COMMISSION STAFF WORKING DOCUMENT Analysis by the Commission services of the budgetary situation in Belgium following the adoption of the COUNCIL RECOMMENDATION to Belgium of 2 December 2009 with a view to bringing an end to the situation of an excessive government deficit Accompanying the document Recommendation for a COUNCIL DECISION giving notice to Belgium to take measures for the deficit reduction judged necessary in order to remedy the situation of excessive deficit and the Recommendation for a COUNCIL DECISION establishing that no effective action has been taken by Belgium in response to the Council Recommendation of 2 December 2009
Date: 2013-05-29
Institutions: European Commission
Subjects: Belgium, State aid, banking system, budget deficit, budgetary equilibrium, economic statistics, stability pact

EUROPEAN 
COMMISSION 

Brussels, 29.5.2013  
SWD(2013) 381 final 

COMMISSION STAFF WORKING DOCUMENT 

Analysis by the Commission services of the budgetary situation in Belgium   
following the adoption of the COUNCIL RECOMMENDATION to Belgium of 2 
December 2009 with a view to bringing an end to the situation of an excessive 
government deficit 

Accompanying the document 

Recommendation for a 

COUNCIL DECISION 

giving notice to Belgium to take measures for the deficit reduction judged necessary in 
order to remedy the situation of excessive deficit 

and the 

Recommendation for a 

COUNCIL DECISION 

establishing that no effective action has been taken by Belgium in response to the 
Council Recommendation of 2 December 2009 

{COM(2013) 381 final} 
{COM(2013) 382 final}

EN 

   EN 

 
 
 
 
 
  
 
 
 
 
 
 
 
 
1. 

INTRODUCTION 

On 2 December 2009, the Council decided, in accordance with Article 126(6) of the TFEU, 
that  an  excessive  deficit  existed  in  Belgium1  and  issued  a  recommendation  to  correct  it  by 
2012  at  the  latest,  in  accordance  with  Article  126(7)  of  the  TFEU  and  Article  3  of  Council 
Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation 
of the excessive deficit procedure2. In order to bring the general government deficit below 3% 
of GDP in a credible and sustainable manner, the Belgian authorities were recommended to 
(a) implement the deficit-reducing measures in 2010 as planned in the draft budget for 2010 
and strengthen the planned fiscal effort in 2011 and 2012; (b) ensure an average annual fiscal 
effort of ¾% of GDP over the period 2010-2012, which should also contribute to bringing the 
government gross debt ratio back on a declining path that approaches the reference value at a 
satisfactory  pace  by  restoring  an  adequate  level  of  the  primary  surplus;  (c)  specify  the 
measures that are necessary to achieve the correction of the excessive deficit by 2012, cyclical 
conditions permitting, and to accelerate the reduction of the deficit if economic or budgetary 
conditions turned out better than expected at the time the EDP recommendations were issued; 
and (d) strengthen the monitoring mechanisms to ensure that fiscal targets are respected.  

On  15  June  2010,  the  Commission  concluded  that  based  on  the  Commission  services'  2010 
Spring  Forecast,  Belgium  had  taken  effective  action  in  compliance  with  the  Council 
recommendation of 2 December 2009 to bring its government deficit below the 3% of GDP 
reference value and considered that no additional step in the excessive deficit procedure was 
therefore necessary at that point in time.  

This  document  provides  an  assessment  of  whether  Belgium  has  undertaken  effective  action 
towards the correction of its excessive general government deficit. In particular, the document 
examines  the  budgetary  developments  since  the  Commission  communication  to  the  Council 
on action taken as of 15 June 2010. 

2. 

RECENT  MACRO-ECONOMIC  AND  BUDGETARY  DEVELOPMENTS  AND  OUTLOOK  FOR 
2013-2014 

Belgium experienced 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  Euro  system  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  2.4%.  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 by 0.7% in 2010.  

After the strong export-led recovery in 2010 and the first half of 2011, the Belgian economy 
came  to  a  stand-still  in  the  second  part  of  2011.  The  main  factors  contributing  to  this 

1  

2 

All documents related to the excessive deficit procedure of Belgium can be found at: 
http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/countries/belgium_en.htm 
OJ L 209, 2.8.1997, p. 6. 

2 

 
 
                                                 
 
slowdown were the general weakening of global activity and the persistence of the sovereign 
debt crisis, which depressed household spending as well as corporate investment. On the back 
of  a  strong  first  six  months,  2011  still  saw  GDP  growing  by  1.8%  for  the  full  year.  After 
benefiting  from  a  momentary  revival  in  the  first  quarter  of  2012,  activity  declined  abruptly 
again  in  the  second  quarter  and  remained  anaemic  in  subsequent  quarters.  A  robust 
contribution  by  net  exports  could  not  prevent  GDP  from  contracting  by  0.2%  as  household 
spending  and  investment  both  fell  by  0.6%.  2012  marked  the  first  time  in  many  years  of 
shrinking  private  consumption.  It  also  contrasted  with  the  2009  recession,  when  private 
spending proved resilient. 

Table 1: Comparison of macroeconomic developments and forecasts 

2009

outturn

outturn

2010

SP Jan 
2010

COM 
2009 AF

outturn

2011

SP Jan 
2010

COM 
2009 AF

outturn

2012

SP Jan 
2010

COM AF 

2009       

Real GDP (% change)

-2.8

Contributions to real GDP growth:

Domestic demand

Changes in inventories

Net exports

Employment (% change)

GDP deflator (% change)

Output gap (% of potential G

Potential output growth

-1.1

-1.1

-0.5

-0.2

1.2

-2.0

1.1

2.4

1.3

0.3

0.7

0.7

2.0

-0.8

1.2

1.1

1.1

0.4

-0.4

-1.0

1.3

-2.5

1.3

0.6

0.1

0.1

0.4

-1.4

1.3

-2.8

1.0

1.8

1.1

0.6

0.0

1.3

2.0

0.0

1.0

1.7

1.5

0.0

0.2

0.5

1.9

-2.2

1.4

1.5

1.6

0.0

-0.1

0.1

1.6

-2.4

1.2

-0.2

-0.4

-0.2

0.4

0.2

2.1

-1.1

0.9

2.2

2.0

0.0

0.2

0.9

1.9

-1.4

1.5

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

Source:  SP Jan 2010 - Stability Programme January 2010; COM 2009 AF - Commission services' 2009 Autumn Forecast; COM 2013 SF - 
Commission services' 2013 Spring Forecast.

