3.6.2005   

EN

Official Journal of the European Union

C 136/1

(1)

On 17 February 2005 the Council examined the updated stability programme of Belgium, which covers the period 2004 to 2008. The programme broadly complies with the data requirements of the ‘code of conduct on the content and format of stability and convergence programmes’. The programme does not include compulsory interest rate assumptions. Accordingly, Belgium is invited to achieve full compliance with the data requirements.

(2)

The macroeconomic scenario underlying the programme envisages a real GDP growth of 2.5 % in 2005 and 2006, slowing down to 2.0 % towards the end of the programme period. On the basis of currently available information, this scenario reflects plausible growth assumptions. The programme's projections for inflation also appear realistic.

(3)

The budgetary strategy outlined in the update aims to maintain a balanced budget or a small surplus and the debt ratio on a downward trend to prepare for the budgetary impact of the ageing population. The update projects a balanced budget in 2005 and 2006 and a surplus of 0.3 % of GDP in 2007 and 0.6 % in 2008. Overall, compared with the previous update (which ended in 2007), the current update broadly confirms the planned adjustment against a broadly unchanged macroeconomic scenario. Because of the impact of the ongoing implementation of the 2001 direct tax reform and higher public investment in the run-up to the 2006 local elections, the primary surplus is projected to fall slightly towards 2006 but to rise again afterwards. The programme foresees a declining interest burden, mainly as a result of ongoing debt reduction. Revenue is expected to decrease until 2006 and remain stable afterwards, while primary expenditure decreases slightly towards 2008. The cyclically-adjusted balance (based on the information in the programme, using the commonly agreed methodology) is projected to remain positive throughout the programme period, decreasing from a surplus of 0.5 % of GDP in 2004 to 0.1 % in 2006 and then picking up again to 0.9 % in 2008.

(4)

The risks to the budgetary projections in the programme appear broadly balanced. In particular, the Belgian government has not yet announced what measures it will take in order to keep the 2006 budget in balance, despite the decrease by 0.3 % of GDP as a result of the continued implementation of the 2001 direct tax reform and the fact that the 2005 budget benefits from a series of smaller one-off operations (in total about 0.2 % of GDP). Also, while the macroeconomic scenario is plausible, the Belgian government balance remains relatively sensitive to changes in economic growth (sensitivity of 0.6). Finally, there is also some risk as regards the control of primary expenditure, mainly at the level of the social security system. The overrun recorded in the health care system in 2004 (despite the already high annual real growth target of 4.5 %) suggests continued strong growth of these expenditures. New measures were announced near the end of 2004 to reduce costs in health care (in total 0.2 % of GDP), but their effectiveness is still difficult to evaluate. On the other hand, for the larger part of 2005 the minister of social affairs has been given a mandate to take necessary measures without prior parliamentary (or other) consultation, to enable a quick response to a possible further overrun. More generally, the Belgian government has gained credibility for keeping its commitment to take measures to maintain a balanced budget.

(5)

In view of this risk assessment, the risks to the budgetary targets appear to be broadly balanced and the budgetary stance in the programme seems sufficient to adhere to the Stability and Growth Pact's medium-term objective of a budgetary position of close-to-balance or in surplus. In addition, there is a sufficient margin against the risk of breaching the 3 % of GDP reference value for the deficit in the event of normal cyclical fluctuations in each year.

(6)

The debt ratio is estimated to have reached 96.6 % of GDP in 2004, well above the 60 % of GDP Treaty reference value. The programme projects the debt ratio to decline by 12.4 percentage points over the programme period to 84.2 % of GDP in 2008. This figure includes the assumption of a EUR 7.4 billion debt (2.5 % of GDP) from the national railway company SNCB in 2005. The integration of the SNCB debt slows down the debt reduction in 2005, but otherwise the planned debt reduction is faster than scheduled in the previous update.

(7)

With regard to the long-term sustainability of the public finances, Belgium appears to be at some risk on grounds of the current level of gross debt. While declining, the debt ratio is still high and a steady reduction hinges upon sustaining high primary surpluses for a prolonged period. The strategy for coping with the budgetary cost of an ageing population outlined in the programme is mainly based on gross debt reduction through maintaining a balanced budgetary position or a small surplus (itself relying primarily on primary expenditure restraint) and an ageing fund. Containing primary expenditures might prove difficult, especially in the health care sector, but is important in view of the government's strategy of reducing the tax burden in order to create employment. Given the projected increase in the old-age dependency ratio, pursuing this broad strategy with determination is crucial to the achievement of long-term sustainability.

(8)

The economic policies outlined in the update are broadly consistent with the country-specific broad economic policy guidelines in the area of public finances. In particular, the update ensures that the debt ratio is kept on a sustained declining trend. In view of recent overruns in health-care spending (for which the target growth rate in real terms is set at a relatively high 4.5 % annual rate), some risk exists in breaching the guideline to limit the real expenditure growth in entity I (federal government and social security) to 1.5 %. Therefore, maintaining high primary surpluses and limit real expenditure growth is important, especially in view of the financial needs implied by ageing.