Remarks by Angel Gurría
Brussels, 20 June 2017
(As prepared for delivery)
Dear Prime Minister Michel, Ambassador, Colleagues of the press corps, Ladies and Gentleman,
I am delighted to be back in Brussels to present the OECD’s 2017 Economic Survey of Belgium. Let me begin by thanking Prime Minister Michel for hosting us today in his beautiful residence “Le Lambermont”, and the Belgian authorities for their support in the preparation of this Survey.
We are releasing this Survey at a complex moment. Our latest Economic Outlook provides a basis for ‘cautious hope’ that a cyclical upswing is underway. We project global growth to accelerate modestly from 3% last year to 3.5% this year and 3.6% in 2018. But downside risks remain, from concerns of rapid credit growth in China and other emerging markets to rising asset valuations in some advanced economies.
In this difficult context, it is encouraging to see that Belgium’s economy is gathering speed, albeit at a modest pace compared to pre-crisis levels. Economic growth is set to reach 1.6% this year and 1.7% in 2018. With GDP per capita at 8% above the OECD average in 2016, Belgians enjoy high well-being in many social and economic dimensions, notably on work-life balance, health, education and civic engagement. Income inequality is the 7th lowest among the OECD countries and the gender wage gap is the lowest in the OECD.
Unemployment has declined from 8.5% in 2015 to 6.8% in April this year, well below the EU average of 9.3% (OECD 5.9%). Still, youth unemployment is above the EU average and there are large differences between regions: youth unemployment in the Brussels region is 35%, compared to less than 15% in the Flemish region.
These achievements were made possible by high quality education, a combination of market-based policies, a redistributive welfare state, and sound macro-economic policies supported by a range of reforms, such as on taxation, the wage-setting system, pensions, unemployment benefits, as well as measures to improve the business environment for SMEs and the self-employed. Indeed Belgium is a top reformer, which scored the fourth highest responsive rate among the OECD countries to OECD Going for Growth recommendations.
Despite this positive outlook, Belgium still faces important challenges. Let me highlight some that we consider crucial.
Boosting public investment
Belgium is one of the most congested countries in the region, and its two key cities, Antwerp and Brussels, are among Europe’s five most congested urban centres. Public investment has been neglected for several decades. Its share of GDP fell from close to 6% in the early 1970s to just above 2% since 1990. More investment in transport infrastructure is required to reduce bottlenecks around major urban areas, boost productivity and support inclusive growth.
I am pleased to learn that the Federal Government is addressing the problem through its Strategic Investment Pact and that the regions have recently approved important infrastructure projects. But more needs to be done. The Survey calls for progressively phasing out the tax advantages on company cars, and greater investments towards greener public transport infrastructure.
Making the tax mix more supportive of growth and jobs
Belgium’s high labour costs for firms and high labour taxes pose another challenge. According to our data, the employment rate for low-skilled workers stands at around 45% compared to the OECD average of over 55%. International experience suggests that lowering employer social security contributions on low wages can facilitate the entry of low-skilled workers into the labour market. Belgium is already moving in that direction but further labour tax reductions are needed.
These efforts should also be complemented by additional tax reforms. The shortfall in revenue could be replaced by increasing taxes which are less distortionary to economic activity, such as environmental taxes, and introducing a federal capital gains tax. Reducing the tax deductibility of interest payments on mortgage debt would also provide addition revenue.
Making the business environment more supportive of productivity gains
There is evidence that a vibrant start-up culture is conducive to both productivity growth and job creation. Yet business dynamism in Belgium is weak: the entry and exit rates of firms are 4.5% and 3% respectively, compared to the EU averages of 10% and 9%.
These low rates might be related to the dominating presence of large, established firms, which do not leave sufficient space for newcomers. For example, start-ups generally have less capacity to deal with administrative burdens, and the very high paid-in minimum capital requirement for firms may also prevent them from entering the market. In addition to a lower capital requirement, start-ups would also benefit from an increase in the threshold from which they are required to register for value added tax. Promoting further venture capital to support early stage financing would also support firms’ dynamism.
Moreover, the share of Belgium’s business enterprise R&D in total R&D spending has declined over the past two decades. Existing programmes could be streamlined to improve their effectiveness. Regions and communities could also step up their innovation support co-operation, and could do more to foster collaboration between universities and research centres, and private companies.
Improving educational outcomes for youth with an immigrant background
Another area where improvements can be made is related to the educational outcomes of youth with immigrant backgrounds. Youth with an immigrant background are only 65% as likely to obtain a tertiary degree as their native peers; almost the lowest in the OECD. Differences in employment are also among the highest in the EU.
Despite having spent their entire childhood in Belgium, many second-generation immigrants often have limited proficiency in the language of instruction when they start primary school. Providing pre-primary language education to these children would help them start on an equal footing with their peers.
Continuing efforts to reduce the concentration of students with low socio-economic and immigrant backgrounds in certain schools is critical, as this tends to be detrimental to educational outcomes. This challenge was already discussed in the previous Survey. The effectiveness of recent measures taken by Belgium to reduce school segregation should be closely monitored and assessed.
Experienced teachers should also go where they are most needed. In the Survey we suggest using incentive schemes to attract teachers to schools with a high concentration of disadvantaged pupils.
Last but not least, high educational attainment has been an important factor in Belgium’s productivity and prosperity. Yet, progress in expanding its pool of highly educated students has slowed over the recent years. Despite increases for the fiscal year 2017, per-student spending in tertiary education declined by 3% between 2008 and 2013. Going forward, this may affect the quality of education.
Given the limited fiscal space, Belgium could consider increasing tuition fees to sustain spending on tertiary education, while ensuring equal access to education. Granting loans with repayment contingent on the level of their future income would help compensate graduates who have not achieved wage gains from their studies.
Ladies and Gentlemen,
Belgium has embarked upon an important reform path to address a number of challenges, and we can see that these efforts are paying off. It is now crucial to stay this course and make the most of the positive momentum that has been generated.
The OECD stands ready to support you in your goals to deliver better, more inclusive and more sustainable policies, for better lives.