Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Belgium and delivering a Council opinion on the 2016 stability programme of Belgium
Date: 2016-05-18
Institutions: European Commission, Secretariat-General
Subjects: Belgium, budget deficit, economic policy, economic reform, education, investment, labour market, retail trade, stability programme, tax system

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   EUROPEAN COMMISSION  Brussels, 18.5.2016  COM(2016) 322 final   Recommendation for a COUNCIL RECOMMENDATION on the 2016 national reform programme of Belgium  and delivering a Council opinion on the 2016 stability programme of Belgium  
 
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2016 national reform programme of Belgium 

and delivering a Council opinion on the 2016 stability programme of Belgium 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission2, 
Having regard to the resolutions of the European Parliament3, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  26  November  2015,  the  Commission  adopted  the  Annual  Growth  Survey4, 
marking  the  start  of  the  2016  European  Semester  of  economic  policy 
coordination.  The  priorities  of  the  Annual  Growth  Survey  were  endorsed  by  the 
European Council on 17-18 March 2016. On 26 November 2015, on the basis of 
Regulation  (EU)  No  1176/2011,  the  Commission  adopted  the  Alert  Mechanism 
Report5, in which it identified Belgium as one of the Member States for which an 
in-depth  review  would  be  carried  out.  On  the  same  day,  the  Commission  also 
adopted a recommendation for a Council recommendation on the economic policy 
of the euro area6. This recommendation was endorsed by the European Council on 
18-19 February 2016 and adopted by the Council on 8 March 2016. As a country 
whose  currency  is  the  euro  and  in  view  of  the  close  interlinkages  between  the 

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OJ L 209, 2.8.1997, p. 1. 
COM(2016) 322 final. 
P8_TA(2016)0058, P8_TA(2016)0059, and P8_TA(2016)0060. 
COM(2015) 690 final. 
COM(2015) 691 final. 
COM(2015) 692 final. 

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(2) 

(3) 

(4) 

(5) 

economies of the economic and monetary union, Belgium should ensure the full 
and timely implementation of the recommendation. 
The  2016  country  report  for  Belgium7  was  published  on  26  February  2016.  It 
assessed Belgium’s progress in addressing the country-specific recommendations 
adopted  by  the  Council  on  14  July  2015  and  included  an  in-depth  review  under 
Article 5 of Regulation (EU) No 1176/2011. On 8 March 2016, the Commission 
presented the results of the in-depth review.8 The Commission’s analysis leads it 
to  conclude  that  Belgium  is  experiencing  no  macroeconomic  imbalances. 
Weakened  external  performance  combined  with  high  public  indebtedness  may 
pose risks in the future. However, recent developments point to an improvement 
in  competitiveness.  Corrective  measures  –  comprising  wage  moderation  and 
reductions in social security contributions – have led to a slowdown in labour cost 
growth. Public debt is not falling, but short-term risks appear contained. 

On 29 April 2016, Belgium submitted its 2016 national reform programme and its 
2016  stability  programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

Relevant  country-specific  recommendations  have  been  addressed 
the 
programming of the European Structural and Investment Funds for the 2014-2020 
period.  As  foreseen  in Article  23  of  Regulation  (EU)  No  1303/2013,  where  it  is 
necessary  to  support  the  implementation  of  relevant  Council  recommendations, 
the Commission may request a Member State to review and propose amendments 
to  its  Partnership  Agreement  and  relevant  programmes.  The  Commission  has 
provided further details on how it would make use of this provision in guidelines 
on the application of the measures linking effectiveness of the European Structural 
and Investment Funds to sound economic governance9. 

in 

The  2016  stability  programme  indicates  that  the  budgetary  impact  of  the 
exceptional inflow of refugees in 2015 and 2016 and of the  exceptional security 
measures in 2016 is significant, and provides adequate evidence of the scope and 
nature  of  these  additional  budgetary  costs.  According  to  the  Commission,  the 
eligible additional expenditure for refugees amounted to 0.03% of GDP in 2015, 
while the incremental impact in 2016 is estimated at 0.17% of GDP for refugee-
related  expenditure  and  at  0.12%  of  GDP  for  security  measures.  The  provisions 
defined  in  Article  5(1)  and  Article  6(3)  of  Regulation  (EC)  No  1466/97  allow 
catering for this  additional expenditure, in  that the inflow of  refugees as well as 
the  severity  of  the  terrorist  threat  are  exceptional  events,  their  impact  on 
Belgium`s  public  finances  is  significant  and  sustainability  would  not  be 
compromised  by  allowing  for  a  temporary  deviation  from  the  adjustment  path 
towards the medium-term budgetary objective. Therefore, the required adjustment 
towards the medium-term budgetary objective for 2015 has been reduced to take 
into account additional refugee-related costs. Regarding 2016, a final assessment, 
including  on  the  eligible  amounts,  will  be  made  in  spring  2017  on  the  basis  of 
observed data as provided by Belgian authorities. 

