COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium following the adoption of the COUNCIL RECOMMENDATION to Belgium of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit Accompanying the document Recommendation for a COUNCIL DECISION giving notice to Belgium to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit and the Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Belgium in response to the Council Recommendation of 2 December 2009 /* SWD/2013/0381 final */
1. Introduction On 2 December 2009, the Council decided, in
accordance with Article 126(6) of the TFEU, that an excessive deficit existed
in Belgium[1]
and issued a recommendation to correct it by 2012 at the latest, in accordance
with Article 126(7) of the TFEU and Article 3 of Council Regulation (EC) No
1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the
excessive deficit procedure[2].
In order to bring the general government deficit below 3% of GDP in a credible
and sustainable manner, the Belgian authorities were recommended to (a)
implement the deficit-reducing measures in 2010 as planned in the draft budget
for 2010 and strengthen the planned fiscal effort in 2011 and 2012; (b) ensure
an average annual fiscal effort of ¾% of GDP over the period 2010-2012, which
should also contribute to bringing the government gross debt ratio back on a
declining path that approaches the reference value at a satisfactory pace by
restoring an adequate level of the primary surplus; (c) specify the measures
that are necessary to achieve the correction of the excessive deficit by 2012,
cyclical conditions permitting, and to accelerate the reduction of the deficit
if economic or budgetary conditions turned out better than expected at the time
the EDP recommendations were issued; and (d) strengthen the monitoring
mechanisms to ensure that fiscal targets are respected.
On 15 June 2010, the Commission concluded
that based on the Commission services' 2010 Spring Forecast, Belgium had taken
effective action in compliance with the Council recommendation of 2 December
2009 to bring its government deficit below the 3% of GDP reference value and
considered that no additional step in the excessive deficit procedure was
therefore necessary at that point in time. This document provides an assessment of
whether Belgium has undertaken effective action towards the correction of its
excessive general government deficit. In particular, the document examines the
budgetary developments since the Commission communication to the Council on
action taken as of 15 June 2010. 2. Recent macro-economic and budgetary
developments and outlook for 2013-2014 Belgium experienced
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 Euro system
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 2.4%.
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 by 0.7% in
2010. After the strong export-led recovery in
2010 and the first half of 2011, the Belgian economy came to a stand-still in
the second part of 2011. The main factors contributing to this slowdown were
the general weakening of global activity and the persistence of the sovereign
debt crisis, which depressed household spending as well as corporate
investment. On the back of a strong first six months, 2011 still saw GDP
growing by 1.8% for the full year. After benefiting from a momentary revival in
the first quarter of 2012, activity declined abruptly again in the second
quarter and remained anaemic in subsequent quarters. A robust contribution by
net exports could not prevent GDP from contracting by 0.2% as household
spending and investment both fell by 0.6%. 2012 marked the first time in many
years of shrinking private consumption. It also contrasted with the 2009 recession,
when private spending proved resilient. Table 1: Comparison of macroeconomic
developments and forecasts It should be
noted that in 2009 and 2010 real GDP growth turned out better than expected in
the Commission services’ 2009 Autumn Forecast, underlying the Council
recommendation addressed to Belgium under Article 126(7) of the Treaty.
