Remarks by Angel Gurría
3 February 2020 -Brussels, Belgium
(As prepared for delivery)
Dear Prime Minister, Ladies and Gentlemen,
It is a great pleasure to be back in Brussels to present the 2020 Economic Survey of Belgium. I would like to thank Prime Minister Wilmès for hosting us today and for the support that Belgium has shown during the preparation of this Survey.
Let me begin with some good news. Belgium is a good place to live, as indicated by the OECD well-being indicators. Income inequality is relatively low, due to an effective tax and transfer system. The gender wage gap at 3.7% of GDP is the lowest in the OECD, while job market insecurity and job strain are relatively low.
In addition, Belgium performs higher than the OECD average in PISA scores in reading, maths and science and life expectancy at birth in Belgium is almost 82 years, slightly higher compared to the OECD average of 80 years.
Economic growth has been relatively slow but averaging around 1.7% in the past five years and real GDP per capita has surpassed pre-crisis levels.
The economic recovery has been rich in job creation, with the unemployment rate falling to a historically low rate of 5.2%. Belgium also has very high levels of productivity, with a GDP per hour worked about 35% higher than in the OECD on average.
This economic performance has been supported by a number of important reforms. Changes in both personal income and corporate income taxation have made the tax system more growth-friendly and inclusive. Reforms aimed at strengthening incentives to work and flexibility of labour markets contributed to improved labour market outcomes.
Nevertheless, despite this progress, there is still important room for improvement. Our Survey identified a number of challenges that are currently being faced. Let me highlight three, which we consider crucial.
First, short-term macroeconomic risks remain high. We expect Belgium’s GDP growth to moderate to 1.1% in 2020 and 2021, and Brexit could further hurt the economy. Economic shocks could make public finances more vulnerable, owing to the size of public debt, which is at 100% of GDP, higher than the euro area average of 87%. Moreover, population ageing is expected to put further pressure on fiscal sustainability, as public spending on pensions is projected to reach 15% of GDP in 2070. Despite recent reforms, this is higher than the EU average of 11% of GDP.
To tackle these challenges, the Survey recommends that taxation is made more efficient and growth-friendly by broadening the base of VAT taxes and increasing some environmental taxes. The latter can also help Belgium with its efforts in reaching its environmental targets. On current policies, the reduction target of 35% for greenhouse emissions not covered by the EU’s Emission Trading System (EU ETS) by 2030 will be missed. Hence, we recommend introducing a carbon tax for sectors not subject to the EU ETS, accompanied by flanking measures over the short-term for those households most affected.
In addition, spending reviews can help identify the areas where efficiency of public spending can be enhanced. This could also create space for higher public investment, which is low at 2.4% of GDP, compared to the OECD average of 3.5%.
Lower growth could also make it more difficult for households to reimburse their debt, since the rapid increase in bank lending has come hand-in-hand with more lenient conditions. The central bank took appropriate measures to reduce risks taken and, if needed, we encourage it to tighten further macroprudential measures – such as limits on loan to value ratios. This could be unpopular to do, but could end up being necessary to preserve financial stability.
Second, productivity growth. Belgium has high levels of productivity but the annual growth rate has declined from 2.1% in the 1980s and 1990s, to 0.4% today. At the same time, divergence between the most and least productive firms has risen, especially in services.
Low productivity growth persists despite the fact that Belgium is the OECD country that provides the highest public support to business R&D as a share of GDP. It is important to better target public support to young innovative firms and enable a greater diffusion of innovation.
Stronger competition is key to higher productivity growth. To address challenges, a less complex license and permit system would help new and innovative firms enter the market in Belgium, where firm entry rates are low.
Another barrier to productivity growth is high congestion, which also lowers environmental outcomes. Introducing road congestion charges, for example around Brussels, would contribute to higher productivity and decarbonisation of urban transport. I am pleased to note that the OECD will be helping the authorities to develop innovative mobility solutions in the Brussels-Capital-Region, in the context of its collaboration with European Commission’s DG REFORM (former SRSS).
And third, there is a need for labour markets to be more inclusive. The employment rate has increased to 65%, but is still below the OECD average of 69% and there are significant employment gaps for disadvantaged groups.
Low employment of the low-skilled, migrant and older workers reflects barriers to employment and requires tailored policies. Using tools for the profiling of individualised risks can help identify those at risk of becoming long-term unemployed and help their transition to work.
We also recommend further reforms to the unemployment benefit system to promote work incentives for low-wage workers, without reducing the level of income support for the unemployed.
It is also crucial to accelerate efforts to upskill the labour force. The spread of information and communication technology (ICT) in the workplace has been very rapid in Belgium, leading to significant ICT skill shortages, one of the highest in the OECD. In addition, participation in lifelong learning in Belgium, at 8% in 2018, is below the EU average of 11%. Improved access, especially for older and low-skilled adults, is essential to keep up with changing skill needs.
Finally, the rise in non-standard forms of employment requires changes in policies to ensure workers’ well-being. Belgium has already made much progress in addressing the social assistance needs and tax systems related to non-standard employment; but we recommend some further measures in this area. These include harmonising contribution rates and pension calculations between the self-employed and employees.
Ladies and gentlemen:
Belgium has made an impressive progress. It has promoted important reforms, achieving high levels of productivity and well-being. But these challenging times leave no place for complacency. Belgium needs to keep the reform efforts, to keep expanding the opportunities for its people.
We hope that the Survey being launched today serves to provide important guidance to the Government in staying the course and tackling the challenges ahead.
Prime Minister, rest assured that the OECD stands ready to work with and for you to design, develop and deliver better policies for better lives in Belgium. Thank you.