Economic Policies
#21Key Findings
Hampered by indebtedness and structural weaknesses, Belgium falls into the middle ranks internationally in terms of economic policies (rank 21). Its score in this area has decreased by 0.1 point since 2014.
After a period of debt reduction, the country’s public debt swelled to nearly 113% of GDP during the COVID-19 era. Previous successes in debt management render this comparatively sustainable. However, the pandemic and floods in 2021 have weakened the financial position of the subnational federated entities.
Growth rates were consistently low before the pandemic, though unemployment rates were also low. Neocorporatist labor policies produce structural mismatches between the demand and supply of skills. Courts have ruled that gig workers are independent contractors. Labor income is highly taxed.
The NextGenerationEU program will pump nearly €6 billion into the country’s economy. Much of this will go to physical capital, but critics say the measures are not sufficiently targeted at enhancing economic dynamism. The pandemic cast a spotlight on the country’s strong pharmaceutical sector, as vaccines were produced here.
After a period of debt reduction, the country’s public debt swelled to nearly 113% of GDP during the COVID-19 era. Previous successes in debt management render this comparatively sustainable. However, the pandemic and floods in 2021 have weakened the financial position of the subnational federated entities.
Growth rates were consistently low before the pandemic, though unemployment rates were also low. Neocorporatist labor policies produce structural mismatches between the demand and supply of skills. Courts have ruled that gig workers are independent contractors. Labor income is highly taxed.
The NextGenerationEU program will pump nearly €6 billion into the country’s economy. Much of this will go to physical capital, but critics say the measures are not sufficiently targeted at enhancing economic dynamism. The pandemic cast a spotlight on the country’s strong pharmaceutical sector, as vaccines were produced here.
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How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
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Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
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Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Located at the heart of the euro area and the European Union, Belgium is a small open economy. It thus faces very strong external competition from foreign producers. This motivated the Belgian government in July 1996 to enact a law for the “promotion of employment and preventively safeguard competitiveness” (see Bogaert 2012 for a detailed historical overview). This law both supports and limits wage negotiations across the country; wages may increase above the inflation rate, but by an amount that is limited to the wage increases in neighboring countries. This upward limit is of course regularly challenged by trade unions, but the authorities in charge of implementing them are systematically careful to maintain the safeguards in place (see also the communiqué by Pieter Timmermans, the Enterprises Union’s director, in 2021).
A second pillar of the Belgian policy is the goal of increasing private and public R&D spending combined to above 3% of GDP (a European Target since 2002). Data released in 2021 showed that this milestone was reached in 2019.
In terms of total economic impact, these policies are in some senses effective, but have failed to make Belgium more competitive than its neighbors. Indeed, while Belgian exports are expected to grow by about 3% per annum over the medium term; and corporate investment by about 2% (their share in the Belgian GDP should thus keep expanding), the market share of Belgium within the EU is not progressing, and is indeed falling behind that of the Netherlands or Germany, two of the reference neighbors in the 1996 law (see also “Tax Policy”). Belgium’s trade balance has moderately degraded since the early 2000s. The coronavirus crisis provided a boost to exports, since the country is home to vaccine production factories. But this risks being only a temporary reversal to a long-term trend of falling market shares in the area of high-value-added exports.
Citations:
Bogaert, Henry (2012) “ La loi relative à la promotion de l’emploi et à la sauvegarde préventive de la compétitivité : bilan et perspectives,” Reflets et perspectives de la vie économique 2012/1 (Tome LI), pp 33-45, https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2012-1-page-33.htm
Timmermans, Pieter (22 September 2021) “La loi de 1996 est plus que jamais nécessaire!”, https://www.feb.be/domaines-daction/economie–conjoncture/competivite/la-loi-de-1996-est-plus-que-jamais-necessaire-_2021-09-22/
Federal Government Press Communiqué (July 2021): “Recherche et Développement (R&D) : la Belgique franchit pour la première fois le cap des 3% du PIB” https://dermine.belgium.be/fr/recherche-et-d%C3%A9veloppement-rd-la-belgique-franchit-pour-la-premi%C3%A8re-fois-le-cap-des-3-du-pib
https://www.feb.be/globalassets/actiedomeinen/internationaal/internationale-handel/nieuwe-vbo-reflect-steun-vrijhandel-kies-voor-groei/reflect-commerce-international_fr_10-12.pdf
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32017H0809(01)&from=EN
Schwab, Klaus and Sala-i-Marti, Xavier (2017). The Global Competitiveness Report 2017–2018. World Economic Forum editor.
