgian authorities as well. [3] This does not take into account the differences in
the starting point of the forecast where the Commission had already foreseen a
more prudent expansion of health expenditure than the baseline scenario of the
Monitoring Committee. [4] European Commission, New and updated budgetary
sensitivities for the EU budgetary surveillance, September 2005
(http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/budg_sensitivities_092005_v02_en.pdf) [5] Hoge Raad van Financiën – Bijwerking van het advies van
maart 2011 ten gevolge van de gewijzigde economische context, October 2011. This report contained already a growth update compared to the latest
report of the Monitoring Committee of 30 September 2011, in which the growth
prediction for 2012 was still 1.6%. [6] The consensus growth projection for 2012 has been
revised to 0.1%. See NBB, Belgian prime news, n° 54, 6 January 2012. (http://www.nbb.be/doc/ts/Publications/BPNews/bpn54.pdf).