COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium in response to the Council Recommendation of 2 December 2009 with a view to bringing an end to the situation of excessive deficit
Date: 2012-01-11
Institutions: European Commission
Subjects: Belgium, budget deficit, budget policy, public debt, stability pact

EUROPEAN COMMISSION 

Brussels, 11.1.2012 
SEC(2012) 52 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in Belgium in response 
to the Council Recommendation of 2 December 2009 with a view to bringing an end to 
the situation of excessive deficit 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Assessment of budgetary implementation in the context of the ongoing Excessive Deficit 
Procedures after the Commission services' 2011 Autumn Forecast 

{COM(2012) 4 final} 
{SEC(2012) 49 final} 
{SEC(2012) 50 final} 
{SEC(2012) 51 final} 
{SEC(2012) 53 final} 

 
 
 
 
  
 
COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in Belgium in response 
to the Council Recommendation of 2 December 2009 with a view to bringing an end to 
the situation of excessive deficit 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 

Assessment of budgetary implementation in the context of the ongoing Excessive Deficit 
Procedures after the Commission services' 2011 Autumn Forecast 

1. 

INTRODUCTION 

In  2009,  public  finances  in  Belgium  deteriorated  substantially  as  a  result  of  the  global 
economic and financial crisis that started at the end of 2008. To cushion the significant impact 
of the crisis on the economy, the Belgian authorities adopted fiscal stimulus measures in line 
with  the  European  Economic  Recovery  Plan  (EERP)  with  an  estimated  annual  budgetary 
impact of 0.5% of GDP  in 2009 and 2010. As a result of these  measures  and  the  impact  of 
automatic  stabilisers,  the  Commission  services’  2009  Autumn  Forecast  projected  the 
government budget deficit to deteriorate to 5.9% of GDP in 2009, from 1.2% of GDP in 2008. 
In  2010  and  2011,  the  deficit  was  expected  to  stabilise  at  5.8%  of  GDP.  In  addition,  the 
authorities  supported  the  financial  sector  through  capital  injections  as  well  as  guarantees 
amounting  to  about  19%  of  GDP.  The  debt  ratio,  which  had  been  steadily  reduced  from 
134.2% of GDP in 1993 to 84.2% of GDP in 2007, was projected to rise again from 89.8% of 
GDP in 2008 to 97.2% of GDP in 2009.  

Against  this  background,  on  2  December  2009,  the  Council  decided  under  article  126(6)  of 
the  Treaty  that  an  excessive  deficit  existed  and  addressed  recommendations  to  Belgium  in 
accordance with Article 126(7) of the Treaty with a view to bringing an end to the situation of 
an  excessive  government  deficit  by  20121.  The  Belgian  authorities  were  recommended  to 
implement  deficit-reducing  measures  in  2010  as  planned  in  the  2010  draft  budget  and  to 
ensure an average annual fiscal effort of at least ¾% of GDP in 2010-2012, which was also 
expected to contribute to bringing the government gross debt ratio back on a declining path. 
In addition, the Council asked the authorities to specify the measures that were necessary to 
achieve the correction of the excessive deficit by 2012 and to accelerate the reduction of the 
deficit  and  the  debt  beyond  the  fiscal  effort if  economic  or  budgetary  conditions  turned  out 
better  than  expected  at  the  time  the  EDP  recommendations  were  issued.  Furthermore,  the 
authorities were recommended to strengthen the monitoring mechanisms to ensure that fiscal 
targets  are  respected.  In  its  recommendations,  the  Council  established  a  deadline  of  2  June 
2010 for effective action to be taken in line with the provisions of Article 3(4) of Regulation 
(EC) No 1467/97.  

1 

OJ  L  125,  21.5.2010,  p.  34.  All  EDP-related  documents  for  Belgium  can  be  found  at  the  following 
website: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm.  

