Belgian Stability Programme

2008-2011

The overall balance⁽¹⁾

A small deficit in 2007

According to the estimates published by the National Accounts Institute, the 2007 fiscal year closed with a budget deficit of 0.2% of GDP. So, actual results overshot the recommended target of a surplus of 0.3% of GDP. This is partly due to the fact that a major series of non-recurring measures (worth around 0.4% of GDP) was not implemented or not recorded in the accounts in ESA terms. This deficit is exclusively attributable to the federal government, which posted a deficit of 1% of GDP, while the other government sectors recorded a surplus (0.6% of GDP for the social security authorities, 0.3% of GDP for the communities and regions) or at least a balanced budget (the local authorities). 

Towards balanced books in 2008

The budget for 2008 is influenced by a series of external factors. For instance, the economic climate is less favourable than in previous years. Furthermore, it was not possible for the final budget to be drawn up until the second half of March. As a result, the measures foreseen in the budget will not have any impact for about six months. The government nevertheless opted to put forward a budget that returns to structural balance, after the deficit in 2007. That was only possible with a strict control over expenditure at the level of the federal government and thanks to help from the various sub-sectors too.

Limited use of non-recurring measures

This objective not only needs to be put into its correct economic context (with a negative output gap), but also into the difficult political context. Since the 2008 budget only covers a short period, it is impossible to attain a budget balance without one-off measures. These measures have nevertheless had a limited impact and they have been assessed according to two criteria:

• there can be no question of any deterioration of wealth;
   

• there can be no recurring additional cost for the following fiscal years.

Strict control over expenditure and the margin for new initiatives

Growth in real primary expenditure of the federal government was limited to 1.9% (in budget terms). This increase is mainly due to the rapid expansion of ageing-related expenditure (2.5% in real terms), without which this growth in primary expenditure would only be 1.4% in real terms. After adjusting them for development-cooperation spending too, primary expenditure rose by no more than 0.78% in real terms, and therefore less than the rate of real economic growth (+1.9%).

The federal government has set aside a budget of 320 million euro for new socio-economic initiatives. On the one hand, the government has taken a series of measures designed to prop up purchasing power (increase in minimum pensions, expansion of the Heating Oil Fund, raising the income tax threshold in favour of the lowest incomes, etc.). On the other hand, it has earmarked resources to support the activation policy and to encourage scientific research.

Building up budget surpluses over the period 2009-2011

Considering the challenge posed by population ageing, the government plans to attain structural surpluses from 2009 onwards, with the balanced budget in 2008 as a starting point. These budget surpluses should reach at least 1% of GDP by the end of the current legislature. After an initial deviation from the norm, the target to meet by the end of the legislature will be very close to the objective set out in the amended law on the Ageing Fund.

Article 2 of the new Growth and Stability Pact obliges the Member States of the European Monetary Union to formulate individual medium-term budget targets in terms of nominal growth and the debt ratio. This medium-term objective (MTO) serves a triple purpose:

• to provide a safety margin in relation to the 3% deficit criterion;
   

• to ensure sufficiently rapid progress towards sustainability;
   

• to provide scope for other items, such as public investment. 

The Belgian government is sticking to an MTO of 0.5% of GDP. This target is expected to be met in 2009. 

Establishing a multiannual budget plan

Table 4 sets out the objectives and estimates for public finance for the period 2008-2011. The general government's overall budget balances imply a clear commitment. The detailed figures for revenue and expenditure, as well as the breakdown of the standards between the sub-sectors, only have the status of estimates and serve merely as a guide. The increase in fiscal and parafiscal revenues is in no circumstances the result of new measures, but due to their own spontaneous development under an unchanged policy and to the widening of the basis of assessment resulting from the activation policy that has been implemented.

The government will carry out a budget audit during the month of July. When the 2009 budget is drawn up, a prefiguration will also be established for the following years. The contribution from each level of power, including the local authorities, will be negotiated with the communities and regions.