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 2.4% 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 actual number arrived at 1.8%. 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. On
the other hand, the 2012 GDP contraction has been a substantially worse outcome
than expected in the 2010 Stability Programme and in the technical assumption
underpinning the EDP recommendation which assumed a gradual closure of the
output gap between 2012 and 2015. According to the Commission
services' 2013 Spring Forecast published early May 2013 the Belgian economy is
expected to record a flat GDP growth rate in 2013, followed by a pick-up in
2014 when GDP is projected to expand by 1.2%. Under this forecast, domestic
demand is projected to continue the contraction initiated in 2012. While
consumption by Belgian households is likely to stagnate in 2013, investment is
expected to fall by another 1.6%, driven by an economy-wide lack of confidence,
a depressed construction sector, tightening credit conditions and an industry
featuring ample spare capacity. Both private consumption and investment are
expected to gain pace only as of 2014 when domestic demand would become the
main driver behind GDP growth. The latter role is reserved for net exports in
2013 with the open Belgian economy expected to take advantage of a global
upturn. While export growth would further accelerate in 2014, import growth can
be expected to catch up in the slipstream of a more robust domestic demand, thereby
limiting further gains from net exports. In terms of
unemployment, the weak economic performance of 2012 led to a gradual rise in
the unemployment rate and this trend is expected to continue during 2013 with
unemployment touching 8.0% on average. This level is forecast as well for 2014
as job creation would fail to outpace labour force growth. The general government deficit, which had
increased to 5.6% of GDP in 2009 (which included 0.6 pp. of negative one-off
factors), declined to 3.8% of GDP 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. However, the structural improvement in 2010 is
estimated at only ½ % of GDP, of which ¼ thanks to a strong decline in interest
expenditure. In 2011, the headline deficit declined further to 3.7% of GDP,
compared to the official target of 3.6% specified in the 2011 update of the
Stability Programme. The nominal improvement was entirely due to the favourable
macro-economic conditions, whereas the structural balance deteriorated by 0.1%.
In 2012, the deficit outcome was heavily
impacted by the recapitalization of the Dexia banking group by the Belgian State for an amount of 0.8% of GDP, resulting in a deficit of 3.9% of GDP. Current
government expenditure – which does not include this one-off operation –
increased by 3.9% between 2011 and 2012 and reached the historically high level
of 51.2% of GDP. Social transfers (+4.8%) and interest expenditure (+4.2%)
recorded the highest growth rates. New measures included in the 2012 budget
drove revenues up from 49.5% of GDP in 2011 to 50.8% in 2012. The Commission services' 2013 Spring
Forecast projects the general government deficit at 2.9% of GDP in 2013. The
2013 improvement is partly based on one-offs (amounting to 0.4% of GDP) and
temporary factors such as lower interest rates and higher revenues from dividends.
Against this background, under a no-policy-change assumption the Commission
services’ 2013 Spring Forecast projects the 2014 deficit to rise again, to 3.1%
of GDP. Public debt had declined from 134.2% of GDP
in 1993 to 84.0% of GDP in 2007 due to primary surpluses and uninterrupted
positive economic growth. From 2008 onwards, the debt ratio started to increase
again, to almost 100% of GDP in 2012, although the rise was more limited than
in many other EU member states where government debt rose by +28% on average
between 2007 and 2012. The dynamics of the deficit and of GDP account for
around 6.5 pps. of the increase, while exogenous factors amount to around 9 pps.,
mainly due to rescue operations in the financial sector under the form of equity
injections (Dexia, Fortis, Ethias, KBC and Belfius, the latter being
nationalized). The Commission services’ 2013 Spring Forecast projects a further
increase to more than 101% of GDP in 2013 and, based on a no-policy-change
scenario, to over 102% of GDP in 2014. The Belgian government intends to sell
financial assets in order to keep the debt below 100% of GDP. In this context,
