(5)The General Escape Clause has been active since March 2020. In its Communication of 3 March 2021, the Commission set out its view that the decision on the deactivation or continued application of the general escape clause should be taken as an overall assessment of the state of the economy, with the level of economic activity in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative criterion. Heightened uncertainty and strong downside risks to the economic outlook in the context of war in Europe, unprecedented energy price hikes and continued supply chain disturbances warrant the extension of the general escape clause of the Stability and Growth Pact through 2023.

(4)Taking account of the rapidly changing economic and geopolitical situation, the European Semester resumes its broad economic and employment policy coordination in 2022, while evolving in line with the implementation requirements of the Recovery and Resilience Facility, as outlined in the 2022 Annual Sustainable Growth Survey. The implementation of the adopted recovery and resilience plans is essential for the delivery of the policy priorities under the European Semester, as the plans address all or a significant subset of the relevant country-specific recommendations issued in the 2019 and 2020 Semester cycles. The 2019 and 2020 country-specific recommendations remain equally relevant also for recovery and resilience plans revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation (EU) 2021/241, in addition to any country-specific recommendations issued up to the date of submission of the modified plan.

(3)Russia’s invasion of Ukraine, in the wake of the global pandemic, has significantly altered the geopolitical and economic context. The impact of the invasion on Member States’ economies has been felt for example through higher energy and food prices and weaker growth prospects. The higher energy prices weigh particularly on the most vulnerable households experiencing or at risk of energy poverty. The EU is also seeing an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, the Temporary Protection Directive was triggered for the first time, granting displaced persons from Ukraine the right to legally stay in the EU, as well as access to education and training, labour market, healthcare, housing and social welfare.

(2)On 24 November 2021, the Commission adopted the Annual Sustainable Growth Survey, marking the start of the 2022 European Semester for economic policy coordination. It took due account of the reaffirmed joint commitment of the Porto Social Summit of May 2021 to further implement the European Pillar of Social Rights, proclaimed by the European Parliament, the Council and the Commission on 17 November 2017. The European Council endorsed the priorities of the 2022 Annual Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of Regulation (EU) No 1176/2011, the Commission also adopted the Alert Mechanism Report, in which it did not identify Belgium as one of the Member States for which an in-depth review would be needed. On the same date, the Commission also adopted a recommendation for a Council recommendation on the economic policy of the euro area, which was adopted on 5 April 2022 by the Council, as well as the proposal for the 2022 Joint Employment Report analysing the implementation of the Employment Guidelines and the principles of the European Pillar of Social Rights, which was adopted by the Council on 14 March 2022.

(1)Regulation (EU) 2021/241 of the European Parliament and of the Council, which established the Recovery and Resilience Facility, entered into force on 19 February 2021. The Recovery and Resilience Facility provides financial support for the implementation of reforms and investment, entailing a fiscal impulse financed by the Union. It contributes to the economic recovery and to the implementation of sustainable and growth-enhancing reforms and investment, in particular to promote the green and digital transition, while strengthening the resilience and potential growth of the Member States’ economies. It also helps strengthen sustainable public finances and boost growth and job creation in the medium and long term. The maximum financial contribution per Member State under the Recovery and Resilience Facility [was] updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241.

(6)Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability Programme, the fiscal stance is currently best measured as the change in primary expenditure (net of discretionary revenue measures), excluding COVID-19 crisis-related temporary emergency measures but including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other EU funds, relative to medium-term potential growth. Going beyond the overall fiscal stance, in order to assess whether national fiscal policy is prudent and its composition is conducive to a sustainable recovery consistent with the green and digital transitions, attention is also paid to the evolution of nationally-financed primary current expenditure (net of discretionary revenue measures and excluding COVID-19 crisis-related temporary emergency measures) and investment.