It should be noted that in 2009 and 2010 real GDP growth turned out better than expected in 
the  Commission  services’  2009  Autumn  Forecast,  underlying  the  Council  recommendation 
addressed to Belgium under Article 126(7) of the Treaty. 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  2.4%  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 actual number arrived at 1.8%. 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. On the other hand, the 2012 GDP contraction has been a 
substantially  worse  outcome  than  expected  in  the  2010  Stability  Programme  and  in  the 
technical  assumption  underpinning  the  EDP  recommendation  which  assumed  a  gradual 
closure of the output gap between 2012 and 2015. 

According to the Commission services' 2013 Spring Forecast published early May 2013 the 
Belgian economy is expected to record a flat GDP growth rate in 2013, followed by a pick-up 
in 2014 when GDP is projected to expand by 1.2%. Under this forecast, domestic demand is 
projected  to  continue  the  contraction  initiated  in  2012.  While  consumption  by  Belgian 
households  is  likely  to  stagnate  in  2013,  investment  is  expected  to  fall  by  another  1.6%, 
driven  by  an  economy-wide  lack  of  confidence,  a  depressed  construction  sector,  tightening 
credit  conditions  and  an  industry  featuring  ample  spare  capacity.  Both  private  consumption 
and  investment  are  expected  to  gain  pace  only  as  of  2014  when  domestic  demand  would 
become  the  main  driver  behind  GDP  growth.  The  latter  role  is  reserved  for  net  exports  in 

3 

 
 
 
2013  with  the  open  Belgian  economy  expected  to  take  advantage  of  a  global  upturn.  While 
export growth would further accelerate in 2014, import growth can be expected to catch up in 
the  slipstream  of  a  more  robust  domestic  demand,  thereby  limiting  further  gains  from  net 
exports. 

In terms of unemployment, the weak economic performance of 2012 led to a gradual rise in 
the unemployment rate and this trend is expected to continue during 2013 with unemployment 
touching 8.0% on average. This level is forecast as well for 2014 as job creation would fail to 
outpace labour force growth.  

The  general  government  deficit,  which  had  increased  to  5.6%  of  GDP  in  2009  (which 
included 0.6 pp. of negative one-off factors), declined to 3.8% of GDP 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. However, the structural improvement in 2010 is estimated at only ½ 
%  of  GDP,  of  which  ¼  thanks  to  a  strong  decline  in  interest  expenditure.  In  2011,  the 
headline  deficit  declined  further  to  3.7%  of  GDP,  compared  to  the  official  target  of  3.6% 
specified  in  the  2011  update  of  the  Stability  Programme.  The  nominal  improvement  was 
entirely  due  to  the  favourable  macro-economic  conditions,  whereas  the  structural  balance 
deteriorated by 0.1%.  

In  2012,  the  deficit  outcome  was  heavily  impacted  by  the  recapitalization  of  the  Dexia 
banking group by the Belgian State for an amount of 0.8% of GDP, resulting in a deficit of 
3.9%  of  GDP.  Current  government  expenditure  –  which  does  not  include  this  one-off 
operation – increased by 3.9% between 2011 and 2012 and reached the historically high level 
of  51.2%  of  GDP.  Social  transfers  (+4.8%)  and  interest  expenditure  (+4.2%)  recorded  the 
highest  growth  rates.  New  measures  included  in  the  2012  budget  drove  revenues  up  from 
49.5% of GDP in 2011 to 50.8% in 2012. 

The  Commission  services'  2013  Spring  Forecast  projects  the  general  government  deficit  at 
2.9% of GDP in 2013. The 2013 improvement is partly based on one-offs (amounting to 0.4% 
of  GDP)  and  temporary  factors  such  as  lower  interest  rates  and  higher  revenues  from 
dividends.  Against  this  background,  under  a  no-policy-change  assumption  the  Commission 
services’ 2013 Spring Forecast projects the 2014 deficit to rise again, to 3.1% of GDP. 

Public  debt  had  declined  from  134.2%  of  GDP  in  1993  to  84.0%  of  GDP  in  2007  due  to 
primary surpluses and uninterrupted positive economic growth. From 2008 onwards, the debt 
ratio started to increase again, to almost 100% of GDP in 2012, although the rise was more 
limited  than  in  many  other  EU  member  states  where  government  debt  rose  by  +28%  on 
average between 2007 and 2012. The dynamics of the deficit and of GDP account for around 
6.5  pps.  of  the  increase,  while  exogenous  factors  amount  to  around  9  pps.,  mainly  due  to 
rescue  operations  in  the  financial  sector  under  the  form  of  equity  injections  (Dexia,  Fortis, 
Ethias,  KBC  and  Belfius,  the  latter  being  nationalized).  The  Commission  services’  2013 
Spring Forecast projects a further increase to more than 101% of GDP in 2013 and, based on 
a no-policy-change scenario, to over 102% of GDP in 2014. The Belgian government intends 
to  sell  financial  assets  in  order  to  keep  the  debt  below  100%  of  GDP.  In  this  context,  the 
Belgian  government  announced  recently  the  sale  of  Royal  Park  Investment  (the  special 
purpose vehicle created in the context of the Fortis rescue operation) which would reduce the 
debt level by 0.2% of GDP. 

4 

 
 
3. 

EFFECTIVE ACTION 

3.1. 