the Belgian government announced recently the sale of Royal Park Investment
(the special purpose vehicle created in the context of the Fortis rescue
operation) which would reduce the debt level by 0.2% of GDP. 3. Effective action 3.1. Background information The current assessment of the effective
action is based on the data notified by the Belgian authorities in April 2013
and validated by Eurostat. It takes into account the economic and budgetary
developments since the last Council recommendation under Article 126(7) of the
TFEU was issued in December 2009. The assessment starts by comparing the
recommended fiscal effort in the Council recommendation, the apparent fiscal
effort, measured by the change in the structural budget balance, and the
adjusted structural effort. The adjustment of the structural balance takes into
account (i) the impact of revisions in potential output growth compared to that
underlying the growth scenario in the Council recommendation, and (ii) the
impact on revenue of revisions of the tax content of economic activity
(composition of economic growth or of other windfalls/shortfalls) relative to
what is implied by standard long-term elasticities. This top-down approach in
the assessment is complemented by a careful analysis, including a bottom-up
assessment of consolidation measures undertaken by the Belgian government. 3.2. Assessment of effective
action 2010-2013 - overview The structural
balance improved from -3.9% of GDP in 2009 to -3.0% of GDP in 2012. Hence, the
average annual apparent fiscal effort over the period 2010-2012 is estimated at
0.3% of GDP, less than half of the recommended ¾ % of GDP. A decline in interest
rate expenditure contributed to 0.15 pp. of the overall improvement in the
structural balance. Table 2: Change
in the structural balance || 2010 || 2011 || 2012 || avg 2010-2012 || total 2010-2012 Change in structural revenue ratio (pp. of GDP) || 0.4 || 1.0 || 0.8 || 0.7 || 2.1 Change in structural expenditure ratio (pp. of GDP) || -0.1 || 1.1 || 0.3 || 0.4 || 1.3 Change in structural balance (pp. of GDP) || 0.5 || -0.1 || 0.5 || 0.3 || 0.8 Source: European Commission Services' 2013 Spring Forecast The adjusted average
annual structural effort (+0.7, -0.6 and +0.9 in 2010, 2011 and 2012,
respectively) also falls short of the level recommended by the Council (see
Table 3), mainly due to lack of improvement in 2011 and, more generally, because
the adjustment for the significant downward revision in potential output growth[3] since the time when the
recommendation was issued (+0.15 pp.) is broadly offset by the correction for
average windfall revenues (‑0.1 pp.). Table 3:
Change in the structural balance corrected for revisions in potential output
gap and revenue windfalls/ shortfalls Source: own calculations based on European Commission Services' 2013
Spring Forecast In 2010, revenue
developments, net of discretionary measures, evolved in line with standard
elasticities, while in 2011 they increased at a higher rate than would have
been implied by GDP growth based on standard elasticities. This is partly due
to shifts in corporate income tax collection, with companies making less
advance payments since 2009 due to the crisis and therefore higher payments
compensating for resulting arrears at the moment of assessment in subsequent
years. In addition, also revenues from dividends from commercial banks
increased sharply following the state's interventions in the financial sector.
In 2012 revenues fell somewhat short of what would be implied by standard
elasticities. 3.3. Assessment of effective
action 2010-2012 – detailed analysis of measures The cumulative net impact of discretionary measures (excluding
one-off measures) over 2010-2012, either taken during the period 2010-2012 or
before but with an additional impact on this period, is estimated at some 2.0%
of GDP (see Table 4). This calculation includes both deficit-reducing measures as
well as expenditure increases to some extent due to policy decisions of the
past (such as welfare adaptations of social benefits, rapidly increasing wage
subsidies to companies and clean car subsidies) which partly offset the
consolidation efforts. A consolidation package announced before the opening of the EDP is
estimated to have had a positive impact of over ¾% of GDP, but is broadly offset
by the additional impact of stimulus measures and the above-mentioned impact of
