Economy

Presentation of the OECD Economic Survey of Belgium

 

Presentation of the OECD Economic Survey of Belgium
Angel Gurría, OECD Secretary-General
Brussels, Tuesday 13 March 2007

Good afternoon, ladies and gentlemen. I am so pleased and honoured to be here with you today to present the OECD Economic Survey of Belgium, and I would like to thank Prime Minister Verhofstadt for his invitation and his warm welcome. I am even more pleased to be able to present you with some good news about the Belgian economy.
 
Economic recovery in Belgium is strong. Growth reached 3% in 2006, more than in many European countries including some of your close neighbours, and is expected to remain strong in 2007. Employment is expanding and so is the labour supply. These conditions represent a great opportunity in which to launch policy measures to secure long-term growth. Today, I would like to highlight just two key areas of focus for policy reform: the area of fiscal sustainability, and the labour market.

Securing fiscal sustainability

I would like to commend Belgium for its impressive reduction of public debt over the past decade, from 130% of GDP to below 90%. Your policy of balanced budgets means that there have been no deficits since 2000. However, debt still remains high by international standards, and the decrease you have seen has been facilitated by non-repeatable factors, such as falling interest rates and one-off measures. Consolidation efforts have so far been concentrated at the level of the central government, but others must now join these efforts. I encourage all levels of government to work together to establish an expenditure rule which would cap the growth of government spending. And regions and communities must do their part in generating surpluses to secure long-term sustainability.

Looking ahead, Belgium is not alone in facing the issue of ageing populations. Your medium-term strategy to deal with the cost of ageing until 2030 is very welcome, but it needs to be even more ambitious to ensure sustainability beyond 2030 (- some people thing that 2030 is the long term). Fiscal goals must be even more ambitious, so that all pension promises can be funded in advance. One way of easing the adjustment is by raising the effective retirement age. Many countries are considering such measures, to take into account gains in life expectancy. Though it can be unpopular, this is one concrete solution for dealing with ageing populations and fiscal sustainability. 

Improving the labour market to boost job creation

An important key to responding to the fiscal challenge is expanding the participation in the labour market. Your government's forward-looking labour market reforms have begun to show results, but the labour market is still characterised by high persistent unemployment, which tend to be concentrated on certain groups of the population. The OECD survey points to several areas for action.

First, better coordination is needed between the federal agency which provides unemployment benefits and the regional agencies providing employment services. This will improve the effectiveness of your policies to help the unemployed return to work. Second, you have taken measures to improve the participation of older workers and these measures have borne their fruit: since 2000, older workers' (aged 55-64) participation in the labour market has grown by 7½ percentage points to reach 34.9% . This figure shows good progress, but it remains low by international standards, and there is a need for further closing of exit routes for early retirement.

Another important point is that Belgium is the only OECD country where unemployment benefits are unlimited in time. Limiting the duration of these benefits, or phasing them down over time, can provide support to your employment policies, and encourage people to go back to work.

There are also large geographical differences in labour market dynamism, with persistent unemployment in some areas and recruitment difficulties in others. Making the centralised wage bargaining system more sensitive to local labour market developments could help address this issue. An additional measure is  the phasing out of wage indexation, as has been done in most OECD countries, which could help achieve greater real wage flexibility.

Political economy of reform

These reforms are not easy to implement, as some citizens may feel the short-term sting of reforms more than others. But these reforms are necessary to increase the economic prosperity for the current generation as well as for future generations. One way of overcoming reform resistance is to combine reforms to include compensatory measures, while at the same time preserve their effectiveness. One example is to combine the phasing down of unemployment benefits with an increase in the initial benefit level. Such a combination of measures would address both income concerns and secure effective search incentives. 

The OECD stands ready not only to discuss the necessary policies but also to help the Government of Belgium engage the different stakeholders in order to increase the public's acceptability of the need to adopt reforms.

Naturally, there is a lot of very interesting material in the Survey which I have not had time to touch upon; I mention ways to improve the efficiency of tertiary education and to enhance the efficiency of the financial system as two examples. I hope we will have to opportunity to discuss these issues further, and I look forward to your questions. Thank you.

 

 

 

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