(6) 

Belgium is currently in the preventive arm of the Stability and Growth Pact and 
subject  to  the  transitional  debt  rule.  On  18  May  2016,  the  Commission  issued  a 
report  under  Article  126(3)  of  the  TFEU,  as  Belgium  did  not  make  sufficient 

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SWD(2016) 71 final. 
COM(2016) 95 final. 
COM(2014) 494 final. 

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(7) 

progress towards compliance with the debt rule in 2015. The analysis concluded 
that the debt criterion should be considered as complied with. In its 2016 stability 
programme, the government plans a gradual improvement of the headline balance 
from  a  deficit  of  2.6%  of  GDP  in  2015  to  -0.2%  of  GDP  in  2019.  The  revised 
medium-term  budgetary  objective,  set  at  a  balanced  budgetary  position  in 
structural  terms,  is  expected  to  be  reached  by  2018.  However,  the  recalculated10 
structural  balance  still  points  to  a  structural  deficit  of  0.4%  of  GDP  in  2018. 
According  to  the  stability  programme,  the  government  debt-to-GDP  ratio  is 
expected to peak at 106.2% of GDP in 2016 and to decline to 99.6% by 2019. The 
macroeconomic  scenario  underpinning  these  budgetary  projections  is  plausible. 
However,  the  measures  needed  to  support  the  planned  deficit  targets  from  2017 
onwards  have  not  been  sufficiently  specified.  Based  on  the  Commission  2016 
spring  forecast,  there  is  a  risk  of  a  significant  deviation  from  the  recommended 
adjustment in 2016 as well as in 2016 and 2017 taken together, under unchanged 
policies.  In  case  the  budgetary  impact  of  the  exceptional  inflow  of  refugees  as 
well  as  of  exceptional  security  measures  was  excluded  from  the  assessment,  the 
projected  deviation  in  2016  is  no  longer  significant.  Belgium  is  not  forecast  to 
comply  with  the  transitional  debt  rule  in  2016  and,  following  the  end  of  the 
transition  period,  with  the  debt  reduction  benchmark  in  2017.  Based  on  its 
assessment  of  the  stability  programme  and  taking  into  account  the  Commission 
2016 spring forecast, the Council is of the opinion that there is a risk that Belgium 
will not  comply with  the provisions of the Stability and Growth Pact. Therefore 
further measures will be needed to ensure compliance in 2016 and 2017. 

High  public  indebtedness  is  coupled  with  weak  export  and  competitiveness 
performance. External performance has deteriorated since 2000, as global market 
share  losses  show,  and  has  been  aggravated  by  exports  being  oriented  mainly 
towards less dynamic markets. While the negative trend in market shares has been 
halted in recent years, the accumulated losses remain substantial. Specialisation in 
market  segments  with  a  higher  exposure  to  price  competition  also  hampers  the 
country’s  export  capacity.  This  is  particularly  difficult  to  reconcile  with  the 
country’s  high  labour  costs.  Unit  labour  costs  have  risen  fast  as  a  result  of  low 
productivity  growth  and,  in  particular,  fast  wage  growth.  The  latter  can  be 
attributed to certain features of the wage-setting system. On the one hand, margins 
for  real  wage  growth  were  repeatedly  set  too  high.  On  the  other  hand,  inflation 
repeatedly  exceeded  expectations  and  inflation  in  neighbouring  countries.  The 
structural  difference  in  core  inflation  rates  between  Belgium  and  neighbouring 
countries is caused mainly by higher price growth for services and a suboptimal 
functioning  of  the  retail  market.  This  inflation  was  transmitted  to  wage  growth 
through the general practice of automatic wage indexation. Together, these factors 
eroded  the  effectiveness  of  the  highly  coordinated  wage-setting  system.  To  halt 
the decline in competitiveness and its negative impact on export performance and 
employment, the Belgian authorities have intervened in the wage-setting process 
in recent years. Wage moderation measures have been imposed, including limits 
on  real  wage  increases  and  the  suspension  of  wage  indexation  schemes.  In 
addition, reductions  in social  security contributions are being enacted. However, 
to  ensure  the  durability  of  the  correction,  structural  reforms  of  the  wage-setting 
framework  are  needed  in  line  with  the  Council  recommendations  in  past  years. 