Background information 

The  current  assessment  of  the  effective  action  is  based  on  the  data  notified  by  the  Belgian 
authorities  in  April  2013  and  validated  by  Eurostat.  It  takes  into  account  the  economic  and 
budgetary  developments  since  the  last  Council  recommendation  under  Article  126(7)  of  the 
TFEU was issued in December 2009. The assessment starts by comparing the recommended 
fiscal  effort  in  the  Council  recommendation,  the  apparent  fiscal  effort,  measured  by  the 
change in the structural budget balance, and the adjusted structural effort. The adjustment of 
the structural balance takes into account (i) the impact of revisions in potential output growth 
compared to that underlying the growth scenario in the Council recommendation, and (ii) the 
impact  on  revenue  of  revisions  of  the  tax  content  of  economic  activity  (composition  of 
economic growth or of other windfalls/shortfalls) relative to what is implied by standard long-
term  elasticities.  This  top-down  approach  in  the  assessment  is  complemented  by  a  careful 
analysis,  including  a  bottom-up  assessment  of  consolidation  measures  undertaken  by  the 
Belgian government.  

3.2. 

Assessment of effective action 2010-2013 - overview 

The  structural  balance  improved  from  -3.9%  of  GDP  in  2009  to  -3.0%  of  GDP  in  2012. 
Hence,  the  average  annual  apparent  fiscal  effort  over  the  period  2010-2012  is  estimated  at 
0.3%  of  GDP,  less  than  half  of  the  recommended  ¾  %  of  GDP.  A  decline  in  interest  rate 
expenditure contributed to 0.15 pp. of the overall improvement in the structural balance. 

Table 2: Change in the structural balance 

2010 

2011 

2012 

Change in structural revenue ratio (pp.  of GDP) 
Change in structural expenditure ratio (pp. of GDP) 
Change in structural balance (pp. of GDP) 
Source: European Commission Services' 2013 Spring Forecast  

0.4 
-0.1 
0.5 

1.0 
1.1 
-0.1 

0.8 
0.3 
0.5 

avg 
2010-
2012 
0.7 
0.4 
0.3 

total 
2010-
2012 
2.1 
1.3 
0.8 

The  adjusted  average  annual  structural  effort  (+0.7,  -0.6  and  +0.9  in  2010,  2011  and  2012, 
respectively) also falls short of the level recommended by the Council (see Table 3), mainly 
due  to  lack  of  improvement  in  2011  and,  more  generally,  because  the  adjustment  for  the 
significant  downward  revision  in  potential  output  growth3  since  the  time  when  the 
recommendation  was  issued  (+0.15  pp.)  is  broadly  offset  by  the  correction  for  average 
windfall revenues (-0.1 pp.). 

3  

The average potential growth at the time of recommendation over the reference period (2009-2014) was 
estimated at 1.3%. In the 2013 Spring Forecast, average potential growth over the new reference period 
(2009-2017)  is  estimated  at  1.0%  of  GDP,  with  the  economic  crisis  estimated  to  have  a  much  more 
long-lasting impact on potential growth. 

5 

 
 
 
  
 
 
                                                 
Table 3: Change in the structural balance corrected for revisions in potential output gap 
and revenue windfalls/ shortfalls 

Un-corrected average 
effort (dS) up until

Corrected average effort 
up until

Required fiscal effort in the 
2009 Council recomendation

Deadline for 
correction

2010
0.5

2011
0.2

2012
0.3

2010
0.7

2011
0.1

2012
0.3

2010 - 2012
3/4

2012

Source: own calculations based on European Commission Services' 2013 Spring Forecast  

In 2010, revenue developments, net of discretionary measures, evolved in line with standard 
elasticities,  while  in  2011  they  increased  at  a  higher  rate  than  would  have  been  implied  by 
GDP growth based on standard elasticities. This is partly due to shifts in corporate income tax 
collection,  with  companies  making  less  advance  payments  since  2009  due  to  the  crisis  and 
therefore higher payments compensating for resulting arrears at the moment of assessment in 
subsequent years. In addition, also revenues from dividends from commercial banks increased 
sharply  following  the  state's  interventions  in  the  financial  sector.  In  2012  revenues  fell 
somewhat short of what would be implied by standard elasticities. 

3.3. 

Assessment of effective action 2010-2012 – detailed analysis of measures 

The  cumulative  net  impact  of  discretionary  measures  (excluding  one-off  measures)  over 
2010-2012, either taken during the period 2010-2012 or before but with an additional impact 
on this period, is estimated at some 2.0% of GDP (see Table 4). This calculation includes both 
deficit-reducing  measures  as  well  as  expenditure  increases  to  some  extent  due  to  policy 
decisions of the past (such as welfare adaptations of social benefits, rapidly increasing wage 
subsidies to companies and clean car subsidies) which partly offset the consolidation efforts. 

A consolidation package announced before the opening of the EDP is estimated to have had a 
positive impact of over ¾% of GDP, but is broadly offset by the additional impact of stimulus 
measures  and  the  above-mentioned  impact  of  earlier  policy  decisions.  After  anticipative 
elections  in  June  2010,  a  political  deadlock  at  federal  level  lasted  until  the  end  of  2011. 
However, the phasing-out of anti-crisis measures, rising financial sector contributions to the 
deposit guarantee scheme, as well as a number of corrective measures taken by the caretaker 
government,  had  an  additional  net  effect  of around  0.4%  of  GDP.  The  permanent  measures 
taken in the 2012 budget and the subsequent budget controls by the newly appointed federal 
government are estimated to have had an impact of around 1.5% of GDP. 

Table 4: Additional impact of discretionary measures (excluding one-off measures) 

2010 

2011 

2012 

avg 2010-
2012 

Structural revenue measures (% of GDP) 
Structural expenditure measures (% of GDP) 
Total impact of measures (% of GDP) 

0.4 
0.3 
0.1 

0.5 
0.1 
0.4 

1.0 
-0.5 
1.5 

0.6 
0.0 
0.7 

Source: Commission Services 

total 
2010-
2012 
1.9 
0.0 
2.0 

6 

 
 
 
 
 
  
Table 5: Composition of the budgetary adjustment 

%  of GDP

Revenue

of which:

- Taxes on production and imports

- Current taxes on imcome, wealth, etc.

