# EUR-Lex - 52014DC0402 - EN

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# 52014DC0402

**Recommendation for a COUNCIL RECOMMENDATION on Belgium’s 2014 national reform programme and delivering a Council opinion on Belgium’s 2014 stability programme /* COM/2014/0402 final */**

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Recommendation for a

COUNCIL RECOMMENDATION

on Belgium’s 2014 national reform
programme 
and delivering a Council opinion on Belgium’s 2014 stability programme

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,

Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 5(2) thereof,

Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2],
and in particular Article 6(1) thereof,

Having regard to the recommendation of the
European Commission[3],

Having regard to the resolutions of the
European Parliament[4],

Having regard to the conclusions of the
European Council,

Having regard to the opinion of the
Employment Committee,

Having regard to the opinion of the
Economic and Financial Committee,

Having regard to the opinion of the Social
Protection Committee,

Having regard to the opinion of the
Economic Policy Committee,

Whereas:

(1) 
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.

(2) 
On 13 July 2010, on the basis of the
Commission's proposals, the Council adopted a recommendation on the broad
guidelines for the economic policies of the Member States and the Union (2010
to 2014) and, on 21 October 2010, adopted a decision on guidelines for the
employment policies of the Member States, which together form the ‘integrated
guidelines’. Member States were invited to take the integrated guidelines into
account in their national economic and employment policies.

(3) 
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.

(4) 
On 9 July 2013, the Council
adopted a recommendation on Belgium’s national reform programme for 2013 and
delivered its opinion on Belgium’s updated stability programme for 2012-2016. On
15 November 2013, in line with Regulation (EU) No 473/2013[5], the
Commission presented its opinion on Belgium's draft budgetary
plan for 2014[6].

(5) 
On 13 November 2013, the Commission adopted the
Annual Growth Survey[7],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day, on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[8],
in which it identified Belgium as one of the Member States for which an
in-depth review would be carried out.

(6) 
On 20 December 2013, the European Council
endorsed the priorities for ensuring financial stability, fiscal consolidation
and action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.

(7) 
On 5 March 2014, the Commission published the
results of its in-depth review for Belgium[9],
under Article 5 of Regulation (EU) No 1176/2011 on the prevention and
correction of macroeconomic imbalances. The Commission’s analysis leads it to
conclude that Belgium continues to experience macroeconomic imbalances, which
require monitoring and policy action. In particular, developments
with regard to the external competitiveness of goods continue to deserve
attention as a persistent deterioration would threaten macroeconomic stability.

(8) 
On 30 April 2014, Belgium submitted its 2014 national
reform programme and its 2014 stability programme. In order to take account of
their interlinkages, the two programmes have been assessed at the same time.

(9) 
The objective of the budgetary strategy outlined
in the 2014 Stability Programme is to reach a balanced budget in structural
terms by 2016 and to achieve the medium-term objective the year thereafter. The
programme confirms the previous medium-term objective of 0.75% of GDP, which
reflects the objectives of the Stability and Growth Pact, but its achievement
is postponed to 2017, one year later than the target year set in last year's
programme. The planned annual progress towards the medium-term objective is in
line with the adjustment required by the Stability and Growth Pact. According
to the programme, the expenditure benchmark is broadly met over the programme
period. The debt is above the Treaty reference value of 60% of GDP, at 101.5%
of GDP in 2013, and is expected to gradually decline to around 93% of GDP in
2017 according to the programme. Overall, the objectives of the programme are
in line with the requirements of the Stability and Growth Pact. The
macroeconomic scenario underpinning the budgetary projections in the programme,
which has been prepared by an independent institution (the Federal Planning
Bureau), is plausible. Growth projections are close to the projections of the
Commission 2014 spring forecast. The fiscal trajectory is not yet supported by
measures. The Commission spring forecast shows no structural improvement in
2014 and, under the usual no-policy-change assumption, a structural
deterioration in 2015. This puts the achievement of the targets at risk and
could lead to a significant deviation from the adjustment towards the
medium-term objective over 2014-15. Moreover, according to the Commission
spring forecast, Belgium will not be compliant with the debt rule in both 2014
and 2015. Based on its assessment of the programme and the Commission spring
forecast, pursuant to Council Regulation (EC) No 1466/97, the Council is of the
opinion that Belgium has brought its general government deficit sustainably
below 3% of GDP in 2013, but is at risk of significantly deviating from the requirements
of the preventive arm as from 2014.

(10) 
Belgium has made substantial progress in
introducing more structural coordination arrangements. A Cooperation Agreement
on fiscal coordination concluded end of 2013 introduces a structural budget
balance rule (defined in line with the medium-term objective) at general
government level as required by the Fiscal Compact. Furthermore, it formalises
established coordination practice by making (i) the role of the
inter-governmental 'Consultative Committee' in the process official and (ii)
the advisory role of the High Council of Finance more explicit. In addition,
the Agreement foresees a strengthening of the monitoring role of the High
Council through the introduction of an explicit correction mechanism in case of
significant deviation from the agreed targets. Additional arrangements might be
needed to make targets beyond 2014 binding.