Productivity growth is slowing: http://www.oecd.org/global-forum-productivity/country-profiles/belgium.htm
Reforms and economic perspective: http://www.plan.be/admin/uploaded/201606211317350.FOR_MIDTERM_1621_11276_F.pdf
Too little entrepreneurship: http://www.plan.be/admin/uploaded/201606240814370.WP_1606.pdf
A second pillar of the Belgian policy is the goal of increasing private and public R&D spending combined to above 3% of GDP (a European Target since 2002). Data released in 2021 showed that this milestone was reached in 2019.
In terms of total economic impact, these policies are in some senses effective, but have failed to make Belgium more competitive than its neighbors. Indeed, while Belgian exports are expected to grow by about 3% per annum over the medium term; and corporate investment by about 2% (their share in the Belgian GDP should thus keep expanding), the market share of Belgium within the EU is not progressing, and is indeed falling behind that of the Netherlands or Germany, two of the reference neighbors in the 1996 law (see also “Tax Policy”). Belgium’s trade balance has moderately degraded since the early 2000s. The coronavirus crisis provided a boost to exports, since the country is home to vaccine production factories. But this risks being only a temporary reversal to a long-term trend of falling market shares in the area of high-value-added exports.
Citations:
Bogaert, Henry (2012) “ La loi relative à la promotion de l’emploi et à la sauvegarde préventive de la compétitivité : bilan et perspectives,” Reflets et perspectives de la vie économique 2012/1 (Tome LI), pp 33-45, https://www.cairn.info/revue-reflets-et-perspectives-de-la-vie-economique-2012-1-page-33.htm
Timmermans, Pieter (22 September 2021) “La loi de 1996 est plus que jamais nécessaire!”, https://www.feb.be/domaines-daction/economie–conjoncture/competivite/la-loi-de-1996-est-plus-que-jamais-necessaire-_2021-09-22/
Federal Government Press Communiqué (July 2021): “Recherche et Développement (R&D) : la Belgique franchit pour la première fois le cap des 3% du PIB” https://dermine.belgium.be/fr/recherche-et-d%C3%A9veloppement-rd-la-belgique-franchit-pour-la-premi%C3%A8re-fois-le-cap-des-3-du-pib
https://www.feb.be/globalassets/actiedomeinen/internationaal/internationale-handel/nieuwe-vbo-reflect-steun-vrijhandel-kies-voor-groei/reflect-commerce-international_fr_10-12.pdf
http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32017H0809(01)&from=EN
Schwab, Klaus and Sala-i-Marti, Xavier (2017). The Global Competitiveness Report 2017–2018. World Economic Forum editor.
Productivity growth is slowing: http://www.oecd.org/global-forum-productivity/country-profiles/belgium.htm
Reforms and economic perspective: http://www.plan.be/admin/uploaded/201606211317350.FOR_MIDTERM_1621_11276_F.pdf
Too little entrepreneurship: http://www.plan.be/admin/uploaded/201606240814370.WP_1606.pdf
Graph View
How effectively does labor market policy address unemployment?
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Successful strategies ensure unemployment is not a serious threat.
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Labor market policies have been more or less successful.
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Strategies against unemployment have shown little or no significant success.
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Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Despite an economic growth rate that has been consistently below 2% since 2010, a slate of reforms had produced the lowest unemployment rate for more than 25 years right before the onset of the coronavirus crisis. However, Belgium’s neo-corporatist and consociational system remains complex, and protects specific pockets of jobs over non-traditional forms of employment. This produces structural mismatches between the demand and supply of skills, and according to a study by Bodart, Dejemeppe and Fontenay (2019), helps explain why Belgium’s employment rate (which increased from 67% in 2011 to 70.5% in 2019) has continuously trailed Germany’s (76.5% in 2011; 80.6% in 2019).