- Social contributions

- Other (residual)

Expenditure

of which:

- Primary expenditure

      of which:

     - Compensation of employees

     - Intermediate consumption

     - Social payments

     - Subsidies

     - Gross fixed capital formation

     - Other (residual)

- Interest expenditure

General government balance (GGB)

Primary balance

One-off and other temporary measures

Structural balance

Change in structural balance

Real GDP growth

GDP deflator

Nominal GDP growth

2009

outturn

outturn

48.1

48.7

2010

SP Jan 
2010
49.1

COM 
2009 AF
48.0

12.5

15.2

16.8

3.6

53.7

12.8

15.6

16.5

3.9

52.6

12.4

16.3

16.6

3.8

53.9

12.3

15.5

16.2

4.0

53.8

2011

SP Jan 
2010
49.5

COM 
2009 AF
48.2

12.4

16.4

16.5

4.2

53.6

12.4

15.7

16.1

4.0

54.0

outturn

50.8

12.9

16.4

17.0

4.5

54.8

outturn

49.5

12.6

16.0

16.6

4.3

53.4

12.4

16.6

16.6

4.2

52.8

2012

SP Jan 
2010
49.8

COM AF 
2009      
n.a.

50.0

49.0

50.2

49.8

49.9

49.9

49.9

51.3

49.0

12.8

3.8

25.3

2.2

1.7

4.2

3.7

-5.6

-1.9

-0.6

-3.9

1.7

-2.8

1.2

-1.6

12.5

3.7

24.8

2.6

1.7

3.7

3.5

-3.8

-0.4

0.0

-3.4

0.5

2.4

2.0

4.5

16.5a

16.4a

25.8

25.8

2.3

1.7

3.8

3.7

-4.8

-1.1

0.0

-3.4

0.3

1.1

1.3

2.4

2.4

1.9

3.3

4.0

-5.8

-1.8

0.1

-4.4

-0.2

0.6

1.3

1.9

12.6

3.7

25.1

2.7

1.8

4.0

3.5

-3.7

-0.4

-0.2

-3.5

-0.1

1.8

2.0

3.9

16.1a

16.2a

25.9

26.0

2.4

1.8

3.7

3.7

-4.1

-0.4

0.0

-2.9

0.5

1.7

1.9

3.6

2.4

2.0

3.3

4.1

-5.8

-1.7

0.0

-4.5

-0.1

1.5

1.6

3.1

12.8

3.7

25.8

2.7

1.7

4.6

3.5

-3.9

-0.5

-0.3

-3.0

0.5

-0.2

2.1

1.9

15.7a

25.7

2.2

1.9

3.6

3.8

-3.0

0.8

0.0

-2.2

0.7

2.2

1.9

4.1

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

n.a.

a) Compensation of employees and intermediate consumption

Source: SP Jan 2010 - Stability Programme January 2010; COM 2009 AF - Commission services' 2009 Autumn Forecast; COM 2013 SF - Commission 
services' 2013 Spring Forecast.

The largest revenue-increasing impact comes from the lowering – in several stages − of the 
reference  rate  for  the  notional  interest  deduction  in  corporate  taxation  (allowance  for 
corporate equity), accounting for 0.4% of GDP (see Table 6). Other measures with a sizeable 
impact  include  the  increase  in  the  financial income  tax  in  2012  (0.2%  of  GDP)  and  several 
increases of taxes on products (0.3% of GDP). Contributions by financial institutions account 
for  another  0.2%  of  GDP.  The  impact  of  discretionary  revenue  measures  ('bottom-up 
approach')  is  broadly  in  line  with  the  observed  change  in  the  structural  revenue  ratio  ('top-
down  approach'),  with  only  a  significant  gap  in  2011,  due  to  the  above-mentioned  windfall 
revenues. 

On  the  expenditure  side,  the  net  impact  of  measures  is  close  to  zero.  The  main  deficit-
reducing  measures  consist  of  reducing  the  wage  bill  and  functioning  costs  of  public 
administration (0.4% of GDP), curbing the rising trend in health expenditure (0.2% of GDP) 
and reforms in the social security (0.1% of GDP). These measures have been broadly offset 
by  expenditure-increasing  measures  such  as  welfare  adaptations  of  social  benefits  (0.3%  of 
GDP), the expansion of wage subsidy schemes (0.4% of GDP), and an increasing recourse to 
clean car subsidies (up to 2011).  

7 

 
 
 
 
 
 
Table 6: Main budgetary measures over 2010-2012 

Revenue 

2010 

Expenditure 

• 

• 

• 

• 

• 

Increase in excise duties on Diesel: 0.1% of GDP 

Levy on the nuclear rent: 0.1% of GDP 

Increase  in  CIT  (Modification  of  the  reference  rate  for 
notional interest deduction and other changes in deductions): 
0.1% of GDP 

Abolishment  of  the  PIT  reduction  in  the  Flemish  Region 
(0.1% of GDP) 

Reduced VAT rate on restaurant bills: -0.1% of GDP 

2011 

• 

Savings on staff expenditure and functioning costs: -
0.1% of GDP 

•  Welfare  adaptations  of  social  benefits:  +0.1%  of 

GDP 

• 

Expansion of wage subsidy schemes: +0.2% of GDP 

• 

• 

Lifting  of  bank  secrecy, 
settlements: 0.1% of GDP 

regularization  and  court 

• 

Reduction  in  primary  expenditure  (other  than  social 
benefits): -0.15% of GDP 

Increase  in  the  fee  for  the  deposit  protection  fund:  0.1%  of 
GDP 

• 

Reduction in health care expenditure: -0.1% of GDP 

•  Welfare  adaptations  of  social  benefits:  +0.1%  of 

2012 

• 

• 

• 

Reform of the system of notional interest deductibility: 0.3% 
of GDP 

Increase  in  the  taxation  of  dividends  and  interests:  0.2%  of 
GDP 

Increase in the levy on nuclear rent: 0.1% of GDP  

•  Measures against tax fraud:  0.1% of GDP 

GDP 

• 

Expansion of wage subsidy schemes: +0.1% of GDP 

• 

• 

• 

• 

Expenditure savings in health care: -0.1% of GDP  

Suppression of the subsidy for clean cars: -0.1% of 
GDP 

Reduction  in  administrative  expenditure:  -0.1%  of 
GDP 

Expenditure saving measures in social security (e.g. 
reform of the unemployment benefit system): -0.1% 
of GDP 

•  Welfare  adaptations  of  social  benefits:  +0.1%  of 

GDP 

Note: A positive sign implies that revenue / expenditure increases as a consequence of this measure. Annual budgetary impacts 
are estimated by the Commission services and expressed as a % of GDP. Measures  with a budget impact of at least 0.1% of 
GDP are listed.  

