:: Belgian Stability Programme - The long-term sustainability of public finances - A single strategy, three main policy lines

Belgian Stability Programme

2008-2011

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THREE FUNDAMENTAL ASPECTS OF POLICY

For Belgian politicians, population ageing is one of the main challenges for the decades ahead. In order to meet this challenge, a coherent strategy has been developed. This revolves around three basic policy lines:

Fiscal policy: continue to reduce the public debt and build up the reserves necessary for the Ageing Fund;
Economic policy: the employment rate and stimulate economic activity;
Social policy: continue developing a strong social security system based on solidarity.

A single strategy, three main policy lines

Fiscal policy

Fiscal policy constitutes a basic element of a global strategy aiming to deal with the impact of population ageing. Against a backdrop of an increase in expenditure linked to the future socio-demographic shock, the budgetary margins and commitments must be analysed from a long-term perspective. Particular attention also needs to be paid to the long-term sustainability⁽¹⁾ of public finances. So as not to seriously jeopardise future fiscal policy, it is essential for these changes to be anticipated now in order to share the burden fairly between the different generations. With the establishment of the Ageing Fund and the related annual procedure, fiscal policy now slots into a long-term perspective.

One of the main objectives of fiscal policy is to bring down the debt ratio sufficiently so as to reduce the weight of interest charges on the public debt in future. The margin freed up in this way can then be used notably to meet the growing expenditure on social protection without having to cut into other areas of spending or raise more revenue.

Bearing this in mind, an effort has been made to return to a structural balance, at least as far as the 2008 budget is concerned. From 2009 onwards, structural surpluses will be gradually built up to reach at least 1% of GDP by the end of the legislature. In this way, by the year 2011, the budget will more or less be back to the surplus foreseen in the amended law on the Ageing Fund and recommended by the Public Sector Borrowing Requirement Section of the High Council of Finance. Efforts to build up surpluses will have to be continued in the coming years; according to the recommendations of the High Council of Finance, a surplus of 2% of GDP will need to be achieved by 2019. The chart below illustrates the impact of the above-mentioned scenario on a number of key parameters of public finances.

Chart 1

Chart 3

Illustration of the main parameters of public finances (in % of GDP)

Fiscal policy as an element of a global strategy

As previously mentioned, the fiscal policy sketched out above is only one element of a more global strategy. It would be wrong to base the strategy designed to tackle the consequences of an ageing society exclusively on a budgetary pillar. A whole range of other policy areas must also make a major contribution. By stimulating employment and, more generally, economic growth, the financial basis for meeting the cost of population ageing becomes stronger. Since more and more people will be dependent on social security, a strong social security system based on solidarity will become even more important. The coalition government agreement provides a host of measures in the above-mentioned policy areas, which have already been discussed in chapter 5.

(1) The Public Sector Borrowing Requirement Section has defined as follows the notion of sustainability: "Sustainability must be considered as a situation in which, at a more or less constant level of revenue, the public authorities manage to absorb the impact of demographics on part of their expenditure, without the share of other primary expenditure in GDP being cut back, and without jeopardising the attainment of various public finance standards."

Last update : 09-06-2008