COMMISSION STAFF WORKING DOCUMENT Country Report Belgium 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2017 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}
Date: 2017-02-22
Institutions: European Commission, Secretariat-General
Subjects: Belgium, EU employment policy, EU investment, economic development, economic recovery, euro area, fiscal policy, macroeconomics, multilateral surveillance, structural adjustment

EN 

   EN 

   EUROPEAN COMMISSION  Brussels, 22.2.2017  SWD(2017) 67 final   COMMISSION STAFF WORKING DOCUMENT Country Report Belgium 2017 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP  2017 European Semester: Assessment of progress on structural reforms,  prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011  {COM(2017) 90 final} {SWD(2017) 67 final to SWD(2017) 93 final}   
 
 
CONTENTS 

Executive summary 

1. 

Economic situation and outlook 

2. 

Progress with country-specific recommendations 

3. 

Reform priorities 

3.1.  Public finances and taxation 

3.2. 

Financial sector 

3.3. 

Labour market, education and social policies 

3.4.  Competitiveness and Investment 

A.  Overview Table 

B.  MIP Scoreboard 

C. 

Standard Tables 

References 

LIST OF TABLES 

1.1. 

2.1. 

Key economic, financial and social indicators — Belgium 

Summary Table on 2016 CSR assessment 

3.2.1.  Financial soundness indicators (in %) 

3.3.1.  Size of selected target groups (total population in thousands) 

B.1. 

The MIP Scoreboard for Belgium 

C.1. 

Financial market indicators 

C.2. 

Labour market and social indicators 

C.3. 

Labour market and social indicators (continued) 

C.4. 

Product market performance and policy indicators 

C.5.  Green growth 

LIST OF GRAPHS 

1.1. 

1.2. 

1.3. 

1.4. 

Breakdown of GDP growth 

Breakdown of potential growth 

Composition of investment spending (%GDP) 

Consumer inflation 

1 

4 

11 

14 

14 

21 

22 

30 

51 

59 

60 

65 

10 

12 

21 

24 

59 

60 

61 

62 

63 

64 

4 

4 

5 

5 

 
 
 
 
1.5. 

1.6. 

1.7. 

1.8. 

1.9. 

Bankruptcies and resulting job losses 

Employment growth (y/y %change; self-employed & employees) 

People living in households with very low work intensity (% total population aged less than 

60) 

Breakdown of current account balance (%GDP) 

Credit growth (y/y): non-financial companies (left) and mortgage loans (right) 

1.10. 

Residential real estate 

1.11.  Valuation gaps: price/income, price/rent and fundamental model 

3.1.1.  Fiscal deficit: headline and structural developments (%GDP) 

3.1.2.  Public debt trends 

3.1.3.  Public debt: medium-term projection and scenarios (%GDP) 

3.1.4. 

Low wage trap for second earners, 2015 

3.3.1.  Differences in employment and unemployment rates (15-64 years) at regional level 

compared to the Belgian average. 

3.3.2.  Distribution of the population (aged 0-59) by work intensity of the household — 2015 

3.3.3.  Relative dispersion of employment rates by education level, 2010, 2014 and 2015 

3.3.4. 

Labour transitions by employment status 

3.4.1.  Cumulative (core) inflation and nominal ULC differential between Belgium and 

neighbouring countries 

3.4.2. 

Inflation, inflation at constant tax rate and core inflation – Belgium and euro area (January 

2005 – December 2016) 

3.4.3.  Contribution of the main product groups to the inflation differential between Belgium and 

its main neighbouring countries 

3.4.4.  Unit labour cost by sector 

3.4.5. 

Labour productivity in EU-28 (2006-2015) — average % annual change 

3.4.6.  Share of export value by quality rank, Belgium 

3.4.7.  Share of number of different products exported in the top-quality category, EU-28 

countries plus Japan, U.S. and China 

3.4.8.  European Innovation Scoreboard — distance to EU innovation leaders and to EU average 

3.4.9.  Efficiency of public funding of private R&D 

3.4.10.  Value added share and employment share - professional, scientific, technical, 

administrative and support service activities 

3.4.11.  Goods market efficiency indicator, 2016 

3.4.12.  Ease of doing business (distance to frontier), 2017 

3.4.13.  Ease of doing business and number of reforms, 2010-2016 

3.4.14.  Restrictiveness indicator, 2016, Belgium and the EU 

3.4.15.  Enterprises with high levels of digital intensity — Retail trade, except motor vehicles and 

motorcycles (2015) 