While the bottom-up sum of measures at the expenditure side shows a broadly neutral deficit 
impact of measures over the consolidation period, the structural expenditure ratio not only did 
not decrease, but even increased by 1.3 pps. of GDP over the correction period. This is among 
others due to the negative autonomously rising trend in health care costs4 and pensions5, as a 
result of population ageing. Also the strong increase in investment at local government level 
in  the  run-up  to  the  2012  local  elections  contributed  to  a  temporary  rise  in  expenditure  of 
around 0.1% of GDP between 2010 and 2012.  

4  

5  

Since  2003,  the  maximum  expenditure  growth  of  the  health  care  system  is  set  at  4.5%  on  top  of 
inflation. In practice, real expenditure has grown at a lower rate, at 4.3% on average between 2003 and 
2009, which exceeds medium-term GDP growth. Over the correction period, measures have been taken 
to curb this growth and the low inflation in 2009 limited the effect of the automatic indexation system 
in  2010.  This  resulted  in  a  real  growth  rate  of  0.8%  of  GDP  in  2010  and  2.2%  in  2011.  In  the  2012 
budget, real growth has been limited to 2%. 
Between  2009  and  2012,  the  population  aged  over  65  increased  by  4.8%,  while  the  population  at 
working age (15-64) rose by only 2.6%. At the end of 2011, the Belgian government adopted a pension 
reform aiming to curb the rise in age-related expenditure, but this will only yield significant effects in 
the medium term. 

8 

 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
3.4. 

Budgetary implementation in 2010 

The general government deficit, which had increased to 5.6% of GDP6 in 2009 (compared to 
5.9% of GDP expected in November 2009 when the EDP was initiated), declined to 3.8% in 
2010. Thanks to the better-than-expected macroeconomic outturns (2.4% of GDP growth) 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. Overall, the net effect of discretionary measures is estimated to be 
around 0.1% of GDP. In addition, interest expenditure declined by 0.2 pp. of GDP. The low 
inflation  in  2009  curbed  temporarily  the  autonomous  growth  of  the  public  sector  wage  bill 
and social transfers (which are indexed on past inflation). The primary balance improved from 
a deficit of 1.9% of GDP in 2009 to 0.4% of GDP in 2010. 

Overall, the structural improvement in 2010 stood at ½ percentage point, falling short of the 
annual average reduction recommended by the Council (¾ % of GDP). This is broadly in line 
with  the  structural  adjustment7  planned  in  the  2010  Stability  Programme.  However,  when 
combined  with  the  narrowing  output  gap  and  revenue  developments,  the  structural  balance 
improved by some 0.7% of GDP. Accounting for the downward revision of potential output 
growth  since  the  time  of  the  Council  recommendation  would  increase  the  annual  apparent 
fiscal effort in 2010 by about 0.15 pp, while revenue developments over 2010 were broadly in 
line with those implied by standard elasticities. 

3.5. 

Budgetary implementation in 2011 

Despite  GDP  growth  above  potential,  the  headline  deficit  fell  only  marginally  in  2011,  to 
3.7%  of  GDP,  compared  to  a  target  in  the  2011  Stability  Programme  of  3.6%  of  GDP. 
Moreover,  the  2011  Stability  Programme  still  assumed  a  deficit  of  4.1%  of  GDP  in  2010 
whereas the final outcome was 3.8%. The nominal improvement at sub-federal level (regions, 
communities  and  local  authorities)  was  almost  entirely  offset  by  a  deterioration  at  federal 
level. The liquidation of the Holding Communal following the collapse of the Dexia banking 
group had a negative one-off impact of 0.2% of GDP, mainly at the expense of the regions. 
The primary balance remained broadly stable in 2011, with a primary deficit of around 0.4% 
of GDP. 

The  structural  balance  deteriorated  slightly  in  2011  (by  0.1  pp.  of  GDP).  When  taking  into 
account  the  revisions  of  potential  growth  and  windfall  revenues,  the  deterioration  in  the 
structural  balance  is  even  larger,  at  -0.6  pp.  of  GDP.  The  lack  of  structural  improvement  is 
partly related to the absence of a government with full powers at federal level between mid-
2010  and  end-2011.  The  investment  cycle  at  local  level  in  the  run-up  to  the  2012  local 
elections  had  a  negative  impact  of  0.1  pp.  of  GDP  on  the  structural  balance.  On  the  other 
hand, the modest decrease in interest expenditure - despite rising interest rates towards the end 
of 2011 - had a positive impact of almost 0.1 pp. of GDP on the balance. 

6  

7  

Of  which  0.6  pp.  is  due  to  temporary  and  one-off  factors,  such  as  tax  refunds  as  a  consequence  of  a 
court decision and an acceleration in personal income tax settlement with a negative impact on 2009. 
recalculated by the Commission services based on the information in the programme. 

9 

 
 
 
                                                 
3.6. 