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In  its  Communication  of  15  June  2010,  the  Commission  concluded  that  Belgium  had  taken 
effective action towards the correction of the excessive deficit by 2012. In particular, Belgium 
had  broadly  implemented  the  deficit-reducing  measures  in  2010  as  planned,  totalling  1%  of 
GDP and leading to an improvement in the structural balance of ¼% of GDP. Furthermore, 
the 2010 headline deficit was expected by the Commission services to come out lower than 
the deficit for 2010 projected in the draft budget (5% of GDP instead of 5.6% of GDP). The 
authorities  had  also  outlined  in some  detail  the  consolidation  strategy  by  setting  targets  and 
indicating a number of measures supporting them. However, the measures underpinning the 
envisaged consolidation path from 2011 onwards still had to be specified further in order to 
reach the recommended average annual fiscal effort to correct the excessive deficit by 2012 
and to ensure that the debt ratio embarked on a downward path by the end of the correction 
period.  Moreover,  Belgium  still  had  to  further  strengthen  monitoring  mechanisms  to  ensure 
that fiscal targets are respected. All in all, the Commission considered that no further steps in 
the excessive deficit procedure of Belgium were needed at that time. In its conclusions of 13 
July 2010, the Council shared this view. 

This  paper  examines  the  progress  made  by  Belgium  towards  a  timely  and  sustainable 
correction  of  the  excessive  deficit.  In  particular,  it  examines  the  budgetary  developments 
since  the  Commission  communication  to  the  Council  on  action  taken  of  15  June  2010.  The 
assessment takes into account all decisions publically announced by the Belgian government 
and supplementary information provided by the authorities by 9 January 2012. 

2. 

ECONOMIC DEVELOPMENTS AND OUTLOOK 

Belgium  felt  the  full  impact  of  the  global  economic  recession  in  2009  with  real  GDP 
contracting by 2.8%. The fiscal stimulus and extra liquidity by the Eurosystem combined with 
state  guarantees  to  the  financial  sector  helped  to  restore  confidence  and  supported  domestic 
demand.  Thanks  to  the  pick-up  in  world  trade,  the  recovery  in  2010  was  stronger  than 
expected, with GDP growing at 2.3% (compared to the 1.3% still expected in the Commission 
services'  2010  Spring  Forecast).  Economic  activity  benefited  from  a  strong  increase  in  net 
exports, driven by the strong economic recovery of Germany, Belgium's main trading partner. 
The impact of the recession on employment was relatively contained. A temporary decline in 
hours worked and a decline in labour productivity per hour acted as a buffer. After a decrease 
of 0.2% in 2009, employment increased again in 2010 (by 0.8%).  

After  the  strong  recovery  in  2010  and  the  first  half  of  2011,  the  Belgian  economy  slowed 
down considerably in the second part of the year. Main factors contributing to this slowdown 
are  the  general  weakening  of  global  activity  and  the  sovereign  debt  crisis  in  the  euro  area, 
which  have  depressed  consumer  and  business  confidence.  In  addition,  there  are  renewed 
concerns about the health of the banking sector and the impact on credit growth. GDP growth 
is expected to have weakened further towards the end of 2011 and to remain weak in 2012 as 
the positive contribution of net exports is expected to fade away so that only domestic demand 
remains supportive. Both the Commission services' 2011 Autumn Forecast and the latest GDP 
projections of the Belgian authorities expect a deceleration of GDP growth in 2012 to below 
1% (0.9% and 0.8% respectively) after having estimated 2.2% and 2.4% in 2011, respectively. 
For  2013  a  slight  pick-up  in  GDP  growth  is  foreseen  by  the  2011  Autumn  Forecast  which 
expects GDP growth to reach its potential by 2013 (1.5%), while the latest available figures of 
the  Belgian  authorities  (those  which  are  underlying  the  2012  budget)  are  more  optimistic, 

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projecting growth of above 2% by 20132. Although employment creation picked up relatively 
quickly  after  the  crisis,  the  outlook  on  the  labour  market  has  recently  become  less  positive 
and,  according  to  the  Commission  services'  2011  Autumn  Forecast,  the  unemployment  rate 
will gradually rise again to about 8% in 2013, after the drop from 8.3% in 2010 to 7.6% in 
2011.  In  view  of  the  latest  available  information  both  domestically  and  internationally,  the 
probability that negative risks will materialise has increased. 

Table 1: Comparison of macroeconomic developments and forecasts 

2009 

2010 

2011 

2012 

2013 

Outturn  Outturn 

National 
projections 

National 
projections 

National 
projections 

COM 
AF 
2011 
2.2 

COM 
AF 
2011 
0.9 

COM 
AF 
2011 
1.5 

in 

(% 

2.0 

1.2 

2.3 

1.0 

1.8 

2.4 

2.1 

0.8  

-0.1 

-1.1 

-2.8 

-1.2 

Real  GDP 
change) 
Contributions  to 
real GDP growth 
domestic 
Final 
demand 
Changes 
inventories 
Net exports 
Employment  (% 
change) 
GDP  deflator  (% 
change) 
Notes:  
-  COM  AF  2011  –  Commission  services’  2011  Autumn  Forecast.  National  projections  –  Hoge  Raad  van  Financiën  – 
Bijwerking van het advies van maart 2011 ten gevolge van de gewijzigde economische context, October 2011.  
- The growth forecast of the Federaal Planbureau, Economische Vooruitzichten 2011-2014, of September 2011 was 2.4% 
for 2011 and 1.6% for 2012. 