earlier policy decisions. After anticipative elections in June 2010, a
political deadlock at federal level lasted until the end of 2011. However, the
phasing-out of anti-crisis measures, rising financial sector contributions to
the deposit guarantee scheme, as well as a number of corrective measures taken
by the caretaker government, had an additional net effect of around 0.4% of
GDP. The permanent measures taken in the 2012 budget and the subsequent budget
controls by the newly appointed federal government are estimated to have had an
impact of around 1.5% of GDP. Table 4:
Additional impact of discretionary measures (excluding one-off measures) || 2010 || 2011 || 2012 || avg 2010-2012 || total 2010-2012 Structural revenue measures (% of GDP) || 0.4 || 0.5 || 1.0 || 0.6 || 1.9 Structural expenditure measures (% of GDP) || 0.3 || 0.1 || -0.5 || 0.0 || 0.0 Total impact of measures (% of GDP) || 0.1 || 0.4 || 1.5 || 0.7 || 2.0 Source: Commission
Services Table 5: Composition of the budgetary adjustment The largest revenue-increasing impact comes
from the lowering – in several stages − of the reference rate for the
notional interest deduction in corporate taxation (allowance for corporate
equity), accounting for 0.4% of GDP (see Table 6). Other measures with a
sizeable impact include the increase in the financial income tax in 2012 (0.2%
of GDP) and several increases of taxes on products (0.3% of GDP). Contributions by financial institutions account for another 0.2% of GDP. The
impact of discretionary revenue measures ('bottom-up approach') is broadly in
line with the observed change in the structural revenue ratio ('top-down
approach'), with only a significant gap in 2011, due to the above-mentioned
windfall revenues. On the expenditure side, the net impact of
measures is close to zero. The main deficit-reducing measures consist of reducing
the wage bill and functioning costs of public administration (0.4% of GDP),
curbing the rising trend in health expenditure (0.2% of GDP) and reforms in the
social security (0.1% of GDP). These measures have been broadly offset by
expenditure-increasing measures such as welfare adaptations of social benefits
(0.3% of GDP), the expansion of wage subsidy schemes (0.4% of GDP), and an
increasing recourse to clean car subsidies (up to 2011). Table 6: Main budgetary measures over 2010-2012 || Revenue || Expenditure || 2010 || · Increase in excise duties on Diesel: 0.1% of GDP · Levy on the nuclear rent: 0.1% of GDP · Increase in CIT (Modification of the reference rate for notional interest deduction and other changes in deductions): 0.1% of GDP · Abolishment of the PIT reduction in the Flemish Region (0.1% of GDP) · Reduced VAT rate on restaurant bills: -0.1% of GDP || · Savings on staff expenditure and functioning costs: -0.1% of GDP · Welfare adaptations of social benefits: +0.1% of GDP · Expansion of wage subsidy schemes: +0.2% of GDP || 2011 || · Lifting of bank secrecy, regularization and court settlements: 0.1% of GDP · Increase in the fee for the deposit protection fund: 0.1% of GDP || · Reduction in primary expenditure (other than social benefits): -0.15% of GDP · Reduction in health care expenditure: -0.1% of GDP · Welfare adaptations of social benefits: +0.1% of GDP · Expansion of wage subsidy schemes: +0.1% of GDP || 2012 || · Reform of the system of notional interest deductibility: 0.3% of GDP · Increase in the taxation of dividends and interests: 0.2% of GDP · Increase in the levy on nuclear rent: 0.1% of GDP · Measures against tax fraud: 0.1% of GDP || · Expenditure savings in health care: -0.1% of GDP · Suppression of the subsidy for clean cars: -0.1% of GDP · Reduction in administrative expenditure: -0.1% of GDP · Expenditure saving measures in social security (e.g. reform of the unemployment benefit system): -0.1% of GDP · Welfare adaptations of social benefits: +0.1% of GDP || Note: A positive sign implies that revenue / expenditure increases as a consequence of this measure. Annual budgetary impacts are estimated by the Commission services and expressed as a % of GDP. Measures with a budget impact of at least 0.1% of GDP are listed. || While the bottom-up sum of measures at the
expenditure side shows a broadly neutral deficit impact of measures over the
consolidation period, the structural expenditure ratio not only did not
decrease, but even increased by 1.3 pps. of GDP over the correction period.