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The  structural  balance  as  recalculated  by  the  Commission  based  on  the  information  in  the  stability 
programme, following the commonly agreed methodology. 

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(8) 

(9) 

Although  the  government  intends  to  revise  the  Loi  relative  à  la  promotion  de 
l’emploi  et  à  la  sauvegarde  préventive  de  la  compétitivité  (the  ‘Law  of  1996’), 
which provides the basis on which social partners set the ‘wage norm’ every two 
years, little progress has been made so far. Ensuring a more formal link between 
wages and productivity would help lock in recent gains and prevent a recurrence 
of past problems.  

Some  progress  has  been  made  on  the  overall  functioning  of  the  labour  market. 
Incentives to work have been strengthened by measures to reduce the tax wedge 
and changes in the unemployment benefit system. However, sizeable employment 
differentials  between  specific  population  groups  continue  to  result  in  a  chronic 
underutilisation of labour, especially among the low-skilled, young people, older 
people and people with migrant backgrounds. In addition, marginal tax rates upon 
entering or re-entering the labour market create inactivity and low wage traps for 
second  income  earners  and  specific  household  types  such  as  single  people  and 
single parents. It is therefore important to fine-tune and implement policies aimed 
at  encouraging  moves  from  inactivity  or  unemployment  to  employment. 
Educational  inequalities  linked  to  socio-economic  background  are  amongst  the 
highest  in  the  EU  and  poor  educational  outcomes  partly  explain  the  observed 
underperformance  of  people  with  a  migrant  background  or  low-skilled  young 
people.  The  education  reforms  currently  being  introduced  are  particularly 
designed to tackle early school leaving, early childhood care and education. They 
also  seek  to  improve  the  quality  and  relevance  of  the  vocational  system.  These 
reforms could facilitate a smoother transition towards a knowledge-intensive and 
increasingly  service-oriented  economy  and  alleviate  skills  mismatches  and 
persistent  labour  shortages  in  certain  occupations.  In  addition,  the  very  low 
activity and employment rates of older workers call for policies to promote active 
ageing  and  to  support  the  labour  market  demand  for  older  workers.  Finally, 
additional tax measures to facilitate the take-up of work could be warranted. 

There is still considerable scope for improving the non-cost dimension of external 
competitiveness. To safeguard and enhance current welfare levels, more emphasis 
should  be  placed  on  productivity  gains  and  investment  in  knowledge-based 
capital.  This  requires  a  sustained  push  towards  products  and  associated  services 
higher up the value chain, on the basis of stronger performance in innovation and 
utilising  the  results  of  R&D.  Despite  its  high-quality  public  research  system, 
Belgium has relatively few fast-growing firms in innovative sectors. Furthermore, 
the business climate is hampered by administrative and regulatory burdens, which 
inhibit  the creation and  expansion  of companies. Shareholding requirements and 
restrictions on voting rights, legal form and multidisciplinary activities hold back 
the  market  dynamism  for  business  services.  Operational  restrictions  and 
restrictions on where retailers can establish their premises have the same effect in 
the retail sector. Moreover, there are shortcomings in the efficiency of the justice 
system,  with  low  penetration  of  information  and  communications  technology. 
Together,  these  factors  constitute  significant  barriers  to  private  investment. 
Substandard  infrastructure  and  lengthy  bottlenecks  also  undermine  productivity 
growth  and  investment.  The  transport  network  represents  the  most  pressing 
investment  gap.  Belgium’s  geographical  location,  coupled  with  the  presence  of 
international  organisations,  has  enabled  the  country  to  attract  many  distribution 
centres,  logistics  bases  and  the  international  headquarters  of  various  companies. 
However,  there  is  a  growing  problem  of  peak-hour  traffic  congestion,  which 
undermines  the  country’s  attractiveness  for  foreign  investors  and  has  major 

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(10) 

(11) 

(12) 

economic  and  environmental  costs.  Belgium  is  also  expected  to  fall  short  of  its 
2020  greenhouse  gas  emission  reduction  target  and  suffers  from  serious  air 
pollution problems. Given the high concentration of economic activity around the 
capital and the ports, the most urgent challenges are upgrading basic rail and road 
transport infrastructure and eliminating missing links between the main economic 
hubs.  At  the  same  time,  it  is  important  to  tackle  peak  hour  congestion  by 
improving  public 
traffic  management  and 
eliminating  market  distortions  and  adverse  tax  incentives,  such  as  favourable 
treatment for company cars. 