The Michel I cabinet (2014-18) took steps to encourage labor market participation by gradually increasing retirement age, restricting access to unemployment benefits and reducing labor costs. One of these measures was a (rather badly designed) decision to allow people to undertake “small jobs” (less than €6,340 per year) without having to pay taxes. This lack of a comprehensive policy showed its limits with the coronavirus crisis, when socioeconomically disadvantaged adolescents who had to work to maintain a living went slightly beyond this threshold, say by 25€, and found themselves having to pay thousands of euros in social security and tax arrears (see the December 2020 article from Le Soir).
An important ruling in December 2021 over the Deliveroo platform defined the company’s gig workers as independent contractors, which should open many doors to the gig economy in Belgium. A week earlier, another ruling, against Uber, forbade that company from operating in Brussels, forcing the regional government to improvise a legal quick fix to allow them to resume operations a couple of weeks later. Such mishaps may eventually trigger a more comprehensive review of the incentives to work, which would hopefully result in a much more dynamic job market within a decade.
Insofar as traditional employer-employee jobs are concerned, Belgium’s consociational system provides a much more fruitful policy framework. In particular, the 2008 crisis shock already induced Belgium to undertake partial unemployment measures that protected jobs by offering financial support to employers. Such schemes were rapidly resuscitated in 2020, and were extended to the self-employed and the companies most impacted by the lockdowns across multiple sectors.
Citations:
Council of Europe’s recommendations: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1560258016104&uri=CELEX:52019DC0501
Bodart, Dejemeppe, and Fontenay (2019) “Évolution de l’emploi en Belgique : tentons d’y voir plus clair,” Regards Economiques No 146.
OECD’s analysis:
https://www.oecd-ilibrary.org/sites/83a87978-en/index.html?itemId=/content/publication/83a87978-en
Articles about gig economy:
https://plus.lesoir.be/344780/article/2020-12-21/impots-des-livreurs-sommes-de-rembourser-plusieurs-milliers-deuros
https://www.lesoir.be/411251/article/2021-12-08/les-coursiers-deliveroo-sont-des-independants-les-details-du-jugement
https://www.lesoir.be/408442/article/2021-11-24/uberx-force-linactivite-des-vendredi-soir-bruxelles
The Michel I cabinet (2014-18) took steps to encourage labor market participation by gradually increasing retirement age, restricting access to unemployment benefits and reducing labor costs. One of these measures was a (rather badly designed) decision to allow people to undertake “small jobs” (less than €6,340 per year) without having to pay taxes. This lack of a comprehensive policy showed its limits with the coronavirus crisis, when socioeconomically disadvantaged adolescents who had to work to maintain a living went slightly beyond this threshold, say by 25€, and found themselves having to pay thousands of euros in social security and tax arrears (see the December 2020 article from Le Soir).
An important ruling in December 2021 over the Deliveroo platform defined the company’s gig workers as independent contractors, which should open many doors to the gig economy in Belgium. A week earlier, another ruling, against Uber, forbade that company from operating in Brussels, forcing the regional government to improvise a legal quick fix to allow them to resume operations a couple of weeks later. Such mishaps may eventually trigger a more comprehensive review of the incentives to work, which would hopefully result in a much more dynamic job market within a decade.
Insofar as traditional employer-employee jobs are concerned, Belgium’s consociational system provides a much more fruitful policy framework. In particular, the 2008 crisis shock already induced Belgium to undertake partial unemployment measures that protected jobs by offering financial support to employers. Such schemes were rapidly resuscitated in 2020, and were extended to the self-employed and the companies most impacted by the lockdowns across multiple sectors.
Citations:
Council of Europe’s recommendations: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1560258016104&uri=CELEX:52019DC0501
Bodart, Dejemeppe, and Fontenay (2019) “Évolution de l’emploi en Belgique : tentons d’y voir plus clair,” Regards Economiques No 146.
OECD’s analysis:
https://www.oecd-ilibrary.org/sites/83a87978-en/index.html?itemId=/content/publication/83a87978-en
Articles about gig economy:
https://plus.lesoir.be/344780/article/2020-12-21/impots-des-livreurs-sommes-de-rembourser-plusieurs-milliers-deuros
https://www.lesoir.be/411251/article/2021-12-08/les-coursiers-deliveroo-sont-des-independants-les-details-du-jugement
https://www.lesoir.be/408442/article/2021-11-24/uberx-force-linactivite-des-vendredi-soir-bruxelles
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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Taxation policy fully achieves the objectives.