This is among others due to the negative autonomously rising trend in health
care costs[4]
and pensions[5],
as a result of population ageing. Also the strong increase in investment at
local government level in the run-up to the 2012 local elections contributed to
a temporary rise in expenditure of around 0.1% of GDP between 2010 and 2012. 3.4. Budgetary implementation
in 2010 The general government deficit, which had
increased to 5.6% of GDP[6]
in 2009 (compared to 5.9% of GDP expected in November 2009 when the EDP was
initiated), declined to 3.8% in 2010. Thanks to the better-than-expected
macroeconomic outturns (2.4% of GDP growth) 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. Overall, the net effect of discretionary
measures is estimated to be around 0.1% of GDP. In addition, interest
expenditure declined by 0.2 pp. of GDP. The low inflation in 2009 curbed
temporarily the autonomous growth of the public sector wage bill and social
transfers (which are indexed on past inflation). The primary balance improved
from a deficit of 1.9% of GDP in 2009 to 0.4% of GDP in 2010. Overall, the
structural improvement in 2010 stood at ½ percentage point, falling short of
the annual average reduction recommended by the Council (¾ % of GDP). This is
broadly in line with the structural adjustment[7]
planned in the 2010 Stability Programme. However, when combined with the
narrowing output gap and revenue developments, the structural balance improved
by some 0.7% of GDP. Accounting for the downward revision of potential output
growth since the time of the Council recommendation would increase the annual
apparent fiscal effort in 2010 by about 0.15 pp, while revenue developments
over 2010 were broadly in line with those implied by standard elasticities. 3.5. Budgetary implementation
in 2011 Despite GDP growth above potential, the
headline deficit fell only marginally in 2011, to 3.7% of GDP, compared to a
target in the 2011 Stability Programme of 3.6% of GDP. Moreover, the 2011
Stability Programme still assumed a deficit of 4.1% of GDP in 2010 whereas the
final outcome was 3.8%. The nominal improvement at sub-federal level (regions,
communities and local authorities) was almost entirely offset by a
deterioration at federal level. The liquidation of the Holding Communal
following the collapse of the Dexia banking group had a negative one-off impact
of 0.2% of GDP, mainly at the expense of the regions. The primary balance
remained broadly stable in 2011, with a primary deficit of around 0.4% of GDP. The structural balance deteriorated
slightly in 2011 (by 0.1 pp. of GDP). When taking into account the revisions of
potential growth and windfall revenues, the deterioration in the structural
balance is even larger, at -0.6 pp. of GDP. The lack of structural improvement
is partly related to the absence of a government with full powers at federal level
between mid-2010 and end-2011. The investment cycle at local level in the
run-up to the 2012 local elections had a negative impact of 0.1 pp. of GDP on
the structural balance. On the other hand, the modest decrease in interest
expenditure - despite rising interest rates towards the end of 2011 - had a
positive impact of almost 0.1 pp. of GDP on the balance. 3.6. Budgetary implementation
in 2012 Based on the Commission Services' 2011 Autumn forecast, there was
clear evidence of compliance risks with the 2009 EDP recommendation, given the
still significant excess over the 3% of GDP deficit threshold close to the
deadline in the absence of a 2012 budget and the fact that the fiscal effort
achieved until then fell short of the recommended one. Therefore, the
Commission expressed its concerns and urged Belgium to take the necessary measures
in time to avoid a stepping-up of their EDP. In response to the Commission
concerns and in order to meet the deadline set by the Council, the newly
constituted Belgian government reacted swiftly and agreed on the draft budget for
2012 on 27 November. The final budget adopted included a series of consolidation
measures aiming to reduce the deficit to 2.8% of GDP. In addition, the Belgian
government adopted a spending freeze of about 0.35% of GDP. The Commission
services concluded in January 2012 that, based on the prevailing growth
projection of 0.9% according to the Commission services' 2011 Autumn Forecast
(while 2012 growth turned out at -0.2%), on the consolidation measures in the
budget and on the additional freeze, the deficit would reach 2.9% of GDP in
2012. Hence the Commission considered that no further steps in the excessive
deficit procedure of Belgium were needed at that point in time. However, in the first months of 2012,
growth projections were substantially revised downwards. In March 2012, the
Belgian authorities carried out a budgetary monitoring exercise, which resulted