(7)On 2 March 2022, the Commission adopted a Communication providing broad guidance for fiscal policy in 2023, aiming at supporting the preparation of Member States’ Stability and Convergence Programmes and thereby strengthening policy coordination. The Commission noted that, based on the macroeconomic outlook of the 2022 winter forecast, transitioning from an aggregate supportive fiscal stance in 2020-2022 to a broadly neutral aggregate fiscal stance would appear appropriate in 2023, while standing ready to react to the evolving economic situation. The Commission announced that the fiscal recommendations for 2023 should continue to differentiate across Member States and take into account possible cross-country spillovers. The Commission invited the Member States to reflect the guidance in their Stability and Convergence Programmes. The Commission committed to closely monitor the economic developments and adjust its policy guidance as needed and at the latest in its Semester spring package of late May 2022.

(8)With respect to the fiscal guidance provided on 2 March 2022, the fiscal recommendations for 2023 take into account the worsened economic outlook, the heightened uncertainty and further downside risks, and the higher inflation compared to the winter forecast. Against these considerations, the fiscal response has to expand public investment for the green and digital transition and energy security, and sustain the purchasing power of the most vulnerable households so as to cushion the impact of the energy price hike and help limit inflationary pressures from second round effects via targeted and temporary measures; fiscal policy has to remain agile so as to adjust to the rapidly evolving circumstances, and be differentiated across countries depending on their fiscal and economic situation, including as regards the exposure to the crisis and the inflow of displaced persons from Ukraine.

(9)On 30 April 2021, Belgium submitted its national recovery and resilience plan to the Commission, in accordance with Article 18(1) of Regulation (EU) 2021/241. Pursuant to Article 19 of Regulation (EU) 2021/241, the Commission assessed the relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, in accordance with the assessment guidelines of Annex V to that Regulation. On 13 July 2021, the Council adopted its Decision on the approval of the assessment of the recovery and resilience plan for Belgium. The release of instalments is conditional on a decision by the Commission, taken in accordance with Article 24(5) of Regulation (EU) 2021/241, that Belgium has satisfactorily fulfilled the relevant milestones and targets set out in the Council Implementing Decision. Satisfactory fulfilment presupposes that the achievement of preceding milestones and targets has not been reversed.

(10)On 30 April 2022, Belgium submitted its 2022 National Reform Programme and its 2022 Stability Programme, in line with the deadline established in Article 4 of Regulation (EC) No 1466/97. To take account of their interlinkages, the two programmes have been assessed together. In accordance with Article 27 of Regulation (EU) 2021/241, the 2022 National Reform Programme also reflects Belgium’s bi-annual reporting on the progress made in achieving its recovery and resilience plan.

(11)The Commission published the 2022 country report for Belgium on 23 May 2022. It assessed Belgium’s progress in addressing the relevant country-specific recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of Belgium’s implementation of the recovery and resilience plan, building on the Recovery and Resilience Scoreboard. Based on this analysis, the country report identified gaps with respect to those challenges that are not addressed or only partially addressed by the recovery and resilience plan, as well as new and emerging challenges, including those emerging from Russia’s invasion of Ukraine. It also assessed Belgium's progress on implementing the European Pillar of Social Rights and on achieving the EU headline targets on employment, skills and poverty reduction, as well as progress in achieving the UN’s Sustainable Development Goals.

(12)On 23 May 2022, the Commission issued a report under Article 126(3) TFEU. This report discussed the budgetary situation of Belgium, as its general government deficit in 2021 exceeded the 3% of GDP Treaty reference value, while its general government debt exceeded the 60% of GDP Treaty reference value and did not respect the debt reduction benchmark. The report concluded that the deficit and debt criteria were not fulfilled. In line with the Communication of 2 March 2022, the Commission considered, within its assessment of all relevant factors, that compliance with the debt reduction benchmark would imply a too demanding frontloaded fiscal effort that risks to jeopardise growth. Therefore, in the view of the Commission, compliance with the debt reduction benchmark is not warranted under the current exceptional economic conditions. As announced, the Commission did not propose to open new excessive deficit procedures in spring 2022 and it will reassess the relevance of proposing to open excessive deficit procedures in autumn 2022.