-0.5 
-0.2 

NA 
1.0 

1.1 
0.8 

0.1 
1.2 

0.0 
1.2 

0.0 
0.4 

0.1 
0.7 

0.3 
0.5 

-0.1 

NA 

NA 

NA 

2.1 

1.2 

1.8 

2.3 

2.3 

2.2 

2.2 

1.5 

1.2 

0.6 

0.1 

0.0 

0.0 

Sources: Commission services, national authorities 

Nonetheless, it should be noted that in 2009 and 2010 real GDP growth turned out better than 
expected in the Commission services’ 2009 Autumn Forecast, the latest available at the time 
of adoption of the Council recommendation addressed to Belgium under Article 126(7) of the 
Treaty (see Table 2 below). This forecast foresaw a contraction of 2.9% in 2009, followed by 
a hesitant recovery to 0.6% growth in 2010. This compares with an actual contraction of 2.8% 
in  2009,  which  was  very  close  to  the  forecast,  but  was  followed  by  a  much  more  vigorous 
recovery  to  2.3%  in  2010.  For  2011  the  picture  is  similar:  at  the  time  of  the  Council 
recommendation,  real  GDP  growth  was  expected  to  come  out  at  1.5%,  while  the  expected 
outturn  according  to  the  2011  Autumn  Forecast  is  2.2%,  albeit  with  downside  risks.  Thus, 
macroeconomic conditions in the period 2009-2011 have been better than expected and would 
have  been  supportive  to  implement  and  accelerate  the  fiscal consolidation recommended by 
the Council against a less favourable macroeconomic scenario at the time. 

2 

Note that this estimation was based on a more optimistic growth figure for 2012 (1.6%), so the growth 
expectations for 2013 are likely to be revised downward by the Belgian authorities as well. 

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Table 2: Comparison of real GDP growth forecast at the time of the  
Council recommendation (COM AF 2009) and the actual outturn (COM AF 2011) 

2009 

2010 

2011 

COM AF 2009 

-2.9% 

Outturn  
(COM AF 2011) 

-2.8% 

0.6% 

2.3% 

1.5% 

2.2%* 

Notes: COM AF 2009 – Commission services’ 2009 Autumn Forecast; COM AF 2011 – Commission 
services’ 2011 Autumn Forecast. 

*  This  figure  represents  the  best  approximation  to  the  actual  outturn  of  real  GDP  growth  in  2011, 
although a slight downward revision is plausible given the worse than expected economic situation in 
the last quarters of the year.  

Source: Commission services 

3. 

BUDGETARY SITUATION AND PROJECTIONS FOR THE PERIOD 2011-2013 

The  general  government  deficit,  which  had  increased  to  5.8%  of  GDP  in  2009,  declined  to 
4.1% in 2010. Thanks to the better-than-expected macroeconomic outturns this outcome was 
substantially lower than the objective of 4.8% of GDP planned by the Belgian authorities in 
the January 2010 update of the Stability Programme (SP), two months after the Council had 
decided that an excessive deficit existed in Belgium and recommended to end the excessive 
deficit situation. However, the structural effort in 2010 was only ½ a percentage point which 
represents  two-thirds  of  the  annual  average  reduction  recommended  by  the  Council  (¾%  of 
GDP). 

3.1. 

Estimated outturn for 2011 

In  the  Commission  services'  2011  Autumn  Forecast,  the  general  government  deficit  was 
estimated at 3.6% of GDP in 2011, 0.5 percentage points lower than in the previous year. This 
outcome is in line with the official target specified in the 2011 update of the SP. However, at 
0.4% of GDP, the estimated annual average change in the structural budget balance in 2010-
2011 is only about half of the annual average fiscal effort recommended by the Council (see 
Table 3) despite the fact that macroeconomic conditions both in 2010 and  2011  were better 
than expected at the time of the Council recommendation. 