transport  services,  optimising 

Another challenge relates to the adequacy of domestic power generation and the 
security  of  supply  in  general.  Hampered  by  repeated  interruptions,  Belgium’s 
ageing nuclear installations have become unreliable sources, while the repeatedly 
revised timetable for phasing out the nuclear park has created a climate that is not 
conducive  to  long-term  investment  decisions.  This  is  reflected  in  higher  imports 
and  increasingly  impaired  security  of  supply.  Although  short-term  supply  risks 
have  abated,  longer-term  investment  needs  are  still  considerable.  In  addition  to 
substantial  new  domestic  production  capacity  and  a  further  increase  in 
interconnections,  smart  grids  are  needed  to  develop  demand-side  management. 
Given  the  considerable  lead  time  for  large  projects  in  the  energy  sector  and  the 
high  need  for  replacement  capacity  over  the  next  decade,  swift  action  will  be 
required, in particular in the form of a suitable legal framework that promotes the 
increase in generation capacity.  

Belgium has made some progress in reforming the tax system, notably by shifting 
taxes from labour to other tax bases, which will gradually reduce the tax wedge on 
labour.  Reductions  in  personal  income  taxation  and  employers’  social  security 
contributions will also help narrow the gap. Nevertheless, the tax system remains 
complex,  with  tax  bases  eroded  by  specific  exemptions,  deductions  and  reduced 
rates.  Some  of  these  involve  revenue  losses,  economic  distortions,  and  a  heavy 
administrative burden. In addition, the tax shift does not seem to be neutral from a 
budgetary point of view. There is still considerable scope for improving the design 
of  the  tax  system  by  further  broadening  tax  bases,  allowing  for  both  lower 
statutory  rates  and  fewer  distortions.  There  is  also  considerable  potential  for  a 
‘green’  tax  shift  which  stems  from,  among  other  things,  the  favourable  tax 
treatment  of  company  cars  and  fuel  cards,  which  contribute  to  pollution, 
congestion and greenhouse gas emissions.  

In  recent  years,  Belgium  has  made  important  progress  in  reforming  its  pension 
system. The law of 10 August 2015 on the rise in pensionable age, the conditions 
for early pensions and the minimum age for survivors' pensions establishes a new 
minimum  age  and  career  length  criteria  for  ordinary  pensions.  However,  even 
after  the  recent  reforms,  the  projected  increase  in  the  pension  expenditure  ratio 
remains  substantial.  An  automatic  link  to  changes  in  life  expectancy,  as 
recommended  in  the  past,  would  reduce  medium  and  long  term  sustainability 
risks. In this respect, the governement has announced its intention to introduce a 
credit-based  pension  system,  which  could  allow  for  automatic  adjustment 
mechanisms in response to demographic developments. These issues will continue 
to be monitored closely under the European Semester. 

(13) 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive  analysis  of  Belgium’s  economic  policy  and  published  it  in  the 
2016 country report. It has also assessed the stability programme and the national 

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reform programme and the follow-up given to the recommendations addressed to 
Belgium in previous years. It has taken into account not only their relevance for 
sustainable fiscal and socioeconomic policy in Belgium but also their compliance 
with  EU  rules  and  guidance,  given  the  need  to  strengthen  the  EU’s  overall 
economic  governance  of  by  providing  EU-level  input  into  future  national 
decisions.  The  recommendations  under  the  European  Semester  are  reflected  in 
recommendations 1 to 3 below. 

(14) 

In the light of this assessment, the Council has examined the stability programme, 
and its opinion11 is reflected in particular in recommendation (1) below. 

HEREBY RECOMMENDS that Belgium take action in 2016 and 2017 to: 

1. 

2. 

3. 

Achieve an annual fiscal adjustment of at least 0.6% of GDP towards the medium-
term budgetary objective in 2016 and in  2017. Use windfall  gains to  accelerate the 
reduction of the general government debt ratio. Agree on an enforceable distribution 
of  fiscal  targets  among  all  government  levels.  Simplify  the  tax  system  and  remove 
distortive tax expenditures. 

Carry  out  the  intended  review  of  the  'Law  of  1996'  on  competitiveness  and 
employment in consultation with the social partners. Ensure that wages can evolve in 
line with productivity. Ensure the effectiveness of labour market activation policies. 
Move  forward  with  education  and  vocational  training  reforms  and  provide  training 
support, notably for people from a migrant background. 

Boost the capacity to innovate, notably by fostering investment in knowledge-based 
capital. Increase competition in the business services sector and the retail sector by 
removing unwarranted operational and establishment restrictions. Address shortfalls 
in investment in transport infrastructure and energy generation capacity. 

Done at Brussels, 

For the Council 
The President 

11 

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

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