(13)On 20 July 2020, the Council recommended Belgium to take in 2020 and 2021 all necessary measures, in line with the general escape clause, to effectively address the pandemic, sustain the economy and support the ensuing recovery. It also recommended Belgium to pursue, when economic conditions allow, fiscal policies aimed at achieving prudent medium-term fiscal positions and ensuring debt sustainability, while enhancing investment. In 2021, based on data validated by Eurostat, Belgium’s general government deficit fell from 9.0% of GDP in 2020 to 5.5% in 2021. The fiscal policy response by Belgium supported the economic recovery in 2021, while temporary emergency support measures declined from 4.4% of GDP in 2020 to 2.9% in 2021. The measures taken by Belgium in 2021 have been in line with the Council Recommendation of 20 July 2020. The discretionary budgetary measures adopted by the government in 2020 and 2021 were mostly temporary or matched by offsetting measures. At the same time, some of the discretionary measures adopted by the government over the period 2020 to 2021 were not temporary or matched by offsetting measures, mainly consisting of permanent increases in minimum pensions and health sector wages. Based on data validated by Eurostat, general government debt stood at 108.2% of GDP in 2021.

(14)The macroeconomic scenario underpinning the budgetary projections in the 2022 Stability Programme is favourable. The government projects real GDP to grow by 3.0% in 2022 and 1.9% in 2023. By comparison, the Commission’s 2022 spring forecast projects a lower real GDP growth of 2.0% in 2022 and 1.6% in 2023, mainly due to the earlier cut-off date for the macroeconomic projections underlying the 2022 Stability Programme, which was before the start of Russia’s war of aggression against Ukraine. In its 2022 Stability Programme, the Government expects that the headline deficit will decrease to 5.2% of GDP in 2022 and to 3.6% in 2023. The decrease in 2022 mainly reflects the solid growth in economic activity and the unwinding of most emergency measures. According to the Programme, the general government debt-to-GDP ratio is expected to (marginally) decrease to 108.0% in 2022, and to rise to 108.8% in 2023. Based on policy measures known at the cut-off date of the forecast, the Commission 2022 spring forecast projects a government deficit for 2022 and 2023 of 5.0% of GDP and 4.4% respectively. In 2022, this is in line with the deficit projected in the 2022 Stability Programme, despite the less favourable macroeconomic scenario in the Commission 2022 spring forecast, as the budgetary projections in the 2022 Stability Programme take into account a technical correction reflecting the budget impact of the consequences of the Russia’s war of aggression against Ukraine in 2022 (only). In 2023, the Commission 2022 spring forecast projects a higher general government budget deficit, mainly due to a less favourable macroeconomic scenario and measures not yet specified in the outer years of the Programme. The Commission 2022 spring forecast projects a broadly similar general government debt-to-GDP ratio of 107.5% in 2022 but a lower ratio of 107.6% in 2023, reflecting the lower increase in the GDP deflator in the 2022 Stability Programme.

Based on the Commission spring 2022 forecast, the medium-term (10-year average) potential output growth is estimated at 1.4 %. However, this estimate does not include the impact of the reforms that are part of the Recovery and Resilience Plan and can boost Belgium’s potential growth.

(15)In 2022, the government phased out the majority of measures taken in response to the COVID-19 crisis, such that the temporary emergency support measures are projected to decline from 2.9% of GDP in 2021 to 0.4% in 2022. The government deficit in 2022 is impacted by the measures adopted to counter the economic and social impact of the increase in energy prices, which in the Commission spring 2022 forecast are estimated at 0.5% of GDP in 2022 and 0% of GDP in 2023. These measures mainly consist of lump sum transfers to households and cuts to indirect taxes on energy consumption. These measures have been announced as temporary and concern 2022. However, in case energy prices remain elevated also in 2023, some of these measures could be continued. Some of these measures are not targeted, notably across the board transfers to households to support energy consumption and cuts in VAT rates on gas and electricity and excise duties on petrol. The government deficit is also impacted by the costs to offer temporary protection to displaced persons from Ukraine, which in the Commission 2022 spring forecast are projected at 0.1% of GDP in both 2022 and 2023, as well as by the increased cost of defence expenditure (0.1% of GDP in 2022).

(16)On 18 June 2021, the Council recommended that in 2022 Belgium should use the Recovery and Resilience Facility to finance additional investment in support of the recovery while pursuing a prudent fiscal policy. Moreover, it should preserve nationally-financed investment. It also recommended Belgium to pursue, when economic conditions allow, a fiscal policy aimed at achieving prudent medium-term fiscal positions and ensuring fiscal sustainability in the medium term, and at the same time, to enhance investment to boost growth potential.