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Table 3: Comparison of fiscal efforts,  
change in the structural balance (% of GDP)  
based on the Commission services' 2011 Autumn Forecast 

Average annual change of 
structural balance 2010 -
2011  

Average annual change 
ofstructural balance  
2010-2012 

Additional average 
annual effort needed 
to correct the 
excessive deficit 

Average annual 
fiscal effort 
recommended by 
the Council 

Deadline for 
correction 

Uncorrected  Corrected  Uncorrected  Corrected 

0.4 

0.4 

-0.1 

-0.1 

1.6 

3/4% in 2010-2012 

2012 

Notes:  
- The additional average annual effort (i.e. on top of measures already included in the 2011 Autumn Forecast) is calculated for the period 
from 2011 until the deadline for correction (2012).  
- The uncorrected average annual change in the structural balance is the estimated change in the structural balance from the Commission 
services' 2011 Autumn Forecast. The corrected average annual change in the structural balance is the uncorrected average annual change 
in the structural balance plus a correction factor capturing the effect of revisions to potential output growth between the projections at 
the time of the EDP recommendations and the Commission services' 2011 Autumn Forecast (see European Commission (2004) Public 
Finances in EMU – 2004, European Economy, Brussels; and European Commission (2006) Public Finances in EMU – 2006, European 
Economy, Brussels). 

Source: Commission services 

3.2. 

Deficit projections for 2012-13  

The Belgian authorities announced in the course of 2011 a deficit target of 2.8% of GDP for 
2012  without  indicating  at  the  time  the  measures  that  would  allow  reaching  this  objective. 
Since  there  was  no  budget  for  2012  at  the  cut-off  date  of  the  Commission  services'  2011 
Autumn  Forecast,  this  forecast  was  made  under  the  no-policy-change  assumption.  On  this 
basis, the deficit was projected to rise by 1 percentage point of GDP in 2012, reaching 4.6% 
of GDP, which is substantially above the 3% of GDP reference value of the Treaty. In 2013, 
again assuming that no further measures would be taken, the deficit was projected to decline 
marginally  to  4.5%  of  GDP,  while  the  structural  deficit  would  remain  broadly  constant  at 
4.0%. 

On  27  November  2011,  after  the  cut-off  date  of  the  2011  Autumn  Forecast,  the  incoming 
Prime Minister Di Rupo announced an agreement on the 2012 budget. The draft budget was 
submitted to Parliament on 21 December 2011. It aims to bring the deficit to 2.8% of GDP (of 
which 2.4% for Entity I, i.e. the federal government and social security, and 0.4% of GDP for 
Entity II, i.e. regions, communities and local authorities). 

The draft budget contains measures representing, according to the authorities, a consolidation 
effort amounting to 2.7% of GDP, relative to the baseline deficit assumed by the government 
of 5.6% of GDP in ESA terms (of which 5.2% of GDP is for Entity I). This baseline notably 
takes into account the view presented in the latest report of the "Monitoring Committee" that 
healthcare spending would grow in 2012 at the maximum legally possible rate, i.e. by 4.5% a 
year in real terms (with inflation measured by the rise in the so-called "health index", which 
excludes car fuel as well as alcohol and tobacco products). 

According  to  the  authorities,  the  allocation  of  the  consolidation  is  as  follows:  42%  of 
estimated savings would fall on expenditure reduction, 34% on extra revenues and 24% on so-
called  "diverse"  other  measures,  which  essentially  consist  in  additional  revenues  not 
generated by increases in taxation, such as levies from the nuclear electricity producers and 

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from  banks  but  also  non-tax  revenues  and  revenues  from  fight  against  tax  evasion  (see 
Table 4).  The  budgetary  package  also  includes  structural  measures  in  labour  market  policy, 
with an increase in the degree of degressivity of unemployment benefits and extra measures to 
increase "activation" of older workers. Further structural reforms are envisaged in the pension 
system: (i) the early retirement age is planned to be brought to 62 years (instead of 60) and (ii) 
early retirement is foreseen to be possible after a career of 40 years (instead of 35 years).  