Budgetary implementation in 2012 

Based  on  the  Commission  Services'  2011  Autumn  forecast,  there  was  clear  evidence  of 
compliance risks with the 2009 EDP recommendation, given the still significant excess over 
the 3% of GDP deficit threshold close to the deadline in the absence of a 2012 budget and the 
fact that the fiscal effort achieved until then fell short of the recommended one. Therefore, the 
Commission expressed its concerns and urged Belgium to take the necessary measures in time 
to avoid a stepping-up of their EDP. In response to the Commission concerns and in order to 
meet  the  deadline  set  by  the  Council,  the  newly  constituted  Belgian  government  reacted 
swiftly and agreed on the draft budget for 2012 on 27 November. The final budget adopted 
included a series of consolidation measures aiming to reduce the deficit to 2.8% of GDP. In 
addition,  the  Belgian  government  adopted  a  spending  freeze  of  about  0.35%  of  GDP.  The 
Commission  services  concluded  in  January  2012  that,  based  on  the  prevailing  growth 
projection of 0.9% according to the Commission services' 2011 Autumn Forecast (while 2012 
growth  turned  out  at  -0.2%),  on  the  consolidation  measures  in  the  budget  and  on  the 
additional  freeze,  the  deficit  would  reach  2.9%  of  GDP  in  2012.  Hence  the  Commission 
considered that no further steps in the excessive deficit procedure of Belgium were needed at 
that point in time. 

However,  in  the  first  months  of  2012,  growth  projections  were  substantially  revised 
downwards.  In  March  2012,  the  Belgian  authorities  carried  out  a  budgetary  monitoring 
exercise, which resulted in the adoption of new measures amounting to about 0.3% of GDP. 
Also  sub-federal  government  layers  (regions,  communities  and  local  authorities)  took 
additional measures in order to stick to their respective nominal deficit targets. In their 2012 
Spring Forecast, the Commission services projected the deficit at 3% of GDP in 2012, based 
on a zero growth assumption and taking into account the disappointing tax revenues recorded 
in the first months of the year. Part of the consolidation measures consisted of measures with 
a one-off impact (in total estimated at 0.4% of GDP). In July 2012, the government undertook 
an additional budget control as part of a strengthened budgetary monitoring, which confirmed 
that Belgium was broadly on track to reach its own 2.8% of GDP deficit target, partly because 
of  an  expected  improvement  of  the  macro-economic  situation  based  on  the  outcome  of  the 
first quarter. However, GDP growth in the second quarter proved to be particularly negative (-
0.5%),  and  also  growth  in  the  second  half  of  2012  remained  sluggish.  The  government 
undertook a budget control in October 2012, resulting in additional spending reductions and a 
number of one-off measures in order to ensure the reduction of the deficit to 2.8% of GDP. 

At  the  end  of  2012,  the  Belgian  and  French  governments  needed  to  increase  the  capital  of 
Dexia, in order to remedy a negative net asset position and allow the orderly resolution of the 
group to go ahead. For Belgium, this had a one-off negative impact8 on the deficit of 0.8% of 
GDP. Moreover, the economic downturn impacted government revenue more than expected, 
resulting in a deficit at federal level (central government + social security) of 2.7% of GDP 
excluding the impact of the Dexia recapitalization compared to their own target of 2.4%. In 
addition, in the April 2013 EDP notification, it turned out that the local government level had 
missed its deficit target (- 0.3% of GDP instead of -0.2%), which was only partly offset by a 
better than expected result by regions and communities (-0.1% of GDP instead of -0.2%). As 
a result, the notified and validated deficit came out at 3.9% of GDP. Even without the impact 

8  

See Eurostat's view of 19 March 2013 on the recapitalization of Dexia:   
 http://epp.eurostat.ec.europa.eu/portal/page/portal/government_finance_statistics/documents/BE-
Dexia-recapitalisation_advice-2013-03-19.pdf. 

10 

 
 
                                                 
of the Dexia operation, the deficit would have remained above the reference value, at 3.2% of 
GDP.  The  primary  balance  deteriorated  from  a  deficit  of  0.4%  of  GDP  in  2011  to  0.5%  in 
2012,  due  to  the  impact  of  the  Dexia  recapitalization,  without  which  the  primary  balance 
would have shown a surplus of 0.3% of GDP.   

Despite  sizeable  government  measures,  the  structural  budget  balance  is  estimated  to  have 
improved by ½ pp. of GDP in 2012. The adjusted change in the structural balance is estimated 
at around 0.9 pp. of GDP. Rising interest expenditure had a negative impact of 0.1 pp. of GDP 
on the structural balance. In addition, the automatic indexation mechanism resulted in a strong 
autonomous increase in public sector wages and social benefits (accounting for more than half 
of public expenditure) due to the high inflation in 2011 and at the beginning of 2012. This has 
an estimated negative impact of around 0.2 pp. of GDP on the structural balance. The rise in 
the number of pensioners and accumulated pension rights is estimated to have had a negative 
impact of 0.1 pp. on the structural balance. 

3.7. 

Budgetary developments in 2013 and 2014 

According to the Commission services' 2013 Spring Forecast, the general government deficit 
is projected to decrease to 2.9% of GDP in 2013. The initial 2013 budget targeted a nominal 
deficit  of  2.15%  of  GDP.  Main  expenditure  measures  included  cuts  in  the  central 
administration  (0.1%  of  GDP),  in  the  health  care  (0.1%  of  GDP)  and  in  the  social  security 
(0.1% of GDP). The package also contained around 0.3% of GDP of new taxes, partly offset 
by a decrease in social security contributions (0.1% of GDP). The biggest impact comes from 
an increase in capital income taxation (0.1% of GDP) and a limitation of the notional interest 
deductibility  in  corporate  income  taxation  (0.05%  of  GDP).  Lastly,  another  0.3%  of  GDP 
comes from non-tax revenues such as a temporary fiscal regularisation, anti-fraud measures, 
the sale of telecommunication licences and financial sector contributions. 

However,  since  the  drafting  of  the  budget,  the  official  growth  projections  underpinning  the 
budget  (+0.7%,  in  line  with  the  Commission  services'  2012  Autumn  Forecast)  have  been 
substantially revised downwards, to 0.2% in the  2013  Stability Programme  and 0.0% in the 
Spring Forecast. Therefore, the government abandoned the nominal deficit target and replaced 
it by a commitment to improve the structural balance by 1.0% of GDP. In March 2013, the 
government took additional measures amounting to 0.2% of GDP, which have been taken into 
account in the Commission services' 2013 Spring Forecast. This forecast projects a structural 
improvement of ¾ pp. in 2013, with lower interest expenditure contributing around ¼ pp. to 
the improvement. Hence, the gap with the official structural target amounts to ¼% of GDP, 
according to the Commission services' 2013 Spring Forecast. 