3.4.16.  Gross investment rate of non-financial corporations (2000–2015) 

3.4.17.  Gross fixed capital formation by asset type – evolution 2000-2007 and 2008-2015 (% of 

chain linked volumes 2010) 

3.4.18.  Current spending vs. gross fixed capital formation, 2015 (% of GDP) 

6 

6 

7 

7 

8 

9 

9 

14 

15 

16 

19 

22 

23 

24 

25 

30 

31 

32 

33 

35 

37 

37 

37 

38 

40 

41 

41 

42 

43 

44 

44 

45 

45 

 
 
LIST OF BOXES 

2.1. 

Contribution of the EU budget to structural change in Belgium 

3.1.1.  Selected highlight: the Belgian pension reform 

3.4.1. 

Investment challenges and reforms in Belgium 

13 

17 

47 

 
 
 
 
EXECUTIVE SUMMARY 

This  report  assesses  Belgium’s  economy  in  the 
light  of 
the  European  Commission’s  Annual 
Growth  Survey  published  on  16 November 2016. 
In the survey the Commission calls on EU Member 
States  to  redouble  their  efforts  on  the  three 
elements  of  the  virtuous  triangle  of  economic 
policy — boosting investment, pursuing structural 
reforms and ensuring responsible fiscal policies. In 
so  doing,  Member  States  should 
focus  on 
enhancing  social  fairness  in  order  to  deliver  more 
inclusive growth.  

and 

financing 

conditions 

Economic  growth  is  set  to  maintain  a  steady 
pace.  The  economy  grew  by  1.2 %  in  2016  with 
domestic  and  external  demand  contributing  about 
equally  to  overall  growth.  Domestic  demand  has 
been driven by investment growth in recent years. 
Business  investment  was  underpinned  both  by 
supportive 
by 
government measures.  Investment in construction 
has  also  been  rising  due  to  housing  and  public 
infrastructure  projects.  Job  creation  has  been 
widespread across the private sector as a result of 
labour  tax  cuts  and  wage  moderation,  which  has 
also  improved  the  labour  cost  competitiveness 
position  of  Belgian 
companies.  Consumer 
spending  is  expected  to  pick  up  in  2017-2018  on 
the  back  of  continued  job  and  wage  growth.  The 
latter  is  underpinned  by  government  measures  to 
raise disposable incomes, in particular for low- and 
middle-income  earners.  The  economy  is  expected 
to  grow  by  1.4 %  in  2017  and  by  1.6 %  in  2018. 
This  relatively  low  growth  outlook  ties  in  with 
relatively low estimates for potential growth. 

Belgium  has  had  difficulties  consolidating 
public finances in the wake of the financial and 
economic  crisis.  The  headline  deficit  widened 
again  in 2016,  to  2.9 %  of  GDP.  It  is expected  to 
narrow to 2.2 % in 2017 and to remain around that 
level  in  2018  unless  additional  budget  measures 
are  taken.  With  an  estimated  structural  deficit  of 
2.5 %  in 2016,  there  remains  a  wide  gap  with  the 
country’s  medium  term  objective  of  a  balanced 
budget in structural terms. Public debt is estimated 
to have peaked at almost 107 % of GDP in 2016. 

the 

2016 

Overall,  Belgium  has  made  some  progress  in 
country-specific 
addressing 
limited 
recommendations.  There  has  been 
progress  on  distributing  fiscal  targets  among 
various levels of government in a way that can be 
in 
enforced.  Some  progress  has  been  made 