(17)In 2022, based on the Commission’s 2022 spring forecast and including the information incorporated in Belgium’s 2022 Stability Programme, the fiscal stance is projected to be supportive at -2.4% of GDP. Belgium plans to provide continued support to the recovery by making use of the Recovery and Resilience Facility to finance additional investment as recommended by the Council. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to increase by 0.2% percentage points of GDP compared to 2021. Nationally-financed investment is projected to provide a neutral contribution to the fiscal stance in 2022. Therefore, Belgium plans to preserve nationally financed investment, as recommended by the Council. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2022 is projected to provide an expansionary contribution of 2.1 percentage points to the overall fiscal stance. This significant expansionary contribution includes the additional impact of the measures to address the economic and social impact of the increase in energy prices (0.5% of GDP) as well as the costs to offer temporary protection to displaced persons from Ukraine (0.1% of GDP). Furthermore, the increase in government spending due to the automatic indexation of public sector wages and social benefits, and to a lower extent to higher government consumption of goods and services, are also projected to contribute to the expansionary contribution of nationally financed (net) primary current expenditure. Based on the Commission’s forecast, these measures and drivers of higher expenditure are not fully matched by offsetting measures.

(18)In 2023, the fiscal stance is projected in the Commission 2022 spring forecast at 0.0% of GDP on a no-policy change assumption. Belgium is projected to continue using the grants from the Recovery and Resilience Facility in 2023 to finance additional investment in support of the recovery. The positive contribution to economic activity of expenditure financed by Recovery and Resilience Facility grants and other EU funds is projected to remain stable compared to 2022. Nationally-financed investment is projected to provide an expansionary contribution to the fiscal stance of 0.1 percentage point in 2023. At the same time, the growth in nationally-financed primary current expenditure (net of new revenue measures) in 2023 is projected to provide a broadly neutral contribution of 0.1 percentage point to the overall fiscal stance. This includes the impact from the phasing out of the measures addressing the increased energy prices (0.5 % of GDP).

(19)In the 2022 Stability Programme, the general government deficit is expected to gradually decline to 3.4% of GDP in 2024 and to 2.7% by 2025. Therefore, the general government deficit is planned to go below 3% of GDP by 2025. These projections are based on a macroeconomic scenario elaborated prior to the Russian invasion of Ukraine, and assume measures not yet specified in the outer years of the Programme, notably a so-called ‘flexible budgetary effort’ amounting to 0.8% of GDP between 2023 and 2025. According to the Programme, the general government debt-to-GDP ratio is expected to increase by 2025, specifically with an increase to 109.7% in 2024, and a rise to 110.1% in 2025. Based on the Commission’s analysis, debt sustainability risks appear high over the medium term.

(20)At unchanged policies, the rapidly ageing population is expected to worsen the impact of ageing-related expenditure on public finances. The 2021 Ageing Report projects an increase of 3.6 percentage points by 2040 and by 5.4 percentage points of GDP by 2070 in ageing-related spending, mostly due to pension and long-term care expenditure. In its recovery and resilience plan, Belgium has committed to implementing a pension reform inter alia to improve the financial and social sustainability of the system and promote convergence amongst different pension schemes. With regard to long-term care, Belgium was already one of the highest spenders in the EU in 2019, and its spending is expected to further increase by 14% by 2030 and by 2.2 percentage points of GDP by 2070. Reforms to improve the cost-efficient use of the different care settings, notably to avoid and delay unnecessary or premature institutionalisation, which concerns one in four people in residential care, have been started although large regional differences are observed. The COVID-19 crisis has stalled the implementation of planned cost-saving measures. This suggests that there may be scope to further reduce over-institutionalisation while strengthening the use of quality home care services and, addressing financial barriers that limit access to these services for the most vulnerable groups. A swift and ambitious implementation of reforms would help address sustainability concerns.