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Taxation policy largely achieves the objectives.
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Taxation policy partially achieves the objectives.
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Taxation policy does not achieve the objectives at all.
During the 2010s, the Belgian federal government managed to reduce its deficit from a peak of 4.3% in 2011-12 down to 0.8% in 2018. It crept back to 1.9% in 2019 (an election year) and jumped to 7.2% in 2020 in the wake of the COVID-19 crisis. In its 2021 forecast, the Federal Planning Bureau expects this deficit to remain as high as 5.6% of GDP through 2026, highlighting the need for deep tax and other reforms. The tax wedge on labor is among the OECD’s highest according to the 2021 Taxing Wages report (Tables 3.2 & 3.3). Corporate taxation was reformed in 2017, on Christmas day, with the nominal tax rate reduced to 25% as of 2021 (20% for small companies).
The tax-to-GDP ratio was destabilized by the COVID-19 crisis in ways that are unlikely to reflect future trends. Yet according to the European Commission, it remains true that tax revenues are significantly more concentrated on labor and capital revenue than the EU average. By contrast, the share of revenue provided by indirect taxes is below the EU average. Belgium’s revenues from environmental taxes are slightly above the European average, and are more substantial than in France or Germany, but lower than in the Netherlands, which is Belgium’s closest competitor and typical reference point. Furthermore, Belgium was one of the countries with the highest increases in average effective carbon tax rates in the road sector between 2015 and 2018 (OECD 2019). However, this increase was only due to an increase in average fuel excise tax rate, which itself could raise equity concerns. In terms of export performance, Eurostat data show that Belgian export volumes grew by 38% between 2005 and 2020. This is more than twice the comparable rate in France, but close to 20 percentage points below the German performance, and half that of the Netherlands.
Citations:
https://finances.belgium.be/sites/default/files/downloads/121-reforme-isoc-2018. pdf
Council of Europe’s recommendations: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1560258016104&uri=CELEX:5201 9DC0501
European Commission, DG Taxation and Customs Union (2021) “Taxation Trends in the European Union”
OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, Paris, https://doi.org/10.1787/058ca239-en.
https://op.europa.eu/en/publication-detail/-/publication/d5b94e4e-d4f1 -11eb-895a-01aa75ed71a1/language-en
https://ec.europa.eu/taxation_customs/s ystem/files/2021-06/taxation_trends_2021_country_chapter_belgium.pdf
https: //www.lecho.be/actualite/archive/la-flandre-moins-ambitieuse-ou-plus-realiste/10 168960
https://www.moodys.com/research/Moodys-downgrades-three-Belgian-Regions-and- Communities-and-two-Government–PR_458842
https://www.lecho.be/economie-poli tique/belgique/wallonie/moody-s-degrade-la-wallonie/10351475
https://www.rtbf.be/info/belgique/detail_reformes-fiscales-et-hausses-des-salaires-dans-les-prog rammes-a-qui-cela-profiterait-il-vraiment?id=10204436
The tax-to-GDP ratio was destabilized by the COVID-19 crisis in ways that are unlikely to reflect future trends. Yet according to the European Commission, it remains true that tax revenues are significantly more concentrated on labor and capital revenue than the EU average. By contrast, the share of revenue provided by indirect taxes is below the EU average. Belgium’s revenues from environmental taxes are slightly above the European average, and are more substantial than in France or Germany, but lower than in the Netherlands, which is Belgium’s closest competitor and typical reference point. Furthermore, Belgium was one of the countries with the highest increases in average effective carbon tax rates in the road sector between 2015 and 2018 (OECD 2019). However, this increase was only due to an increase in average fuel excise tax rate, which itself could raise equity concerns. In terms of export performance, Eurostat data show that Belgian export volumes grew by 38% between 2005 and 2020. This is more than twice the comparable rate in France, but close to 20 percentage points below the German performance, and half that of the Netherlands.