in the adoption of new measures amounting to about 0.3% of GDP. Also sub-federal
government layers (regions, communities and local authorities) took additional
measures in order to stick to their respective nominal deficit targets. In
their 2012 Spring Forecast, the Commission services projected the deficit at 3%
of GDP in 2012, based on a zero growth assumption and taking into account the
disappointing tax revenues recorded in the first months of the year. Part of
the consolidation measures consisted of measures with a one-off impact (in
total estimated at 0.4% of GDP). In July 2012, the government undertook an
additional budget control as part of a strengthened budgetary monitoring, which
confirmed that Belgium was broadly on track to reach its own 2.8% of GDP
deficit target, partly because of an expected improvement of the macro-economic
situation based on the outcome of the first quarter. However, GDP growth in the
second quarter proved to be particularly negative (-0.5%), and also growth in
the second half of 2012 remained sluggish. The government undertook a budget
control in October 2012, resulting in additional spending reductions and a
number of one-off measures in order to ensure the reduction of the deficit to
2.8% of GDP. At the end of 2012, the Belgian and French
governments needed to increase the capital of Dexia, in order to remedy a negative
net asset position and allow the orderly resolution of the group to go ahead. For
Belgium, this had a one-off negative impact[8]
on the deficit of 0.8% of GDP. Moreover, the economic downturn impacted
government revenue more than expected, resulting in a deficit at federal level
(central government + social security) of 2.7% of GDP excluding the impact of
the Dexia recapitalization compared to their own target of 2.4%. In addition,
in the April 2013 EDP notification, it turned out that the local government
level had missed its deficit target (- 0.3% of GDP instead of -0.2%), which was
only partly offset by a better than expected result by regions and communities
(-0.1% of GDP instead of -0.2%). As a result, the notified and validated deficit
came out at 3.9% of GDP. Even without the impact of the Dexia operation, the
deficit would have remained above the reference value, at 3.2% of GDP. The
primary balance deteriorated from a deficit of 0.4% of GDP in 2011 to 0.5% in
2012, due to the impact of the Dexia recapitalization, without which the
primary balance would have shown a surplus of 0.3% of GDP. Despite sizeable government measures, the
structural budget balance is estimated to have improved by ½ pp. of GDP in
2012. The adjusted change in the structural balance is estimated at around 0.9
pp. of GDP. Rising interest expenditure had a negative impact of 0.1 pp. of GDP
on the structural balance. In addition, the automatic indexation mechanism
resulted in a strong autonomous increase in public sector wages and social
benefits (accounting for more than half of public expenditure) due to the high
inflation in 2011 and at the beginning of 2012. This has an estimated negative
impact of around 0.2 pp. of GDP on the structural balance. The rise in the
number of pensioners and accumulated pension rights is estimated to have had a negative
impact of 0.1 pp. on the structural balance. 3.7. Budgetary developments in
2013 and 2014 According to the Commission services' 2013
Spring Forecast, the general government deficit is projected to decrease
to 2.9% of GDP in 2013. The initial 2013 budget targeted a nominal deficit of
2.15% of GDP. Main expenditure measures included cuts in the central
administration (0.1% of GDP), in the health care (0.1% of GDP) and in the social
security (0.1% of GDP). The package also contained around 0.3% of GDP of new
taxes, partly offset by a decrease in social security contributions (0.1% of
GDP). The biggest impact comes from an increase in capital income taxation
(0.1% of GDP) and a limitation of the notional interest deductibility in
corporate income taxation (0.05% of GDP). Lastly, another 0.3% of GDP comes
from non-tax revenues such as a temporary fiscal regularisation, anti-fraud
measures, the sale of telecommunication licences and financial sector
contributions. However, since the drafting of the budget,
the official growth projections underpinning the budget (+0.7%, in line with
the Commission services' 2012 Autumn Forecast) have been substantially revised
downwards, to 0.2% in the 2013 Stability Programme and 0.0% in the Spring Forecast.
Therefore, the government abandoned the nominal deficit target and replaced it
by a commitment to improve the structural balance by 1.0% of GDP. In March
2013, the government took additional measures amounting to 0.2% of GDP, which
have been taken into account in the Commission services' 2013 Spring Forecast.