1 

reforming the tax system. Substantial progress has 
been  made  with  regard  to  the  reform  of  the  1996 
law  on  the  promotion  of  employment  and  the 
safeguarding of competitiveness. The reform aims 
at  safeguarding  the  recent  wage  moderation  and 
the gradual narrowing of the remaining labour cost 
gap  with  neighbouring  countries.  There  is  also 
some  progress  on  the  functioning  of  the  labour 
market,  especially  in  terms  of  activation,  and  on 
vocational  training  and  education  reforms,  also 
with  regard  to  disadvantaged  groups.  Higher 
retirement  age  and  further  limits  to  subsidized 
early  retirement  has  encouraged  older  workers  to 
stay  in  or  return  to  work.  Fiscal  incentives  in 
favour  of  work  and  targeted  towards  low-income 
earners have helped to boost the employment rates 
of  vulnerable  groups,  by  reducing  unemployment 
traps. There has however been limited progress on 
sector regulation.  Some  of  the network  industries, 
professional  services,  and  to  some  extent  also  the 
retail  sector,  remain  sheltered  from  competition. 
The  impact  of  newly  adopted  measures  to  boost 
innovation  capacity  of  firms  will  take  time  to 
materialize.  The  details  of  the  national  pact  for 
strategic investment still need to be announced. 

Regarding progress in reaching its national targets 
under  the  Europe  2020  strategy,  Belgium  is 
broadly  on  track  to  reach  the  targets  for  R&D 
intensity,  reducing  early  school 
leaving,  and 
increasing 
tertiary  educational  attainment.  By 
contrast,  there  is  a  risk  that  the  targets  on 
greenhouse  gas  emissions,  renewable  energy, 
energy  efficiency  and  poverty  reduction  will  be 
missed.  Despite  substantial 
the 
employment  rate  target  of  73.2 %  is  still  out  of 
reach. 

job  creation, 

The  main  findings  of  this  country  report,  and  the 
related policy challenges, are as follows: 

  The recent pension reform was an important 
step toward addressing the long-term cost of 
population  ageing.  Nevertheless,  long-term 
trends of both pensions and long-term care still 
entail very significant risks to the sustainability 
of public finances. The planned introduction of 
a  credit-based  public  pension  system  is  meant 
to help improve long-term fiscal sustainability, 
as  it  would  provide  for  automatic  adjustment 
mechanisms 
structural 
demographic  or  economic  developments. 
Short-term risks of fiscal stress appear to have 

response 

in 

to 

 
 
Executive summary 

been  contained.  The  high  public  debt  denotes 
continuing economic vulnerability.  

  Beyond  the  current  tax  shift  measures,  the 
design  of  the  Belgian  tax  system  still  shows 
some  shortcomings.  The  large  number  of 
exemptions,  economic  distortions  and  adverse 
tax  incentives  create  inefficiencies  and  lead  to 
high  statutory  rates.  The  tax  system  does  not 
make use of opportunities to shift taxes to more 
growth-friendly  bases,  e.g.  by  ‘greening’  the 
tax  system.  Some  features  of  the  Belgian 
to 
taxation 
international  initiatives  in  the  fight  against  tax 
avoidance. 

sensitive 

remain 

system 

their 

educational  inequality  and  the  declining 
trend in the share of top-performing pupils.   
While  the  share  of  top  performers  among  15 
years-old  pupils  is  still  above  the  OECD 
average, their share is decreasing significantly. 
Meanwhile,  the  share  of  low-achievers  is  on 
the rise. Pupils' performance is strongly linked 
in 
to 
particular for those with a migrant background. 
Addressing  educational  inequality  will  thus 
require  a  broad  policy  response  going  beyond 
the 
strong 
demographic  pressure,  in  particular  among 
exacerbating 
disadvantaged  groups, 
infrastructure 
teacher 
shortages, notably in major cities.  

socioeconomic  background, 

deficiencies 

educational 

system. 

risks 

The 

and 

the 

low-skilled, 

  Job creation has been robust, yet the overall 
employment  rate  is  weighed  down  by  the 
lower performance in specific groups. These 
include 
the  young,  older 
workers and people with a migrant background. 
They largely reflect the groups with the highest 
risk  of  poverty  or  social  exclusion,  as  poverty 
among Belgian households is mainly explained 
is 
by 
considerably  mitigated  by  taxes  and  transfers. 
While skills mismatches represent a significant 
part  of  the  overall  mismatch  between  supply 
and demand in the Belgian labour market, other 
factors  such  as  low  geographical  and  job 
mobility  and  language  skills  may  compound 
the issue. 

joblessness.  However, 

risk 

this 

rates 

transition 

regions,  and 

  There  are  persistent  and  increasing  disparities 
in long-term unemployment and inactivity rates 
across 
to 
employment  are 
low.  Although  ongoing 
incentive 
regional  reforms  of  employment 
schemes  aim  to  rationalise  and  tailor  the 
system,  continuous  monitoring  of  the  cost-
effectiveness  of  the  policy  choices  made  is 
warranted.  In  particular,  some  design  features 
of the target group policies may have windfall 
and  displacement  effects.  In  addition,  tax 
repercussions and withdrawal of social benefits 
upon  entering  the  labour  market  or  increasing 
hours  worked  may  create  inactivity  and  low 
wage  traps,  especially  for  second  earners, 
single people and single parents. 