Citations:
https://finances.belgium.be/sites/default/files/downloads/121-reforme-isoc-2018. pdf
Council of Europe’s recommendations: https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1560258016104&uri=CELEX:5201 9DC0501
European Commission, DG Taxation and Customs Union (2021) “Taxation Trends in the European Union”
OECD (2019), Taxing Energy Use 2019: Using Taxes for Climate Action, OECD Publishing, Paris, https://doi.org/10.1787/058ca239-en.
https://op.europa.eu/en/publication-detail/-/publication/d5b94e4e-d4f1 -11eb-895a-01aa75ed71a1/language-en
https://ec.europa.eu/taxation_customs/s ystem/files/2021-06/taxation_trends_2021_country_chapter_belgium.pdf
https: //www.lecho.be/actualite/archive/la-flandre-moins-ambitieuse-ou-plus-realiste/10 168960
https://www.moodys.com/research/Moodys-downgrades-three-Belgian-Regions-and- Communities-and-two-Government–PR_458842
https://www.lecho.be/economie-poli tique/belgique/wallonie/moody-s-degrade-la-wallonie/10351475
https://www.rtbf.be/info/belgique/detail_reformes-fiscales-et-hausses-des-salaires-dans-les-prog rammes-a-qui-cela-profiterait-il-vraiment?id=10204436
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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Budgetary policy is fiscally sustainable.
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Budgetary policy achieves most standards of fiscal sustainability.
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Budgetary policy achieves some standards of fiscal sustainability.
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Budgetary policy is fiscally unsustainable.
Between 2014 and 2019, Belgium’s public debt decreased from 107% to 97.7% of GDP. In 2020, as in all other OECD countries, the COVID-19 crisis called for massive public intervention to stabilize the economy. This intervention was successful in the case of Belgium. This increased the debt-to-GDP ratio to 112.8% by the end of 2020 (Eurostat data). Importantly, while the Belgian debt ratio was the fourth-highest in the EU in 2019, it fell to the seventh-highest in 2020, a sign of the efficacy of the Belgian stabilization program.
Belgium’s history of high levels of public debt since the 1970s also gives it an advantage in terms of debt management. According to government officials, the debt maturity has been lengthened to a great extent. This will protect Belgium from interest rate swings over the coming years.
While this is evidence of excellent debt management, the long-term sustainability of the public finances may need to be improved. Due to its consistently high levels of public debt, Belgium was already in the preventive arm of the Stability and Growth Pact, and subject to the debt rule of the European Semester. The complex and inefficient federal constitution also increases the number of institutions that can contract debt, and prevents a coordinated debt reduction policy.
By 2050, the budgetary cost of population aging is estimated to reach 30% of GDP (Federal Planning Bureau, July 2021), with variability of about +3 percentage points possible in case of slower migration or productivity growth, and of about -1.4 points in case of unexpectedly high mortality rates among the elderly or higher migration rates. Altogether, while the financial position of the federal government remains solid, that of the federated entities has been weakened by the COVID-19 crisis and by the floods that hit Wallonia in the summer of 2021. In December 2021, Moody’s “downgraded by one notch the ratings of Communauté Française de Belgique, community of Flanders, the Walloon region, as well as two government-related issuers (GRIs).” The rating of the Walloon region dropped from A2 to A3 (upper medium grade, one notch above Baa grade), and that of Flanders from Aa2 to Aa3 (still in the high-quality range).
The Council of Europe’s “semester” was largely suspended due to the COVID-19 crisis. Back in 2019, it highlighted the tax reforms as potentially growth enhancing, and the Council stated: “The composition and efficiency of public spending can be improved in order to create space for more public investment. In spite of a recent decrease, total expenditure as a share of GDP in Belgium remains among the highest in the euro area. … Given the high level of public expenditure, the outcomes of certain policies and the quality of certain public services raises questions of cost efficiency. Spending reviews and policy evaluations can help Belgium prioritize and improve the efficiency of public expenditure. Furthermore, spending reviews could be used to assess the efficiency of the indirect public support for business research and development.”
Fast forward to 2021: Today, the European NextGenerationEU Recovery and Resilience Facility translates into an almost €6 billion plan in Belgium. Fully 88% of the plan targets investments in physical capital (FPB, April 2021). The Federal Planning Bureau expects a 0.2-percentage-point GDP boost in the short run due to demand-side effects (or a peak impact of 4,000 jobs with a public investment of €1.5 million per job), and a long-term 0.1-percentage-point GDP boost (or 1,000 jobs) in the long run, due to enhanced productivity and capital, before the effects of enhanced export prospects are taken into account.