At unchanged policy, the Commission Services' 2013 Spring Forecast projects the deficit to 
rise again in 2014, to 3.1% of GDP, despite the projected growth above potential. This new 
rise is due to the autonomous rising trend in social transfers and the fact that the 2013 budget 
also  included  around  0.4%  of  GDP  of  one-off  and  temporary  revenues,  such  as  a  fiscal 
amnesty,  the  sale  of  telecom  licenses  and  an  exceptionally  high  dividend  from  the  National 
Bank of Belgium. 

11 

 
 
 
4. 

PROPOSED NEW ADJUSTMENT PATH 

Belgium  did  not  correct  its  excessive  deficit  by  the  deadline  recommended  by  the  Council. 
The average annual fiscal effort since 2010 is estimated at 0.3% of GDP, significantly below 
the ¾% of GDP recommended by the Council. Also after correction for the effects of revised 
potential  output  growth  and  revenue  developments,  the  adjusted  average  fiscal  effort  is  less 
than  half  of  the  recommended  effort.  It  therefore  appears  necessary  to  issue  a  Council 
Decision giving notice to Belgium to take measures for the deficit reduction judged necessary 
in order to remedy the situation of the excessive deficit. 

Measures taken in the initial 2013 budget and the March 2013 budget control, are currently 
expected  to  bring  the  deficit  below  3%  of  GDP  in  2013.  However,  according  to  the 
Commission  services'  2013  Spring  Forecast,  the  safety  margin  against  breaching  the  Treaty 
reference  value  is  very  narrow.  Moreover,  the  correction  is  currently  not  yet  sustainable. 
Therefore, a further reduction of the 2013 defict to 2.7% of GDP would be warranted in order 
to secure a lasting improvement in the general government balance, which is consistent with a 
structural  improvement  of  1.0%  of  GDP  in  2013.  To  this  end,  additional  measures  with  an 
estimated impact of  ¼ % of GDP are considered necessary, also in view of possible negative 
second round effects.  

In its 2013 Stability Programme, Belgium committed to reach a balanced budget in structural 
terms by 2015, before reaching its medium-term objective of a surplus of 0.75% of GDP in 
structural  terms  in  2016.  Achieving  a  balanced  budget  in  structural  terms  by  2015  would 
require  an  average  structural  effort  of  1%  over  2013-2015  according  to  the  Commission 
services' calculations.  

Furthermore, it is important to underpin the consolidation of public finances by adjusting the 
fiscal  framework  to  ensure  that  the  budgetary  targets  are  binding  at  federal  and  sub-federal 
levels,  and  increase  transparency  of  burden-sharing  and  accountability  across  layers  of 
government.  There  is  also  a  need  to  adopt  a  rule  on  the  general  government  budget 
balance/surplus that complies with the requirements of the Treaty on Stability, Coordination 
and Governance in the Economic and Monetary Union. 

The  European  Commission  Fiscal  Sustainability  Report  2012  shows  that  the  long-term 
budgetary impact of ageing in Belgium is well above the EU average. This is mainly the result 
of  a  rapid  increase  in  pension  expenditure  as  a  share  of  GDP  over  the  coming  decades. 
Although  the  December  2011  pension  reform  was  an  important  positive  step,  additional 
measures appear necessary to fully restore the long-term sustainability of public finances. In 
this  respect,  additional  efforts  are  needed  to  close  the  gap  between  the  effective  and  the 
statutory retirement age, while measures to link the statutory retirement age to developments 
in  life  expectancy  would  allow  safeguarding  the  sustainability  of  the  pension  system  in  the 
long term. 

12 

 
 
2012

2013

Table  7  –  Forecast  of  key  macroeconomic  and  budgetary  variables  under  the  baseline 
scenario 
% of GDP
Revenues 
Current revenues
Discretionary measures with impact on current revenue1
Expenditure
Real GDP growth (%) 
Nominal GDP growth (%) 
Potential GDP growth (%) 
Structural balance
General government balance
p.m CAB methodology revenue elasticity
p.m Apparent revenue elasticity
p.m Output gap (% of potential output)
Note:
1 Measures clearly specified and committed to by governments ahead of the 
recommendation

50.8
49.8
1.4
54.8
-0.2
1.9
0.9
-3.0
-3.9

51.1
50.1
0.2
54.2
0.0
1.7
0.9
-2.3
-2.9

-1.1

-1.9

Table  8  -  Forecast  of  key  macroeconomic  and  budgetary  variables  under  the  EDP 
scenario 

% of GDP
Real GDP growth (%)
Potential GDP growth (%)
Structural balance
General government balance
p.m Output gap (% of pot. output)

2012

2013

-0.2
0.9
-3.0
-3.9
-1.1

0.0
0.9
-2.0
-2.7
-2.0  

13 

 
 
 
 
 
5. 

CONCLUSIONS 

Following the EDP notification of the 2012 general government deficit and its validation by 
the Commission (Eurostat), the 2012 deficit came out at 3.9% of GDP. Hence, Belgium did 
not correct its excessive deficit by the deadline recommended by the Council. This was partly 
due to the urgent need to recapitalize the banking group Dexia at the end of 2012, which had a 
negative  impact  of  0.8%  of  GDP  on  the  government  deficit.  However,  also  without  this 
operation the deadline would have been missed, with a deficit of 3.2% of GDP excluding the 
one-off  negative  impact  of  that  operation.  Moreover,  the  2012  budget  contained  substantial 
deficit reducing one-off measures, estimated at around 0.4% of GDP. 

