Council Opinion

of 12 March 2001

on the updated stability programme of Belgium, 2001-2005

(2001/C 109/02)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

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(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 March 2001, the Council examined the 2000 update of the stability programme of Belgium which covers the period 2001-2005.

In the last two years, real GDP growth was stronger than expected in the 1999 updated stability programme, reaching 2,7 % in 1999 and 3,8 % in 2000. As a result the general government deficit reached 0,7 % of GDP in 1999 and turned to balance in 2000 according to the latest estimates. The government debt ratio to GDP was reduced by 5,5 percentage points to 110,6 % of GDP in 2000. The Council notes that these results comply with its opinion on the 1999 updated programme as well as with the broad economic policy guidelines.

The 2000 updated stability programme is based on a macroeconomic scenario assuming real GDP growth at trend, estimated at 2,5 % in the period from 2001 to 2005; while this cautious approach is understandable, the Council notes that, at least for 2001 and 2002, some forecasts are currently higher. The updated stability programme projects a general government surplus of 0,2 % of GDP in 2001 rising to 0,7 % of GDP in 2005 while the government debt ratio is projected to decline by 22 percentage points of GDP to 88 % of GDP in 2005.

The Council notes that the projections for the government balance are considered in the updated programme as objectives which should be met even in the event that economic activity were to falter. The Council commends the budgetary consolidation strategy based mainly on the achievement of large primary government surpluses, reaching more than 6 % of GDP per year; this strategy, already successfully implemented in recent years, is particularly appropriate in the case of Belgium where government debt is still very high. The Council notes that the reduction of the high government debt remains a high priority. The Council notes that, according to the updated programme, in order to achieve high primary surpluses, expenditure control is expected to result from applying a limit of 1,5 % to the increase in real terms in primary expenditure in Entity I (federal government and social security). It notes also that within this framework, budgetary margins estimated at 1,3 % of GDP in 2005 are expected to become available to finance tax cuts and selected expenditure measures.

The Council acknowledges that after a prolonged period of needed budgetary restraint, a number of policy areas should be taken into consideration in Belgium, such as tax alleviation, particularly on labour, and an active employment policy; however, the Council considers that control on government expenditure must still be given the highest priority and urges the Belgian Government to respect the limit of 1,5 % set for primary expenditure in real terms already in 2001. The allocation of the budgetary margins should be closely monitored in order to be consistent with this limit. Furthermore, given the level of government indebtedness and in view of budgetary challenges in the long term, the Council recommends that all additional revenues which might stem from better than expected real GDP growth be allocated to debt reduction.

The Council commends the structural reforms described in the updated stability programme in particular those intended to increase the employment rate as well as the policy aiming at ensuring the long-term sustainability of public finances.

The Council welcomes the new agreement concluded in December 2000 between the Federal Government, communities and regions in Belgium aimed at ensuring budgetary adjustment and sustainable public finances in the medium term at the different levels of government.

The Council regrets that no information was supplied in the stability programme about projected total expenditure and revenue ratios and specific categories of government expenditure such as expenditure for pension and health care as well as government investment expenditure. The Council recommends that more detailed projections are provided in future stability programmes in order to allow a fully informed assessment.

The Council considers that the budgetary results achieved in Belgium are already in conformity in 2000 with the requirement of the stability and growth pact and will remain so throughout the period covered by the 2000 updated programme.

(1) OJ L 209, 2.8.1997, p. 1.