Table 4: Main budgetary measures for 2012 (as presented in the budget) 

Revenue 

Expenditure 

•  Reform  of  the  system  of  "notional  interests": 

0.4% of GDP 

•  Suppression  of  the  subsidy  for  clean  cars:  -

0.1% of GDP 

•  Reduction  in  transfers  to  railways:  -0.1%  of 

GDP 

•  Reduction  in  development  aid  expenditure:  -

0.05% of GDP  

•  Slower  increase  and  additional  savings  in 

healthcare spending: -0.6% of GDP 

• 

Increase 
in 
interests: 0.2% of GDP 

the 

taxation  of  dividends  and 

•  Fighting tax evasion: 0.2% of GDP 

•  Abolition of bank secrecy: 0.1% of GDP 

• 

Increase  in VAT  on  pay-TV  and  introduction  of 
VAT  on  services  of  notaries  and  bailiffs:  0.05% 
of GDP 

•  Taxation  on  houses  freely  put  at  the  disposal  of 

company bosses: 0.05% of GDP 

• 

Increase  in  excise  duties  on  tobacco  products: 
0.05% of GDP 

•  Reform  of  the  taxation  on  capital  gains  inside 

companies: 0.05% of GDP 

Note: Budgetary impact as reported in the 2012 budget and additional information provided by the national authorities. 
A positive sign implies that revenue / expenditure increase. 

The Commission services forecast for 2012 had shown a deficit of 4.6% of GDP based on a 
no-policy change basis. 

In broad terms, the gap with the Commission services forecast can be in particular explained 
by differing projections of  health care expenditure under unchanged  policies. Based  on past 
trends the Commission forecast had assumed a development in healthcare spending that was 
substantially less dynamic than the maximum rate permitted, which in turn was taken as the 
baseline by the Belgian authorities. In recent years, the actual increase in healthcare spending 
had been substantially lower than the maximum growth permitted (4.5% plus inflation); this 
suggests that a part of the healthcare savings compared to the maximum permitted growth are 
already captured in the Commission Autumn Forecast by the no-policy-change assumption. 

As a result of the above, for the sake of simplicity and comparability, the starting point of this 
updated  Commission  services  assessment  is  the  updated  no  policy-change  baseline  of  the 
authorities in ESA terms of 5.2% of GDP for Entity I. Disregarding the difference in baseline, 
the main divergences between the Belgian authorities' estimates of the measures and those of 
the Commission services are listed in Table 5. They include: 

• 

A  difference  of  slightly  less  than  0.1%  of  GDP  in  the  estimate  of  additional  tax 
revenues, of which about half on the reform of notional interests and the other half 
on the increase in the tax on dividends and interests. In both cases, a small reduction 

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• 

• 

• 

in the tax base can be expected as a result of behavioural changes of companies and 
households  in  response  to  the  increase  in  taxation,  which  is  foreseen  by  the 
Commission  services  to  slightly  reduce  the  expected  return  of  the  measures 
compared to what is assumed in the budget. 

A  difference  of  slightly  more  than  0.1%  of  GDP  in  the  estimate  of  savings  in 
expenditure of which about 0.03% of GDP concerns the Federal State and 0.07% the 
social  security.  As  far  as  the  expected  savings  in  Federal  State  spending  are 
concerned,  the  divergence  is  due  in  particular  to  the  introduction  of  a  contribution 
from  sub-federal  government  levels  for  the  pensions  of  their  civil  servants  (the  so-
called  "responsibilisation"):  this  measure  will  reduce  the  transfers  of  the  Federal 
State to the Pension fund of the civil service and hence its deficit but will increase 
the  expenditure  of  the  sub-federal  government  levels  by  the  same  amount,  thus 
without any direct effect on the deficit of the general government. This accounts for 
0.02% out of the 0.03% of GDP divergence on savings in Federal State expenditure.  

As far as the social security is concerned, on top of the change in the growth norm 
(explained  above  during  the  discussion  of  the  different  baselines),  the  budget 
foresees  savings  in  healthcare  amounting  to  EUR  418  million  (slightly  more  than 
0.1% of GDP) and supported by specific and binding measures, so that this estimate 
can  be  accepted.  By  contrast,  the  measures  that  would  allow  saving  an  additional 
EUR  320  million  in  healthcare  (the  "underutilisation"  estimated  for  2011  and 
extrapolated  for  2012)  have  been  only  specified  for  about  EUR  70  million  at  the 
moment. Thus the Commission services could not take into consideration so far the 
savings  not  yet  supported  by  specific  measures,  which  leads  to  another  divergence 
amounting to EUR 250 million. This divergence largely explains the 0.07% of GDP 
difference  between  the  Belgian  authorities'  and  the  Commission  services'  estimates 
of savings in healthcare.  