Two main critiques emerged in the press: first, many of the proposed measures just recycle pre-existing government wishes, and some are not targeted at enhancing the economy’s dynamism (such as the renovation of the palace of justice in Brussels). Second, the Walloon plan lacks strategic thinking and prioritization: It is a laundry list of 319 measures, without key performance indicators or any proposed assessment of their efficacy. This is exactly the issue that was raised by the Council of Europe two years earlier.
Citations:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018H0910(01)&from=EN
FPB: https://www.plan.be/uploaded/documents/202104301033290.FPB_RRP_Economic_impact_12401_E.pdf
https://www.plan.be/press/communique-2137-fr-les_mesures_recentes_en_matiere_de_pensions_comme_la_hausse_des_minima_augmentent_le_cout_budgetaire_du_vieillissement_a
http://www.indicators.be/en/i/SDI_G04_LLL/Lifelong_learning
https://www.plan.be/press/communique-1788-fr-perspectives+a+cinq+ans+pour+l+economie+belge+ralentissememnt+de+la+croissance+economique+taux+de+chomage+au+plus+bas+et+pas+de+retour+a+l+equilibre+budgetaire+sans
https://www.lesoir.be/409719/article/2021-12-01/relance-wallonne-le-plan-du-gouvernement-critique-de-toute-part
https://www.lesoir.be/art/d-20211201-GR817P
Belgium’s history of high levels of public debt since the 1970s also gives it an advantage in terms of debt management. According to government officials, the debt maturity has been lengthened to a great extent. This will protect Belgium from interest rate swings over the coming years.
While this is evidence of excellent debt management, the long-term sustainability of the public finances may need to be improved. Due to its consistently high levels of public debt, Belgium was already in the preventive arm of the Stability and Growth Pact, and subject to the debt rule of the European Semester. The complex and inefficient federal constitution also increases the number of institutions that can contract debt, and prevents a coordinated debt reduction policy.
By 2050, the budgetary cost of population aging is estimated to reach 30% of GDP (Federal Planning Bureau, July 2021), with variability of about +3 percentage points possible in case of slower migration or productivity growth, and of about -1.4 points in case of unexpectedly high mortality rates among the elderly or higher migration rates. Altogether, while the financial position of the federal government remains solid, that of the federated entities has been weakened by the COVID-19 crisis and by the floods that hit Wallonia in the summer of 2021. In December 2021, Moody’s “downgraded by one notch the ratings of Communauté Française de Belgique, community of Flanders, the Walloon region, as well as two government-related issuers (GRIs).” The rating of the Walloon region dropped from A2 to A3 (upper medium grade, one notch above Baa grade), and that of Flanders from Aa2 to Aa3 (still in the high-quality range).
The Council of Europe’s “semester” was largely suspended due to the COVID-19 crisis. Back in 2019, it highlighted the tax reforms as potentially growth enhancing, and the Council stated: “The composition and efficiency of public spending can be improved in order to create space for more public investment. In spite of a recent decrease, total expenditure as a share of GDP in Belgium remains among the highest in the euro area. … Given the high level of public expenditure, the outcomes of certain policies and the quality of certain public services raises questions of cost efficiency. Spending reviews and policy evaluations can help Belgium prioritize and improve the efficiency of public expenditure. Furthermore, spending reviews could be used to assess the efficiency of the indirect public support for business research and development.”
Fast forward to 2021: Today, the European NextGenerationEU Recovery and Resilience Facility translates into an almost €6 billion plan in Belgium. Fully 88% of the plan targets investments in physical capital (FPB, April 2021). The Federal Planning Bureau expects a 0.2-percentage-point GDP boost in the short run due to demand-side effects (or a peak impact of 4,000 jobs with a public investment of €1.5 million per job), and a long-term 0.1-percentage-point GDP boost (or 1,000 jobs) in the long run, due to enhanced productivity and capital, before the effects of enhanced export prospects are taken into account.