This forecast projects a structural improvement of ¾ pp. in 2013, with lower
interest expenditure contributing around ¼ pp. to the improvement. Hence, the
gap with the official structural target amounts to ¼% of GDP, according to the
Commission services' 2013 Spring Forecast. At unchanged policy, the Commission
Services' 2013 Spring Forecast projects the deficit to rise again in 2014, to
3.1% of GDP, despite the projected growth above potential. This new rise is due
to the autonomous rising trend in social transfers and the fact that the 2013
budget also included around 0.4% of GDP of one-off and temporary revenues, such
as a fiscal amnesty, the sale of telecom licenses and an exceptionally high
dividend from the National Bank of Belgium. 4. proposed new adjustment path Belgium did not
correct its excessive deficit by the deadline recommended by the Council. The
average annual fiscal effort since 2010 is estimated at 0.3% of GDP,
significantly below the ¾% of GDP recommended by the Council. Also after
correction for the effects of revised potential output growth and revenue
developments, the adjusted average fiscal effort is less than half of the recommended
effort. It therefore appears necessary to issue a Council Decision giving
notice to Belgium to take measures for the deficit reduction judged necessary
in order to remedy the situation of the excessive deficit. Measures
taken in the initial 2013 budget and the March 2013 budget control, are
currently expected to bring the deficit below 3% of GDP in 2013. However,
according to the Commission services' 2013 Spring Forecast, the safety margin
against breaching the Treaty reference value is very narrow. Moreover, the
correction is currently not yet sustainable. Therefore, a further reduction of
the 2013 defict to 2.7% of GDP would be warranted in order to secure a lasting
improvement in the general government balance, which is consistent with a
structural improvement of 1.0% of GDP in 2013. To this end, additional measures
with an estimated impact of ¼ % of GDP are considered necessary, also in view
of possible negative second round effects. In its 2013 Stability Programme, Belgium committed to reach a balanced budget in structural terms by 2015, before reaching
its medium-term objective of a surplus of 0.75% of GDP in structural terms in
2016. Achieving a balanced budget in structural terms by 2015 would require an
average structural effort of 1% over 2013-2015 according to the Commission
services' calculations. Furthermore, it is important to underpin
the consolidation of public finances by adjusting the fiscal framework to
ensure that the budgetary targets are binding at federal and sub-federal levels,
and increase transparency of burden-sharing and accountability across layers of
government. There is also a need to adopt a rule on the
general government budget balance/surplus that complies with the requirements
of the Treaty on Stability, Coordination and Governance
in the Economic and Monetary Union. The
European Commission Fiscal Sustainability Report 2012 shows that the long-term
budgetary impact of ageing in Belgium is well above the EU average. This is
mainly the result of a rapid increase in pension expenditure as a share of GDP
over the coming decades. Although the December 2011 pension reform was an
important positive step, additional measures appear necessary to fully restore
the long-term sustainability of public finances. In this respect, additional
efforts are needed to close the gap between the effective and the statutory
retirement age, while measures to link the statutory retirement age to
developments in life expectancy would allow safeguarding the sustainability of
the pension system in the long term. Table 7 – Forecast of key macroeconomic and
budgetary variables under the baseline scenario Table 8 - Forecast of key macroeconomic and budgetary variables
under the EDP scenario 5. Conclusions Following
the EDP notification of the 2012 general government deficit and its validation
by the Commission (Eurostat), the 2012 deficit came out at 3.9% of GDP. Hence, Belgium did not correct its excessive deficit by the deadline recommended by the Council.
This was partly due to the urgent need to recapitalize the banking group Dexia
at the end of 2012, which had a negative impact of 0.8% of GDP on the
government deficit. However, also without this operation the deadline would
have been missed, with a deficit of 3.2% of GDP excluding the one-off negative
impact of that operation. Moreover, the 2012 budget contained substantial
deficit reducing one-off measures, estimated at around 0.4% of GDP. The average annual fiscal effort since 2010
is estimated at 0.3% of GDP, significantly below the ¾% of GDP recommended by
the Council. Also after correction for the effects of revised potential output
growth and revenue developments, the adjusted average fiscal effort is less
than half of the recommended effort. In particular, the fiscal effort was
entirely absent in 2011 due to the political deadlock at federal level. At the
end of 2011, the newly appointed government swiftly adopted sizeable
consolidation measures, also in response to the Commission's call for action in
order to ensure the timely correction of the excessive deficit. As a result,
the adjusted fiscal effort in 2012 was above the recommended annual structural
effort. A bottom-up calculation estimates the cumulative impact of
discretionary measures of a permanent nature at around 2% of GDP over 2010-2012.