(21)The Belgian tax system is characterised by a high labour tax burden, with relatively high tax rates, and narrow tax brackets. This limits the real progressivity of the tax system and further weakens labour participation. While the 2016 tax reform reduced the tax burden on labour for the lowest income earners, the tax wedge remains the highest in the EU for those earning the average wage. High labour taxation may also discourage participation in lifelong learning. In addition, some design features of the unemployment benefit system risk undermining incentives to work for jobseekers and may reduce the effectiveness of activation policies. The complexity of social support and limited possibilities to combine income from work and social benefits may also create disincentives to take up work, in particular for those with a low earning potential. Furthermore, partly to temper the high tax rates, tax bases are eroded by numerous exemptions, deductions and reduced rates, which create efficiency losses and introduce distortions. Some features of the tax system contribute to distorting investment choices and lead to overinvestment in certain assets. For instance, rents from immovable property are undertaxed and interest on housing loans for secondary residences are tax-deductible. Moreover, tax incentives for savings and the rigid design of the tax rules applying to long-term savings and pension schemes, create obstacles to a better allocation of capital. The tax on securities accounts of February 2021 also acts as a disincentive to invest in financial instruments. Moreover, there is scope to develop environmental taxation, by reducing fossil fuel subsidies and encouraging investment in the low carbon economy. For instance, reviewing excise duties on fossil fuels used for heating (e.g. gas oil, natural gas), which are low when compared to electricity, would encourage investment in low carbon heating solutions. Policy options such as introducing road charging for private vehicles (as for lorries), while ensuring a sufficient offer of public transport, could be used to address congestion, with the average number of hours per year spent in traffic jams being among the highest in the EU. It could also help reduce non-ETS greenhouse gas emissions. Combining a shift away from labour and broadening the tax base could improve the fairness of the tax system, boost employment as well as promote social and environmental objectives.

(22)In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation (EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually reinforcing reforms and investments to be implemented by 2026. These help address all or a significant subset of the economic and social challenges outlined in the country-specific recommendations addressed to Belgium by the Council in the European Semester in 2019 and 2020, in addition to any country-specific recommendations issued up to the date of adoption of a plan. In particular, Belgium’s recovery and resilience plan is expected to help address a significant subset of the challenges identified in the relevant country-specific recommendations. To improve the quality and efficiency of public spending, the recovery and resilience plan of Belgium includes the systematic integration of spending reviews in the budgetary planning cycles of all government levels. Against the background of increasing public pension expenditure, the plan includes a pension reform, which aims inter alia at improving the financial and social sustainability of the pension system. The Belgian recovery and resilience plan also includes several measures to address labour market challenges and strengthen the social and labour market integration of vulnerable groups, such as people with a migrant background, women, youth, people with disabilities and people at risk of digital exclusion. Under the plan, Belgium will ensure 5G deployment. The plan will also contains a reform of the company car tax scheme, aiming for the full electrification of company car fleets.

(23)The implementation of the recovery and resilience plan of Belgium is expected to contribute to making further progress on the green and digital transition. Measures supporting the climate objectives in Belgium account for 49.6% of the plan’s total allocation, while measures supporting digital objectives account for 26.6% of the plan’s total allocation. The fully fledged implementation of the recovery and resilience plan, in line with the relevant milestones and targets, will help Belgium swiftly recover from the fallout of the COVID-19 crisis, while strengthening its resilience. The systematic involvement of social partners and other relevant stakeholders remains important for the successful implementation of the recovery and resilience plan, as well as other economic and employment policies going beyond the plan, to ensure broad ownership of the overall policy agenda.

(24)Belgium has not yet submitted the Partnership Agreement and the other cohesion policy programming documents. In line with Regulation (EU) 2021/1060 of the European Parliament and of the Council of 24 June 2021, Belgium shall take into account the relevant country-specific recommendations in the programming of the 2021-2027 cohesion policy funds. This is a prerequisite for improving the effectiveness and maximising the added value of the financial support to be received from cohesion policy funds, while promoting the coordination, complementarity and coherence between these funds and other Union instruments and funds. The successful implementation of the Recovery and Resilience Facility and cohesion policy programmes also depends on the removal of bottlenecks to investment to support the green and digital transition and balanced territorial development.