Two main critiques emerged in the press: first, many of the proposed measures just recycle pre-existing government wishes, and some are not targeted at enhancing the economy’s dynamism (such as the renovation of the palace of justice in Brussels). Second, the Walloon plan lacks strategic thinking and prioritization: It is a laundry list of 319 measures, without key performance indicators or any proposed assessment of their efficacy. This is exactly the issue that was raised by the Council of Europe two years earlier.
Citations:
https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32018H0910(01)&from=EN
FPB: https://www.plan.be/uploaded/documents/202104301033290.FPB_RRP_Economic_impact_12401_E.pdf
https://www.plan.be/press/communique-2137-fr-les_mesures_recentes_en_matiere_de_pensions_comme_la_hausse_des_minima_augmentent_le_cout_budgetaire_du_vieillissement_a
http://www.indicators.be/en/i/SDI_G04_LLL/Lifelong_learning
https://www.plan.be/press/communique-1788-fr-perspectives+a+cinq+ans+pour+l+economie+belge+ralentissememnt+de+la+croissance+economique+taux+de+chomage+au+plus+bas+et+pas+de+retour+a+l+equilibre+budgetaire+sans
https://www.lesoir.be/409719/article/2021-12-01/relance-wallonne-le-plan-du-gouvernement-critique-de-toute-part
https://www.lesoir.be/art/d-20211201-GR817P
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
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Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
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7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&D policy is shared between the federal government, which can offer tax incentives, and the subnational (regional and community) governments, which are responsible for managing the bulk of European subsidies and supporting university R&D and related projects. This increases subnational accountability but hurts coordination and limits economies of scale. According to KPMG, a consultancy, Belgium has “increased its attractiveness as a prime location for companies involved in research and development activities and in the exploitation of patents.” The country’s location, transportation facilities and infrastructure offer considerable advantages to potential investors, KPMG says.
General investment levels have declined across the OECD since the onset of the financial crisis in 2007. Belgium withstood that negative trend comparatively well, with investment as a share of GDP hovering around 23% (comparable to France and Austria, and three points above Germany or the Netherlands, according to IMF data). Specific R&D investment stands at 2.5% of GDP, which is lower than in Germany, Denmark and Austria, but ahead of France, the Netherlands or the EU average (Eurostat data).
In spite of this, Belgium still suffers from a chronic shortage of new and innovative enterprises. Dumont and Kegels (2016) write that “Belgium performed rather well in terms of net job creation over the period 2000 – 2014, in comparison with […] neighboring countries. […] However, our results underline the importance of the decrease in industry-level productivity growth as the main explanation of the aggregate productivity-growth slowdown. […] Belgium stands out unfavorably from other OECD countries, in its low entry of new firms. […] The specific tax benefit for young innovative companies, introduced by the Belgian federal government in 2006, and the Startup Plan that was initiated in 2015, seem to be good practice in targeting tax incentives on young firms [… It] seems that access to finance is the major barrier for entrants and young firms in Belgium. […] Despite improved fiscal incentives, Belgium remains technologically considerably behind other European countries of a similar size such as Denmark and the Netherlands. While some indicators such as patent registration and monetary returns may be improving, the technological content of the country’s exports is progressively eroding. Universities are chronically underfunded […]. This should not overshadow important exceptions; a highly skilled work force is present, and fiscal incentives have attracted some research-intensive firms in the chemical, pharmaceutical, and more recently computer-science sectors (such as Google, in the latter category).”
As a silver lining, the COVID-19 crisis displayed the dynamism of the Belgium-based pharmaceuticals industry, with vaccine production and new upcoming technologies well represented in the country.
Citations:
Dumont and Kegels (2016): http://www.plan.be/admin/uploaded/201606240814370.WP_1606.pdf
Eurostat on R&D expenditures:
http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&pcode=tsc00001&language=en&toolbox=data
IMF for total investment:
http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weorept.aspx?pr.x=20&pr.y=14&sy=1998&ey=2022&scsm=1&ssd=1&sort=country&ds=.&br=1&c=122%2C124%2C138%2C132%2C134&s=NID_NGDP&grp=0&a
General investment levels have declined across the OECD since the onset of the financial crisis in 2007. Belgium withstood that negative trend comparatively well, with investment as a share of GDP hovering around 23% (comparable to France and Austria, and three points above Germany or the Netherlands, according to IMF data). Specific R&D investment stands at 2.5% of GDP, which is lower than in Germany, Denmark and Austria, but ahead of France, the Netherlands or the EU average (Eurostat data).