(11) 
While Belgium has recently managed to curb the
rise in its public debt ratio, the public debt burden at 101.5% of GDP is high
and there are substantial liabilities and future obligations from pension
commitments. If these are to be covered whilst maintaining high standards of
living, future budgetary cost developments must be contained; activity and
employment rates should be increased; and international competitiveness must be
improved. In each of these areas, Belgium continues to face important
challenges. Although Belgium has taken steps in the right direction that will
produce effects in coming years, more ambitious action will be required, all
the more so as reforms are also unfolding in trading partners.

(12) 
The overall tax level in Belgium is among the
highest in the EU and the tax burden is heavily skewed towards labour,
resulting in one of the largest tax wedges in the EU.  A number of specific
features of the tax system are environmentally harmful, such as the tax
treatment of company cars. Some targeted measures have been taken to decrease
labour costs for specific groups and to reduce the gap between gross and net
wages at the bottom of the pay scale. However, no significant shift of the tax
burden towards bases that are less detrimental to growth has taken place. First
reflections on a comprehensive tax reform to facilitate the achievement of
sustainability of public finances, support competitiveness and employment
growth, and preserve the environment have been launched. Such comprehensive tax
reform would need to involve shifting taxes away from labour, simplifying the
tax system, increasing VAT efficiency, broadening tax bases, reducing tax
expenditures, closing legislative loop-holes and phasing out environmentally
harmful subsidies.

(13) 
Belgium faces a very significant projected
impact from ageing, with ageing costs projected to rise by more than 8% of GDP between
2010 and 2060, in particular from pensions and long-term care. The recently
initiated reform of social security for older people is set to have a positive
impact on their employment. Nevertheless, given the magnitude of the challenge,
additional efforts are required to achieve fiscal sustainability. These must take
account of the need to maintain the adequacy of old age social security
schemes. Measures are needed to link the statutory retirement age to
developments in life expectancy, to reduce the gap between the statutory and
effective retirement age, and to improve the cost-effectiveness of public
spending on long-term care.

(14) 
Belgium faces a chronic underutilisation of
labour. Activity and employment rates are below the EU average and stagnant,
while long-term unemployment as a percentage of total unemployment remains
high. In most cases, the large tax wedge on labour, through interaction with
the benefit system, creates significant unemployment and inactivity traps for
most categories of workers. While action has been taken to reduce unemployment
traps for people with very low salaries, the trap has widened for most other
categories and inactivity traps remain pervasive. With labour costs remaining high,
recruitment policies tend to minimise risk and penalise outsiders such as the
young, the low-skilled and people with a migrant background, who, together with
elderly workers, show labour market participation rates well below the EU
average. Strong insider protection whereby changing job implies losing
entitlements (e.g. severance pay, early retirement, seniority benefits),
discourages professional mobility between jobs and sectors. Such inertia makes
active labour market policies in Belgium relatively inefficient and leads to a
situation where high unemployment in some areas and sectors exists alongside tight
labour markets and growth-hampering skills shortages in others. Youth
unemployment has increased significantly over the past year, with large
differences across the regions and groups. Addressing the
structural problem of skills mismatches will have to go hand in hand with
fighting the pressing problem of early school leaving and of youngsters leaving
education without qualifications. The sixth state
reform offers the opportunity to improve the efficiency and targeting of employment
policies, provided that cooperation between the federal and regional level is
optimised.

(15) 
Belgium continues to experience worsening competitiveness,
including as regards non cost aspects. Notably, the ability of manufacturing to
compete internationally is eroding, which is reflected in diminishing margins for
producers and in job destruction. Belgium has traditionally relied on wage
indexation to maintain purchasing power. However, overshoots in total wage
growth have been corrected late and insufficiently. Moreover, the central wage
norm does not always allow for sectorial productivity developments and local labour
market conditions to be reflected adequately. Consequently, wages have grown
more quickly than productivity, leading to job and competitiveness losses. In
consultation with the social partners and in accordance with national practice,
Belgium would need to reform its system of wage formation so as to allow for
greater sectorial wage dispersion and for wages to be better aligned with
productivity developments. Prices in the retail sector remain higher than in
neighbouring countries, while restrictions in professional services impede the
development of innovative business models and restrain investment. Distribution tariffs for electricity remain among the highest in
Europe and their planned regionalisation adds to the uncertainty with regard to
the future evolution of distribution costs for end-users as the currently
frozen tariff does not cover distributors’ rising costs. If the country is to maintain high wages and at the same time create
new jobs, it must produce and sell more sophisticated and higher value added
goods in world markets than it is doing today. Belgium lacks fast-growing firms
in innovative sectors. Innovation support is considered complex and highly
fragmented. Where high added value activities do take off, their growth is
often hampered by the lack of sufficient skilled human resources.

