Long abstract

About Statistics Publications & Documents Information by Topic

Belgium is beginning to reap the benefits of sustained fiscal consolidation. Falling interest payments on public debt are providing room for reducing the country's heavy tax burden. The authorities have focussed tax cuts on low-income earners, for whom the beneficial labour-market effects are likely to be greatest. This should be particularly helpful for regions that suffer from high structural unemployment. Further reductions in labour income taxation targeted on low-income earners should be made as budget room becomes available. Limiting further and unifying the benefit duration in the early stages of unemployment would also help to reduceunemployment traps. In addition, it will be important to improve the performance of the education systems so that young persons are better equipped for entering the labour market. The authorities have also begun to tackle the country's major early retirement problem, notably by removing the exemption for many older unemployed persons from job search requirements. However, more will need to be done to reduce incentives for early retirement and increase demand for older workersif the objective of doubling the employment rate for the older working age population - which would also boost Belgium's currently low overall employment rate - is to be met. In particular, all public subsidies for early retirement should be removed, notably by phasing out financing for prepensions, abolishing the status of "older unemployed" and scrapping seniority-based unemployment benefit premiums. Another important field of reform is the corporate income tax system. It has been made more neutral and, with the introduction of an advanceruling regime, has made Belgium a more attractive destination for inward direct investment. This attractiveness should be reinforced by reductions in the effective corporate income tax rate as budgetary room becomes available to Progress has also been made in liberalising network industries but considerable challenges lie ahead in removing barriers to competition. In this regard, more progress in opening up rail freight services to competition could be made by legally separating rail infrastructure ownership and management from the incumbent monopolist's (SNCB) other activities. Provided that future governments stay the course of fiscal consolidation and structural reform, it will be possible to reduce the tax burden further, improve output and employment performance, and maintain a sustainable fiscal policy despite the budget costs of population ageing.