|
Contents
Chapter 1. From stability to sustained growth: challenges for the Belgian economy
The economy of Belgium is currently performing well. The growth of activity has recently gained strength, reaching 3% year-on-year in mid-2006, slightly ahead of the entire euro area. The upturn partly reflects the cyclical trend in neighbouring countries, which has encouraged exports; in addition, residential investment has been encouraged by supportive credit conditions and the multi-year income tax reduction has provided a beneficial support to consumer spending. In a broader sense, the economy exhibits a number of strengths. Steady growth over the past decade has helped maintain living standards at a relatively high level by international comparison, unlike in large euro area countries where the advance of per capita GDP has been more modest. Belgium’s income levels reflect for the most part the high productivity of its workers, a testimony to the strong efficiency of its business sector. By contrast, the progress made to involve more of the working-age population into the labour market has been so far modest. Even though participation rates are on a clearly rising trend, the labour market involvement of older workers remains low by international standards, as is the employment rate of the younger generation. The authorities’ medium-term reform programme thus attaches a high degree of importance to improving labour market outcomes. This will become increasingly essential with the ageing of the population, which will weigh on the availability of labour resources and on public finances. Ambitious and broad-based reforms to raise labour utilisation, while keeping up the high level of productivity, will be crucial to sustain growth beyond the current cyclical improvement.
Chapter 2. Securing the sustainability of fiscal policy in a rule-based system
The achievement of balanced general government budgets has helped to reduce the level of gross debt over the past ten years. Consolidation has been facilitated by non-repeatable factors like falling interest rates and one-off measures. Looking forward, fiscal policy objectives are becoming more ambitious in order to build up surpluses and pre-fund the cost of population ageing. Moreover, the current long-term strategy focuses on securing the system until 2030. However, additional cost of ageing thereafter is not pre-financed, pointing to the need for additional measures to secure the financing of additional ageing-related spending until 2050. Indeed, securing the sustainability of public finances in the long term will require additional reform. Consolidation through spending needs to take place at all levels of government by making each level responsible for generating a surplus formulated in structural terms to avoid pro-cyclical spending patterns and defined to exclude the use of one-off measures. If the beneficial effects of the recent lowering of marginal tax rates are to be preserved and extended, fiscal consolidation through higher revenues can only be achieved by broadening the tax base, such as by phasing out a range of tax expenditures and by expanding labour market participation.
Chapter 3. Labour market reforms to boost employment
Employment growth has picked up since 2004, and so has labour supply, reflecting government policies to encourage participation. Nonetheless, unemployment is persistent and particularly high for certain groups, such as older and younger workers. Moreover, important geographical differences in unemployment rates exist. The authorities have launched a new programme to activate the unemployed. However, the monitoring of search efforts are not yet undertaken jointly by the federal and the regional public employment services, which would help to secure consistency of feedback and sanctioning mechanisms. As for older workers, the government has enacted a series of measures to boost participation by removing incentives to retire early. The centralised wage bargaining system has helped moderate wage growth, but not to avoid cost competitiveness losses, and in combination with general indexation on prices it has allowed little wage differentiation across geographical locations.
Chapter 4. Improving incentives in tertiary education
The tertiary education system has been transformed from an elite oriented system to be a system providing tertiary education to a much larger share of each new generation. This re-orientation has contributed to raising the education attainment in Belgium. However, in many respects the organisation of the tertiary education systems has not been changed fundamentally and economic incentives are only to a minor extent in place for securing the supply and quality of tertiary education. The system has come under strain, as revealed in the high failure rate among first-year students and the high incidence of subject change. There is thus a need for the system to adapt to be able to continue to support the improvement in educational attainment.
Chapter 5. Enhancing the benefits of financial liberalisation
The Belgian financial landscape has been transformed over the past two decades and now consists of a relatively large, well-functioning and internationally integrated financial sector contributing directly and indirectly, through its intermediary function, to long-term economic growth. One of the financial system’s key characteristics is the concentration of activity among a small number of financial conglomerates that offer a combination of banking and insurance services. Although this mix of activities may contribute to financial stability, it has led to a widespread commercial practice of cross-selling, possibly dampening competitive pressures. Competition may also be hindered by regulatory policies in the markets of mortgage loans and consumer credit; although these policies aim at protecting consumers against the risk of over-indebtedness, they risk having the unintended consequence of increasing entry costs for new providers, thus hindering competition and innovation and hurting consumer interests. Besides regulatory policy, tax policy has also been used to shape the development of the financial system. Tax credits are granted to influence investment and borrowing decisions, notably to stimulate home ownership, encourage saving and stimulate private pension accounts. International experience suggests that such tax expenditures, while influencing the allocation of saving, have no obvious impact on the overall level of saving. However they result in significant tax expenditure and necessitate higher tax rates elsewhere. Reforms recommended in this chapter would help to make a well-functioning system perform even better.
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:
- SourceOECD for subscribing institutions and many libraries
-
-
OLISnet, under "Publication Locator", for government officials with accounts ( subscribe)
-
Additional information
For further information please contact the Belgium Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Jens Hoj, Ekkehard Ernst and Stefaan Ide under the supervision of Patrick Lenain.
|