Deficit-reducing measures have been partly offset by expenditure increases following
policy decisions of the past (e.g. welfare adaptations of social benefits,
rapidly rising wage subsidies to companies). Moreover, the impact of
discretionary measures has been insufficient to curb the rising trend in public
expenditure due to population ageing, which explains the limited improvement of
the structural balance over the consolidation period. Measures taken in the initial 2013 budget and the March 2013 budget
control, are currently expected to bring the deficit below 3% of GDP in 2013.
However, according to the Commission services' 2013 Spring Forecast, the safety
margin against breaching the Treaty reference value is very narrow. Moreover,
the correction is currently not yet sustainable. Therefore, a further reduction
of the 2013 deficit to 2.7% of GDP is warranted in order to secure a lasting
improvement in the general government balance, which is consistent with a
structural improvement of 1.0% of GDP in 2013. To this end, additional measures
with an estimated impact of ¼ % of GDP are considered necessary, also in view
of possible negative second round effects. Table 9: Comparison of key macroeconomic and
budgetary projections Annex Table A1: Adjustment of apparent structural effort for the revision
in potential growth – details of calculation Average potential GDP growth underlying the Council Recommendation (%) || Average potential GDP growth at the time of assessment (%) || Forecast error (%) || Structural expenditure (% of potential GDP) || Correction coefficient (% of nominal potential GDP) (1) (2) || (3)=(1)-(2) || (4) || (5)=(3)*(4)/100 1.30 || 0.99 || 0.30 || 51.11 || 0.15 Table A2:
Adjustment of apparent structural effort for the revenue shortfalls/windfalls
as compared to standard elasticities – details of calculation || Change in current revenues (yoy) (billions of national currency) || Discretionary current revenue measures (billions of national currency) || Nominal GDP growth assumptions (%) || Current revenues in year t-1 (billion of national currency) || Revenue gap (billion of national currency)* || Correction coefficient (% of nominal potential GDP) || 2013SF || 2013SF || 2013SF || 2013SF || || || (1) || (2) || (3) || (4) || (5)=(1')-(2')-ε*(3')*(4') || 2010 || 9.2 || 2.4 || 4.5 || 161.4 || -0.09 || -0.02 2011 || 9.5 || 1.2 || 3.9 || 170.6 || 2.15 || 0.58 2012 || 7.6 || 5.4 || 1.9 || 180.1 || -0.97 || -0.26 average || || || || || || 0.10 [1] All documents related to the excessive deficit
procedure of Belgium can be found at:
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/belgium_en.htm [2] OJ L 209, 2.8.1997, p. 6. [3] The average potential growth at the time of
recommendation over the reference period (2009-2014) was estimated at 1.3%. In
the 2013 Spring Forecast, average potential growth over the new reference
period (2009-2017) is estimated at 1.0% of GDP, with the economic crisis
estimated to have a much more long-lasting impact on potential growth. [4] Since 2003, the maximum expenditure growth of the
health care system is set at 4.5% on top of inflation. In practice, real
expenditure has grown at a lower rate, at 4.3% on average between 2003 and
2009, which exceeds medium-term GDP growth. Over the correction period,
measures have been taken to curb this growth and the low inflation in 2009 limited
the effect of the automatic indexation system in 2010. This resulted in a real
growth rate of 0.8% of GDP in 2010 and 2.2% in 2011. In the 2012 budget, real
growth has been limited to 2%. [5] Between 2009 and 2012, the population aged over 65
increased by 4.8%, while the population at working age (15-64) rose by only
2.6%. At the end of 2011, the Belgian government adopted a pension reform
aiming to curb the rise in age-related expenditure, but this will only yield
significant effects in the medium term. [6] Of which 0.6 pp. is due to temporary and one-off
factors, such as tax refunds as a consequence of a court decision and an
acceleration in personal income tax settlement with a negative impact on 2009. [7] recalculated by the Commission services based on the
information in the programme. [8] See Eurostat's view of 19 March 2013 on the
recapitalization of Dexia:
http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/documents/BE-Dexia-recapitalisation_advice-2013-03-19.pdf.