The average annual fiscal effort since 2010 is estimated at 0.3% of GDP, significantly below 
the ¾% of GDP recommended by the Council. Also after correction for the effects of revised 
potential  output  growth  and  revenue  developments,  the  adjusted  average  fiscal  effort  is  less 
than half of the recommended effort. In particular, the fiscal effort was entirely absent in 2011 
due  to  the  political  deadlock  at  federal  level.  At  the  end  of  2011,  the  newly  appointed 
government  swiftly  adopted  sizeable  consolidation  measures,  also  in  response  to  the 
Commission's call for action in order to ensure the timely correction of the excessive deficit. 
As a result, the adjusted fiscal effort in 2012 was above the recommended annual structural 
effort. A bottom-up calculation estimates the cumulative impact of discretionary measures of 
a  permanent  nature  at  around  2%  of  GDP  over  2010-2012.  Deficit-reducing  measures  have 
been partly offset by expenditure increases following policy decisions of the past (e.g. welfare 
adaptations  of  social  benefits,  rapidly  rising  wage  subsidies  to  companies).  Moreover,  the 
impact  of  discretionary  measures  has  been  insufficient  to  curb  the  rising  trend  in  public 
expenditure  due  to  population  ageing,  which  explains  the  limited  improvement  of  the 
structural balance over the consolidation period. 

Measures taken in the initial 2013 budget and the March 2013 budget control, are currently 
expected  to  bring  the  deficit  below  3%  of  GDP  in  2013.  However,  according  to  the 
Commission  services'  2013  Spring  Forecast,  the  safety  margin  against  breaching  the  Treaty 
reference  value  is  very  narrow.  Moreover,  the  correction  is  currently  not  yet  sustainable. 
Therefore,  a  further  reduction  of  the  2013  deficit  to  2.7%  of  GDP  is  warranted  in  order  to 
secure a lasting improvement in the general government balance, which is consistent with a 
structural  improvement  of  1.0%  of  GDP  in  2013.  To  this  end,  additional  measures  with  an 
estimated impact of ¼ % of GDP are considered necessary, also in view of possible negative 
second round effects. 

14 

 
 
 
 
 
Table 9: Comparison of key macroeconomic and budgetary projections 

2009

2010

2011

2012

2013

Real GDP

(% change)

Output gap1
(% of potential GDP)

COM SF 13

COM AF 09

SP 13

COM SF 13

COM AF 09

SP 13

COM SF 13

General government balance

COM AF 09

(% of GDP)

Primary balance

(% of GDP)

Cyclically-adjusted balance1

SP 13

COM SF 13

COM AF 09

SP 13

COM SF 13

COM AF 09

(% of GDP)

SP 13

Structural balance2
(% of GDP)

COM SF 13

COM AF 09

SP 13

COM SF 13

Government gross debt

COM AF 09

(% of GDP)

SP 13

-2.8

-2.9

n.a.

-2.0

-2.3

n.a.

-5.6

-5.9

n.a.

-1.9

-2.0

n.a.

-4.5

-4.6

n.a.

-3.9

-4.2

n.a.

95.7

97.2

n.a.

2.4

0.6

n.a.

-0.8

-2.8

n.a.

-3.8

-5.8

n.a.

-0.4

-1.8

n.a.

-3.3

-4.3

n.a.

-3.4

-4.4

n.a.

1.8

1.5

n.a.

0.0

-2.4

n.a.

-3.7

-5.8

n.a.

-0.4

-1.7

n.a.

-3.7

-4.5

n.a.

-3.5

-4.5

n.a.

95.5

101.2

n.a.

97.8

104.0

n.a.

-0.2

n.a.

-0.2

-1.1

n.a.

-1.1

-3.9

n.a.

-3.9

-0.5

n.a.

-0.5

-3.4

n.a.

-3.4

-3.0

n.a.

-3.0

99.6

n.a.

99.6

0.0

n.a.

0.2

-1.9

n.a.

-1.9

-2.9

n.a.

-2.5

0.3

n.a.

0.8

-1.9

n.a.

-1.4

-2.3

n.a.

-1.7

101.4

n.a.

100.0

Note:
1 Output gaps and cyclically-adjusted balances according to the  programmes as 
recalculated by Commission services on the bass of the information in the programmes.
2 Cyclically-adjusted balance excluding one-off and other temporary meaures
Source: Commission services' 2013 Spring Forecast (COM SF 13),  Commission services' 2009 Autumn

Forecast (COM AF 09), and  2013 Stability Programme (SP 13)

15 

 
 
 
Annex 

Table A1: Adjustment of apparent structural effort for the revision in potential growth 
– details of calculation  
Average potential 
GDP growth 
underlying the 
Council 
Recommendation 
(%) 

Average 
potential GDP 
growth at the 
time of 
assessment (%) 

Structural 
expenditure      

(% of nominal 
potential GDP) 

(% of potential 
GDP) 

Forecast error 
(%) 

Correction 
coefficient       

(1) 

1.30 

(2) 

(3)=(1)-(2) 

(4) 

(5)=(3)*(4)/100 

0.99 

0.30 

51.11 

0.15 

Table A2: Adjustment of apparent structural effort for the revenue shortfalls/windfalls 
as compared to standard elasticities – details of calculation 

Change in 
current revenues 
(yoy) (billions of 
national 
currency) 

Discretionary 
current revenue 
measures 
(billions of 
national 
currency) 

Nominal GDP 
growth 
assumptions 
(%) 

Current 
revenues  in 
year t-1 (billion 
of national 
currency) 

Revenue gap 
(billion of 
national 
currency)* 

Correction 
coefficient  (% 
of nominal 
potential GDP) 

2013SF 

2013SF 

2013SF 

2013SF 

(1) 

9.2 
9.5 
7.6 

(2) 

2.4 
1.2 
5.4 

(3) 

4.5 
3.9 
1.9 

(4) 

161.4 
170.6 
180.1 

(5)=(1')-(2')-
ε*(3')*(4') 

-0.09 
2.15 
-0.97 

-0.02 
0.58 
-0.26 
0.10 

2010 

2011 

2012 

average 

16