A  difference  of  0.06  pp  of  GDP  in  the  assessment  of  the  return  of  the  "other" 
measures. In particular, the return on the fight against tax evasion, how desirable it 
can  be,  often  falls  short  of  expected  returns.  The  divergence  between  the  Belgian 
authorities'  and  the  Commission  services'  estimates  on  this  issue  amount  to  about 
0.04%  of  GDP.  As  far  as  the  second-round  effects  of  additional  job  creation  are 
concerned, the Commission services' estimate is slightly lower (by  0.02% of  GDP) 
than that of the Belgian authorities (0.1% of GDP).  

In  sum,  the  Commission  services  estimate  the  ex-ante  reduction  in  the  deficit  resulting 
directly  from  the  measures  in  the  budget  to  be  about  ¼%  of  GDP  lower  than  the  Belgian 
authorities3.  This  implies  that  the  Commission  assessment  is  in  large  part  in  line  with  the 
budget.  It  notably  includes  its  projection  of  interest  payments,  despite  the  relatively  high 
increase  of  interest  rates  which  this  projection  implies  (+10.7%).  However,  such  an 
assumption may be regarded as prudent, which is warranted in the context of financial market 
uncertainties  and  a  relatively  large  refinancing  of  debt  in  2012  (about  EUR  33.7  billion  or 
8.8% of GDP) of long term debt and 28.3 billion or 7.4% of GDP of short-term debt).  

3 

This  does  not  take  into  account  the  differences  in  the  starting  point  of  the  forecast  where  the 
Commission  had  already  foreseen  a  more  prudent  expansion  of  health  expenditure  than  the  baseline 
scenario of the Monitoring Committee. 

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To these divergences on the expected return of the consolidation measures, it should be added 
the ex-post increase in the deficit that will result from the impact of the adjustment package 
on  growth,  which  does  not  seem  to  have  been  taken  into  account  in  the  draft  budget.  The 
impact of the consolidation on growth can be estimated at about 0.3% of GDP. This assumes 
relatively  low  multipliers  taking  into  account  the  nature  of  the  measures  and  the  large 
openness of the economy as well as high savings and tax rates and there is therefore some risk 
that this second round effect might eventually turn out to be somewhat higher. Consequently, 
the  effect  on  the  deficit  is  estimated  at  around  0.15%  of  GDP,  using  the  0.54  sensitivity 
coefficient  (of  the  government  balance  to  changes  in  GDP  growth)  computed  by  the 
Commission  services4.  Actually,  once  the  differences  in  baseline  have  been  accounted  for, 
this second round effect constitutes the most sizeable divergence between the deficit estimates 
of the Belgian authorities and of the Commission services: starting from the budget estimate 
of  2.8%  of  GDP,  this  factor  alone  would  be  sufficient  to  bring  the  deficit  in  the  immediate 
neighbourhood  of  the  3%  of  GDP  reference  value,  so  that  any  -  even  marginal  -  additional 
increase in the deficit would push it above that threshold. 

Finally, since the Commission Services 2011 Autumn Forecast assumed a growth of 0.9% of 
GDP while  the budget  assumes  0.8%, a 0.05% of  GDP  positive  correction  is applied to the 
current  calculations  so  that  the  assessment  uses  the  same  underlying  growth  forecast  as  the 
Autumn Forecast. 

Table 5: Main divergences in 2012 between Belgian authorities'  
and Commission services' estimates (COM Jan 2012) 

Divergences on tax revenues 
Divergences on expenditure 
Of which Federal state 
Of which Social security  
Divergences on diverse measures 
Total divergences on measures 
Effect  on  the  deficit  of  slower  growth 
due to the consolidation 
Effect  on  the  difference  in  growth 
assumptions (0.8% versus 0.9%) 
Total difference 
General  government  deficit  before 
freeze 