TABLE 4 General government budget forecasts
% of GDP	2006 millions	2007 millions	2006	2007	2008	2009	2010	2011
	Net lending by sub-sector
1. General government	1.096	-574	0,3	-0,2	0,0	0,3	0,7	1,0
2. Federal government	220	-3.396	0,1	-1,0	-0,6	-0,3	0,0	0,3
3. Communities and regions	621	940	0,2	0,3	0,1	0,0	0,0	0,0
4. Local authorities	-717	15	-0,2	0,0	0,1	0,2	0,2	0,1
5. Social security funds	971	1.866	0,3	0,6	0,4	0,4	0,5	0,6
	General government
6. Total revenue	154.480	160.791	48,8	48,7	49,0	48,8	48,9	49,2
7. Total expenditure	153.384	161.365	48,5	48,9	49,0	48,5	48,3	48,2
8. Net lending/borrowing	1.096	-574	0,3	-0,2	0,0	0,3	0,7	1,0
9. Interest expenditure	12.594	12.676	4,0	3,8	3,7	3,5	3,4	3,3
10. Primary balance	13.690	12.102	4,3	3,7	3,7	3,8	4,1	4,3
11. One-off and other temporary measures	2.260	-490	0,7	-0,1	0,0	0,0	0,0	0,0
	Selected components of revenue
12. Total taxes	96.232	99.343	30,4	30,1	30,4	30,1	30,2	30,3
(12=12a+12b+12c)
12a. Taxes on production and imports	41.708	42.777	13,2	12,9	13,1	13,0	-	-
12b. Current taxes on income, wealth, etc.	52.363	54.341	16,5	16,4	16,6	16,5	-	-
12c. Capital taxes	2.161	2.225	0,7	0,7	0,7	0,7	-	-
13. Social contributions	49.743	52.551	15,7	15,9	15,9	16,0	-	-
14. Property incomes	1.817	1.996	0,6	0,6	0,6	0,6	-	-
15. Other	6.688	6.902	2,1	2,1	2,1	2,1	-	-
16=6. Total revenue	154.480	160.791	48,8	48,7	49,0	48,8	48,9	49,2
p.m.: tax burden	141.319	146.992	46,8	46,6	47,0	46,8	47,0	47,2
	Selected components of expenditure
17. Compensation of employees + intermediate consumption	48.927	51.130	15,5	15,5	15,4	15,2	15,0	14,9
18. Social payments	70.938	74.594	22,4	22,6	23,0	23,0	23,0	23,1
19.  Interest expenditure	12.594	12.676	4,0	3,8	3,7	3,5	3,4	3,3
20. Subsidies	5.540	6.515	1,7	2,0	2,0	1,9	1,9	1,9
21. Gross fixed capital formation	5.324	5.579	1,7	1,7	1,7	1,6	1,6	1,8
22. Other	10.259	10.992	3,2	3,3	3,4	3,3	3,4	3,3
23. (=7) Total expenditure	153.582	161.486	48,5	48,9	49,0	48,5	48,3	48,2

The contribution of the various sub-sectors

Belgium has the structure of a federal state. The decision-making level is determined by the subject matter. In principle, the communities and regions retain autonomy over fiscal policy. Coordination of fiscal policy between the federal government and the communities and regions is ensured, on the one hand, by an advisory body, the High Council of Finance Public Sector Borrowing Requirement Section, and on the other, by agreements concluded between the federal government and the communities and regions. Belgium's experience shows that a system of clear agreements as to the result to be achieved at each level of power, involving the responsibility of the different sub-sectors, is a guarantee of a successful fiscal policy.

Consultations were held with the communities and regions when the budget for 2008 was being drawn up. Under the terms of the agreement concluded on 19 February 2008, the communities and regions will post a surplus of 530 million euro⁽²⁾ . The communities and regions were also consulted on their contribution for the next few years. Pending the outcome of this dialogue, a balanced budge has been assumed for the following years.

On the back of a deficit in 2006, the local authorities ended the financial year 2007 in balance, or even with a slight surplus. This improvement in the local authorities' budget situation should continue in the coming years. This is why account is being taken of a gradually increasing surplus, rising from 0.1% of GDP in 2008 to 0.2% in 2009 and in 2010. With local elections on the horizon in 2012, this surplus is expected to fall back to 0.1% of GDP again in 2011.

In 2008, social security should generate a surplus of 0.4% of GDP. It was assumed that, in the next few years, this surplus would widen to 0.6% of GDP. The overall balance for social security is the result of a purely mechanical projection of revenue and expenditure, with no change in policy, which in no way prejudges the way in which the social measures set out in the coalition agreement will be implemented.

The federal government's overall balances result from the objective at the general government level as well as the balances foreseen for the sub-sectors. The 0.6%-of-GDP deficit in 2008 will have to be transformed into a surplus of 0.3% of GDP in 2011.

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(1) Notably with a view to ending the dispute between the Belgian State and Eurostat, it was decided when drawing up the budget for 2008 to incorporate the Rail Infrastructure Fund into the government sector. The figures for the overall balance, for income and expenditure flows and for the public debt take account, not just for 2007 but also for the following years, of a consolidation of the said Rail Infrastructure Fund. 

(2) The budget balance of the communities and regions does not yet take account of the likely effect on this balance and that of the local authorities of the "local pact" concluded between the Flemish government and the local authorities for the Flemish Region to take over some of the debt of up to a maximum of 100 euro per inhabitant. This debt takeover plan is subject to certain commitments on the part of the local authorities, mainly as regards local taxation. The Flemish government puts the estimated cost at around 600 million euro. That would mean that the communities and regions' budget balance would fall by the said amount, but that an equivalent improvement in the local authorities' overall balance would be recorded.