  Despite  good  average  performance 

education, 

key 

challenges 

are 

in 
the 

2 

to 

gains.  Headline 

  The  inflation  differential  risks  to  offset 
competitiveness 
and 
underlying inflation are structurally higher than 
in  neighbouring  countries.  The  figures  mainly 
reflect  rising  prices  in  electricity  and  services, 
partly  influenced  by  administrative  decisions. 
Dysfunctioning  in  goods  and  labour  markets 
intensive 
the  differential.  Less 
added 
competition  in  sheltered  non-tradable  sectors 
explains why rising labour costs were easier to 
pass  on  into  higher  services  prices,  even  if 
productivity  growth  did  not  keep  pace  with 
wages.  Moreover,  as  wage 
is 
indexation 
common  practice,  upward 
inflation  easily 
transmits  into  wage  growth.  This  risks  to 
translate  into  a  downward  impact  on  the 
employment of less productive workers, which 
can  entrench  over 
time.  Moreover,  price 
increases risk being passed on  in traded goods 
and  affecting  competitiveness  in  sectors  that 
are not sheltered.  

  A number of bottlenecks weigh on Belgium's 
growth potential. Despite fiscal incentives for 
research  activities,  patent  registrations  and 
notwithstanding 
the  presence  of  a  highly 
skilled work force, the technological content of 
Belgium’s exports is behind that of its peers. Its 
high-quality  public  research  system  has  not 
brought  about  an  abundance  of  fast-growing 
firms  in  innovative  sectors.  Stimulating  the 
adoption  of  digital  technologies  and  higher 
human  capital  accumulation  could  further 
underpin  productivity  growth.  Moreover,  new 
sectors  capable  of  creating  domestic  value 

 
 
Executive summary 

of  the  envisaged  change  in  the  company  cars 
system  risk  being  very 
limited.  Belgium 
remains  Europe’s  most  congested  country  in 
terms of hours wasted in traffic and delays, and 
this  is  unlikely  to  change  in  the  short  run, 
partly  because  of  long  delays  in  several  major 
public infrastructure projects.  Finally,  the high 
the 
and  growing 
manufacturing  industry  calls  for  additional 
energy 
cost-effective 
renewables. 

intensity  of 

efficiency 

energy 

and 

added  are  not  sufficiently  involved,  thereby 
missing  out  on  multiplier  effects,  also  in 
relation  to  employment,  especially  in  services. 
Apart  from  downstream  services  such  as 
distribution,  this  is  a  lost  opportunity  for  an 
upward shift in the production chain, to where 
margins  are  bigger  and  finished  products  are 
more  differentiated,  notably  through  services 
such as R&I, design and branding.   

  High  regulation  in  the  network  industries 
and some professional services is restricting 
competition.  Regulatory  barriers  are  high  in 
public  utilities,  such  as  postal  services,  public 
transport,  the  supply  of  energy  and  drinking 
water,  and  telecommunications.  A  number  of 
inhibit  market  mechanisms  for 
rules  also 
professional services. There are remaining high 
barriers to entry, in particular requirements for 
establishing  a  practice,  such  as  a  particular 
legal  or  corporate  structure.  In  addition  to 
serving 
interests  of  consumers,  more 
affordable  services  would  support  growth  and 
jobs. In the retail sector, significant operational 
and establishment restrictions are still in place.  

the 

in 

tax 

incentives,  aggravate 

  Insufficient  investment  in  infrastructure,  in 
education 
energy, 
and 
particular 
level  of  public 
low 
transport,  and  a 
investment  in  general  limit  productivity 
growth. Infrastructure investment shortfalls, in 
particular  in  transport,  as  well  as  remaining 
traffic 
adverse 
congestion.  Business  investment,  by  contrast, 
has  been  resilient  and  increasingly  oriented 
towards  intangibles  in  the  services  sector. 
Nevertheless,  some  challenges  in  terms  of 
entrepreneurship remain. Lengthy delays and a 
high  burden  of  administrative  and  regulatory 
requirements  —  and  their  unpredictability  — 
impede 
the  creation  and  expansion  of 
companies, for example in relation to property 
registration, labour legislation and construction 
permits.  