In spite of this, Belgium still suffers from a chronic shortage of new and innovative enterprises. Dumont and Kegels (2016) write that “Belgium performed rather well in terms of net job creation over the period 2000 – 2014, in comparison with […] neighboring countries. […] However, our results underline the importance of the decrease in industry-level productivity growth as the main explanation of the aggregate productivity-growth slowdown. […] Belgium stands out unfavorably from other OECD countries, in its low entry of new firms. […] The specific tax benefit for young innovative companies, introduced by the Belgian federal government in 2006, and the Startup Plan that was initiated in 2015, seem to be good practice in targeting tax incentives on young firms [… It] seems that access to finance is the major barrier for entrants and young firms in Belgium. […] Despite improved fiscal incentives, Belgium remains technologically considerably behind other European countries of a similar size such as Denmark and the Netherlands. While some indicators such as patent registration and monetary returns may be improving, the technological content of the country’s exports is progressively eroding. Universities are chronically underfunded […]. This should not overshadow important exceptions; a highly skilled work force is present, and fiscal incentives have attracted some research-intensive firms in the chemical, pharmaceutical, and more recently computer-science sectors (such as Google, in the latter category).”
As a silver lining, the COVID-19 crisis displayed the dynamism of the Belgium-based pharmaceuticals industry, with vaccine production and new upcoming technologies well represented in the country.
Citations:
Dumont and Kegels (2016): http://www.plan.be/admin/uploaded/201606240814370.WP_1606.pdf
Eurostat on R&D expenditures:
http://ec.europa.eu/eurostat/tgm/graph.do?tab=graph&plugin=1&pcode=tsc00001&language=en&toolbox=data
IMF for total investment:
http://www.imf.org/external/pubs/ft/weo/2017/02/weodata/weorept.aspx?pr.x=20&pr.y=14&sy=1998&ey=2022&scsm=1&ssd=1&sort=country&ds=.&br=1&c=122%2C124%2C138%2C132%2C134&s=NID_NGDP&grp=0&a
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
Belgian banks suffered extensively during the global financial and economic crisis, and the Belgian government was more proactive than many of its European peers in restructuring banks. Yet Belgium is clearly too small to be able to restore financial stability alone. Indeed, some of the largest Belgian banks are structurally linked to other European banks, or have in fact become subsidiaries of larger banks with headquarters based in neighboring countries (e.g., ING, BNP Paribas). This has led the government to promote international efforts to restore financial stability and combat financial fraud and tax evasion (from which Belgium is a clear loser, in spite of repeated initiatives to recover revenues lost through tax evasion using banks based in countries such as Luxembourg). Belgium also took an active part in the creation of the so-called banking union in the euro area, and has sought to improve banking supervision within its borders. Various scandals such as the Panama and Paradise papers press leaks have also given new impetus to the government’s efforts to improve banking transparency. Indeed, some Belgian investigative journalists were instrumental in these projects, working alongside peers from other countries. In October 2018, Belgium’s judiciary was granted comprehensive access to citizens’ financial records. The purpose is to improve the fight against financial criminal activities, as investigators previously could only access citizens’ financial information through the banks and credit institutions.
Citations:
http://plus.lesoir.be/118686/article/2017-10-11/panama-papers-les-socialistes-maintiennent-la-pression
http://plus.lesoir.be/123189/article/2017-11-08/paradise-papers-meme-letat-belge-senvole-aux-iles-vierges#123186
https://www.lecho.be/economie-politique/belgique/federal/la-justice-aura-desormais-acces-a-toutes-les-pistes-financieres/10064659.html
Citations:
http://plus.lesoir.be/118686/article/2017-10-11/panama-papers-les-socialistes-maintiennent-la-pression
http://plus.lesoir.be/123189/article/2017-11-08/paradise-papers-meme-letat-belge-senvole-aux-iles-vierges#123186
https://www.lecho.be/economie-politique/belgique/federal/la-justice-aura-desormais-acces-a-toutes-les-pistes-financieres/10064659.html