(16) 
Belgium is expected to fail to meet its 15%
reduction target for greenhouse gas emissions in the sectors not covered by the
EU emission trading system by 2020. While some initiatives are being undertaken,
they seem to lack coherent direction and the combined impact of measures on
reducing emissions, in particular from the transport sector and buildings,
remains unclear. The reduction of VAT on electricity could further undermine
efforts in that respect. Negotiations on a cooperation and burden-sharing
agreement between federal state and regions have not resulted in a clear distribution
of efforts. Road congestion is placing a heavy burden on the Belgian economy,
as compared with most other countries. The severity of the problem requires a
comprehensive policy response taking into account the potential of time differentiated
congestion charging, reviewing the favourable tax treatment of the private use
of company cars and fuel cards and increasing the efficiency of public
transport.

(17) 
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Belgium’s economic
policy. It has assessed the stability programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Belgium but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are reflected in
recommendations (1) to (6) below.

(18) 
In the light of this assessment, the Council has
examined Belgium’s stability programme, and its opinion[10] is reflected in
particular in recommendation (1) below.

(19) 
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the stability programme. Its recommendations under Article 6 of Regulation (EU)
No 1176/2011 are reflected in recommendations (2), (4), and (5) below.

(20) 
In the context of the European Semester the
Commission has also carried out an analysis of the economic policy of the euro
area as a whole. On the basis of this analysis, the Council has issued specific
recommendations for the Member States whose currency is the euro. Belgium
should also ensure the full and timely implementation of these recommendations,

HEREBY RECOMMENDS that Belgium should
take action within the period 2014-2015 to:

1. 
Following the correction of the excessive
deficit, reinforce the budgetary measures for 2014 in the light of the emerging
gap of 0.5% of GDP based on the
Commission 2014 spring forecast, pointing to a risk of
significant deviation relative to the Stability and Growth Pact requirements.
In 2015, significantly strengthen the budgetary strategy to ensure the required
adjustment of 0.6% of GDP towards the medium-term objective, which would also
ensure compliance with the debt rule. Thereafter, until the medium-term
objective is achieved, pursue the planned annual structural adjustment towards
the medium-term objective, in line with the requirement of an annual structural
adjustment of at least 0.5% of GDP, and more in good economic conditions or if
needed to ensure that the debt rule is met in order to put the high general
government debt ratio on a sustained downward path. Ensure
a balanced contribution by all levels of government to the fulfilment of fiscal
rules including the structural budget balance rule, through a binding
instrument with an explicit breakdown of targets within a medium-term planning
perspective.

2. 
Improve the balance and fairness of the overall tax
system and prepare a comprehensive tax reform that will allow shifting taxes away
from labour towards more growth friendly bases, simplifying the tax system,
closing loopholes, increasing VAT efficiency, broadening tax bases, reducing
tax expenditures and phasing out environmentally harmful subsidies.

3. 
Contain future public expenditure growth relating
to ageing, in particular from pensions and long-term care, by stepping up
efforts to reduce the gap between the effective and statutory retirement age, bringing
forward the reduction of early-exit possibilities, promoting active ageing, aligning
the statutory retirement age and career length requirements to changes in life
expectancy, and improving the cost-effectiveness of public spending on long-term
care.

4. 
Increase labour market participation, notably by
reducing financial disincentives to work, increasing labour market access for
disadvantaged groups such as the young and people with a migrant background,
improving professional mobility and addressing skills shortages and mismatches
as well as early school leaving. Across the country, strengthen partnerships of
public authorities, public employment services and education institutions to
provide early and tailor-made support to the young.

5. 
Restore competitiveness by continuing the reform
of the wage-setting system, including wage indexation, in consultation with the
social partners and in accordance with national practice, to ensure that wage
evolutions reflect productivity developments at sectorial and/or company levels
as well as economic circumstances and to provide for effective automatic
corrections when needed; by strengthening competition in the retail sectors,
removing excessive restrictions in services, including professional services and
addressing the risk of further increases of energy distribution costs; by
promoting innovation through streamlined incentive schemes and reduced
administrative barriers; and by pursuing coordinated education and training policies
addressing the pervasive skills mismatches and regional disparities in early
school leaving.

6. 
Ensure that the 2020 targets for reducing
greenhouse gas emissions from non-ETS activities are met, in particular as
regards buildings and transport. Make sure that the contribution of transport
is aligned with the objective of reducing road congestion. Agree on a clear distribution
of efforts and burdens between the federal and regional entities.

Done at Brussels,

For
the Council

The
President

[1]               OJ L 209, 2.8.1997, p. 1.

[2]               OJ L 306, 23.11.2011, p. 25.

[3]               COM(2014) 402 final.

[4]               P7_TA(2014)0128 and P7_TA(2014)0129.

[5]               OJ L 140, 27.5.2013, p.11.

[6]               C(2013) 8000 final

[7]               COM(2013) 800 final.

[8]               COM(2013) 790 final.

[9]               SWD(2014) 75 final.

[10]             Under Article 5(2) of Council Regulation (EC) No
1466/97.