Public finance and fiscal policy

Economic Survey of Belgium 2009: Securing fiscal sustainability during the economic downturn and beyond

 

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The following OECD assessment and recommendations summarise chapter 2 of the Economic Survey of Belgium published on 8 July 2009.

 

Contents

 

Fiscal sustainability needs to be secured

An important part of the government’s long-standing strategy to deal with the cost of population ageing was to establish a path of increasing surpluses on the general government account. So far this objective has not been achieved. Moreover, given the current crisis, this is neither feasible nor advisable in the short-term. Instead, Belgium should design a strategy to secure a credible path towards fiscal sustainability. A step in this direction was made in the recent Stability Programme, which stipulated a path, starting in 2010, back towards a balanced budget in 2015. This may require annual fiscal tightening on average of about 1% of GDP from 2010 onwards. The next step is to design concrete measures, at all levels of government, to achieve the objective of securing long-term fiscal sustainability. The governments at all levels are encouraged to start this process with their 2010 budgets. The credibility of the fiscal policy framework should be strengthened by making the structural budget targets operational. This could be achieved by implementing expenditure rules and introducing multi-annual budgeting to extend the planning horizon and as a self-corrective measure in case of budget slippage. Furthermore, the role of external experts could be enhanced to improve budget assessments. At this point, fiscal sustainability cannot easily be secured through pre-funding alone, and dealing with the increase in ageing-related costs will require pension and health care reform as well as measures to expand the tax base. The government is already pursuing the latter through a more active labour market policy, and a particularly well suited instrument would be to increase the effective retirement age. The government has already implemented some measures in this area, but it should close remaining loopholes for entering early retirement. However, this is unlikely to suffice and the government should follow the example of other OECD countries and raise the legal pension age, preferably in a way that reflects past and future gains in life expectancy.

 

Public debt is rising substantially

Source: Historical data from OECD Economic Outlook database, projections from Stability Programme 2008-2011 and High Council of Finance (2009), Avis sur les perspectives budgétaires en préalable au programme de stabilité 2009-2014, Mars 2009.

 
Fiscal surpluses have been postponed from one year to another1

1. The fiscal deficit for 2005 includes the budgetary costs of the assumption of railway pensions equal about 2.5% of GDP (Eurostat).
Source : Eurostat, Stability Programmes, OECD Analytical Database.

 

How to obtain this publication

 

The complete edition of the Economic Survey of Belgium is available from:

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations.

 

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 and Tomasz Kozluk under the supervision of Pierre Beynet. Research assistance was provided by Sylvie Foucher.

 

 

 

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