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The following is the Executive summary of the OECD assessment and recommendations, taken from the Economic survey of Belgium, published on 13 March 2007.
The Belgian economy is in a strong recovery phase. The balancing of the budget since the start of the decade has allowed public debt to fall fast relative to GDP, providing a favourable macroeconomic background for the recovery. Moreover, structural reforms, particularly in the labour market, are showing signs of success. Output has accelerated and was by mid-2006 growing at 3% – the fastest pace since 2000. With growth well above potential, some production factors are already under strain. The challenge will be to persist with stability and reform-oriented policies to bolster the economy’s trend growth, a challenge made more acute by the impending ageing of the population.
Maintaining public finances on a sustainable footing in the long term will require additional reforms. Ageing-related social security spending is projected to increase by some 6 percentage points of GDP by 2050. The current government strategy focuses on securing the system until 2030, pointing to the need for additional measures to secure fiscal sustainability thereafter. A further lowering of marginal tax rates could help to expand labour market participation and thereby also broaden the tax bases, but such cuts could only be sustained if expenditure growth is tightly constrained. Spending restraint is essential, not only at the federal government level, but also at other levels, where spending has been the most dynamic. All government levels need to share the burden of preparing for ageing.
Labour market policies are aiming to increase participation. The government has started to close early-retirement routes, make unemployment benefits for prime-age workers conditional on job-search efforts and improve the exchange of information between public employment services. The results are positive so far, but small. Activation policies are in place, but not all unemployed are fully subject to job-search obligations. Moreover, there is no tapering off of unemployment benefits, as practiced in a number of other countries. There is still room to increase employment rates as early exit routes are not entirely closed and wage subsidies are not fully targeted to low-wage workers. Also, the centralised wage bargaining system does not allow wage developments to sufficiently reflect local labour market conditions.
Tertiary education has been expanded over the past decades, setting Belgium on course towards having a relatively high human capital endowment. However, there has been no matching increase in funding, which, in the absence of reform, will have a detrimental impact on teaching quality over time. Raising tuition fees would provide tertiary education institutions with independent funding and spur competition further among them. Such a measure encourages students to internalise the cost of their studies and match capabilities and choice of study. The latter should be facilitated by the publication of information concerning study quality and future labour market prospects. Financial barriers to access can be reduced through income-contingent student loans, possibly combined with means-tested grants. As an alternative to increasing tuition fees, other forms of economic incentives may be introduced to encourage students to make efficient use of the tertiary education system.
The well-functioning financial sector has contributed to growth, but it could work even better. Cross-selling of retail banking services intended to boost consumer loyalty may have increased switching barriers and reduced competitive forces. In a similar vein, a number of tax incentives have been introduced to influence household savings behaviour and achieve a variety of policy goals. Their cost effectiveness needs to be assessed against the potential benefits of lower tax rates. There are also various consumer-protection rules that restrict the take-up of credit. In particular, there is little demand among consumers to borrow against their housing wealth, which may partially be related to the lack of adequate mortgage regulation.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded. It contains the OECD assessment and recommendations but not all of the charts included on the above pages.
The complete edition of the Economic survey of Belgium 2007 is available from:
For further information please contact the Belgium Desk at the OECD Economics Department at email@example.com. The OECD Secretariat's report was prepared by Jens Hoj, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.