Budget estimates 

COM Jan 2012 

Difference 

EUR 
millions  % GDP 

EUR 
millions  % GDP 

EUR 
millions  % GDP 

3,550 
2,782 
1278 
878 
2,557 
8,889 

- 

- 
- 

0.93 
0.73 
0.33 
0.23 
0.67 
2.33 

- 

- 
- 

3,242 
2,306 
1,145 
611 
2,274 
7,822 

0.85 
0.60 
0.30 
0.16 
0.60 
2.05 

-308.2 
-475.6 
-133.1 
-267.3 
-282.9 
-1,066.7 

-0.08 
-0.12 
-0.03 
-0.07 
-0.07 
-0.28 

577 

-0.15 

-577.1 

-0.15 

-206 
- 

-0.05 
- 

+206.2 
-1,437.6 

-0.05 
-0.38 

-10,690 

-2.8 

-12,128 

-3.2 

-1,437.6 

-0.38 

Whereas  the  draft  budget  and  the  implied  second  round  effects  would,  according  to  the 
Commission  assessment,  have  led  to  a  deficit  of  around  3¼%  of  GDP  (without  taking  into 
account  the  base  effect  from  2011  and  the  impact  of  the  recent  deterioration  of  the 
macroeconomic  environment  in  the  EU  and  Belgium  specifically),  further  measures  were 
decided on 6 January 2012 and implemented by a circular on 9 January and published in the 
Moniteur  Belge.  In  particular,  ahead  of  the  budget  control  exercise  planned  for  February, 

4 

European  Commission,  New  and  updated  budgetary  sensitivities  for  the  EU  budgetary  surveillance, 
September 2005   
(http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/budg_sensitivities_092005_v02_e
n.pdf) 

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9 

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which  can  be  expected  to  decide  on  savings  measures  based  on  a  new  assessment  of  the 
budgetary  situation  based  on  the  outcome  in  2011  and  the  deteriorated  macroeconomic 
environment,  the  government  has  decided  to  freeze  an  additional  EUR  1.3  billion  of 
expenditure (about 0.35% of GDP). It concerns notably a freeze of EUR 280 million of the 
"interdepartmental provision", EUR 125 million of healthcare spending, EUR 400 million of 
transfers  to  the  SNCB  group,  EUR  120  million  of  government  investment  and  the 
postponement of the purchase of helicopters for the Defence Department (EUR 102 million).  

Taking  this  additional  measure  into  account  including  some  second  round  effects,  the 
Commission  services  estimate  that  the  general  government  deficit  will  come  out  at  about 
2.9% of GDP, thus below the 3% of GDP threshold. 

In  2013,  according  to  the  Commission  services'  2011  Autumn  forecast,  the  public  deficit 
would have been 4.5% of GDP under the same "unchanged policy" assumption used for 2012. 
Taking into account the 2012 draft budget and the additional measures subsequently decided, 
it is now likely that the deficit would decline to about 2¾% of GDP, as a result of the lasting 
impact  of  the  measures  entered  into  force  in  2011,  of  the  effect  of  additional  measures 
scheduled  to  enter  into  force  in  2012  and  of  the  recovery  in  growth  after  the  slowdown  in 
2012 as foreseen in the Commission Services' 2011Autumn Forecast.  

Table 6: Comparison of budgetary projections, including impact of measures 
announced/taken post Commission services' 2011 Autumn Forecast,  
general government balance (% of GDP)  

COM AF 2011 
2012 Budget 
COM Jan 2012 
* April 2011 update of the Stability Programme 
Sources: Commission services and Belgian authorities 

-4.1 
-4.1 

-4.1 

2010 

2011 

2012 

-3.6 
-3.6 

-4.6 
-2.8 

-3.6 

-2.9  

-2 ¾  

2013 

-4.5 
-1.8* 

On the basis of the Commission services' 2011 Autumn Forecast the annual average change in 
the structural budget balance over the adjustment period 2010-2012 was estimated at -0.1% of 
GDP (see Table 3). Taking into account the Commission services' updated assessment of the 
2012 budget, i.e. should the expected deficit decline below 3% of GDP in 2012 as a result of 
the consolidation measures announced in the draft budget and in the decision of 6 January, the 
structural effort in 2012 would amount to about ½% of GDP. The cumulative effort over the 
period 2010-2012 would thus come out at about 1½% of GDP, around ¾% of GDP lower than 
the  recommendation  of  the  Council  (2¼%  over  three  years).  This  implies  that  the  annual 
average effort of 0.5% of GDP is well below the ¾% of GDP recommended by the Council.  

However, while this assessment is not based on a full update of the 2011 Autumn Forecast, 
the economic situation seems to be changing significantly. In particular, in view of the latest 
available  information,  the  macroeconomic  scenario  supporting  the  2012  draft  budget  (with 
expected real GDP growth of 0.8% in 2012) could be too optimistic. The additional decline in 
consumer  and  business  confidence  recorded  in  recent  months  are  reflecting  more  negative 
prospects  for  private  consumption  and  investment,  so  that  the  growth  expectations  for  the 
fourth  quarter  of  2011  and  the  first  half  of  2012  are  lower  than  expected  in  September  or 

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10 

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October  20115  when  the  macroeconomic  projections  underlying  the  budget  as  well  as  the 
Commission services autumn forecast were carried out. Specifically, the latest projections of 
the National Bank of Belgium (NBB) released on 14 December 2011 already present a picture 
of a Belgian economy growing by only 0.5% in 2012. Moreover, the quarterly growth figures 
of  the  second  and  third  quarter  of  2011  have  been  revised  downwards,  resulting  in  a  lower 
carry-over  into  2012  of  about  0.2  pp.  At  present,  a  more  realistic  growth  forecast  for  2012 
could be that of close to zero growth6.  

Furthermore,  the  latest  forecast  from  the  National  Bank  of  Belgium  indicates  that  the 
government deficit might have turned out at 4.2% of GDP in 2011, substantially higher than 
the  3.6%  of  GDP  on  which  the  2012  budget  was  built.  About  half  of  this  upward  revision 
would  be  explained  by  recurrent  factors,  the  rest  being  due  to  additional,  presumably  non-
recurrent  spending  related  to  the  support  of  Dexia.  The  2012  deficit  could  thus  increase  by 
about 0.3 pp. due to the base effect stemming from the higher deficit in 2011. 

Additionally,  as  the  Treaty  reference  values  for  the  deficit  and  debt  apply  to  the  general 
government as a whole, the effort cannot be limited to Entity I (federal government and social 
security)  but  should  also  include  Entity  II  (regions,  communities  and  municipalities). 
However, the federal level has limited means to control and rein in the spending of the regions 
and  communities  and  therefore,  a  higher  deficit  from  those  government  tiers  than  the 
currently planned 0.4% of GDP for 2012 cannot excluded at this point in time.  

Moreover, implementation risks might be higher than expected given the nature of certain key 
measures  (such  as  fight  against  fraud  or  the  increase  in  efficiency  of  the  administration). 
Finally,  there  is  a  risk  that  the  second  round  effect  of  the  measures  in  the  budget  and  the 
subsequent expenditure freeze may be higher than expected.  

3.3. 

Debt developments 

According  to  the  Commission  services'  2011  Autumn  Forecast,  gross  general  government 
debt, which reached 96.2% of GDP in 2010, is projected to continue to rise over the forecast 
horizon on the back of the persisting deficits and exogenous factors like the take-over of the 
Belgian  subsidiary  of  Dexia.  Debt  projections  also  include  the  impact  of  guarantees  to  the 
European Financial Stability Facility (EFSF), bilateral loans to Greece and the participation in 
the capital of the European Stability Mechanism (ESM) as planned on the cut-off date of 2011 
Autumn Forecast. Under the no-policy-change scenario, on which the Commission services' 
autumn  2012  forecast  has  been  based,  gross  public  debt  was  expected  to  reach  just  above 
100% of GDP by 2013. Based on this preliminary estimate of the 2012 deficit but taking also 
into  account  additional  factors  that  are  likely  to  have  increased  the  debt  in  2011  (like  the 
Dexia take-over which according to the NBB might represent around 0.3% of GDP), the debt 
ratio will probably remain just below 100% in 2012 and possibly also in 2013.  

Beyond 2013 and under the assumption of no further policy changes, the debt ratio would be 
on  an  increasing  path  and  reach  114  %  of  GDP  by  2020.  However,  an  additional  annual 

5 

6 

Hoge Raad van Financiën – Bijwerking van het advies van maart 2011 ten gevolge van de gewijzigde 
economische  context,  October  2011.  This  report  contained  already  a  growth  update  compared  to  the 
latest  report  of  the  Monitoring  Committee  of  30  September  2011,  in  which  the  growth  prediction  for 
2012 was still 1.6%. 
The consensus growth projection for 2012 has been revised to 0.1%. See NBB, Belgian prime news, n° 
54, 6 January 2012. (http://www.nbb.be/doc/ts/Publications/BPNews/bpn54.pdf). 

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11 

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structural  fiscal  consolidation  of  0.5  p.p.  of  GDP  from  2014  onwards  in  order  to  reach  the 
MTO  would  almost  stabilise  the  debt  ratio,  reaching  101  %  of  GDP  in  2020.  A  more 
ambitious consolidation effort (of 1 p.p. per annum) would set the debt ratio on a declining 
path from 2015 onwards in Belgium. 

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12 

   EN