  Environment  and 

climate  policies 

(waste  management, 

in 
Belgium,  although  performing  well  in  some 
areas 
circular 
economy),  remain  insufficiently  effective  to 
combat  local  air  pollution  and  greenhouse 
gas  emissions.  A  long-term  climate  policy 
vision is still lacking. The environmental gains 

3 

 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

average hours worked. Third, capital accumulation 
has  been  somewhat  lower  than  in  the  past.  The 
negative  output  gap,  an  indicator  of  economic 
slack, narrowed to -0.4 % in 2015 from its trough 
of  -1.5 %  in  2013.  It  is  projected  to  widen  again 
slightly  in  2016-2017  as  growth  falls  short  of  its 
potential. 

Graph 1.2: 

Breakdown of potential growth 

Economic growth 

The  Belgian  economy  proved  fairly  resilient  in 
the  wake  of  the  global  economic  recession  in 
2009.  GDP  quickly  regained  pre-crisis  levels, 
thanks  to  strong  economic  growth  in  2010  and 
2011  (Graph  1.1).  That  recovery  period  was 
followed  by  stagnation,  with  flat  growth  in  2012 
and  2013.  In  2014  and  2015,  economic  activity 
rebounded  with  growth  reaching  1.7 %  and  1.5 % 
respectively. 

According  to  the  Commission  2016  winter 
forecast,  economic  growth  slowed  down  to 
1.2 % in 2016. At 1.4 %, growth would strengthen 
in  2017  and  economic  activity  is  projected  to 
expand  by  1.6 %  in  2018.  The  2016  deceleration 
coincides  to  some  extent  with  the  March  terrorist 
attacks  and  their  aftermath.  The  impact  from  the 
March  events  is  nevertheless  assessed  as  limited 
and expected to be transient. 

Graph 1.1: 

Breakdown of GDP growth 

Source: European Commission 

Domestic  demand  has  been  the  main  engine  of 
growth  in  recent  years,  with  a  boost  from 
investment. The latter has held up well in Belgium 
(Graph  1.3),  in  contrast  to  other  Member  States. 
The investment-to-GDP ratio was 22.6 % in 2009-
2016,  compared  to  22.1 %  in  2000-2008.  It  is 
expected  to  increase  to  around  23.3 %  in  2017-
2018.  Investment  growth  has  been  broad-based 
across  sectors,  with  business  investment  showing 
the way.  

investment 
financing 

is  underpinned  by 
Business 
conditions  and  by 
supportive 
government  measures  to  improve  the  relative 
labour  cost  position  of  Belgian  companies. 
These  measures  have  led  to  a  steady  increase  in 
profit  margins.  Risks  surrounding  the  positive 
the  external 
outlook  are  mainly 
environment.  

rooted 

in 

Source: European Commission 

The  modest  growth  outlook  ties  in  with  rather 
low  estimates  for  potential  growth.  The  decline 
compared  to  the  pre-2009  estimates  for  potential 
growth  is  broad-based  (Graph  1.2).  First  and 
foremost, it reflects the continuation of a long-term 
trend of declining gains in total factor productivity, 
which is estimated to have stabilised at a low level 
in recent years. Second, there has been a decline in 
the contribution of labour due to slower growth in 
the working-age population without any change in 

4 

-3.0-2.0-1.00.01.02.03.0-3.0-2.0-1.00.01.02.03.00910111213141516e17f18fnet exportschanges in inventoriesinvestmentgovernment consumptionprivate consumptionGDP growth (%)-0.50.00.51.01.52.02.53.0-0.50.00.51.01.52.02.53.000020406081012141618employment contributionhours worked per employee contributioncapital accumulation contributionTFP contributionpotential GDP growth 
 
 
 
1. Economic situation and outlook 

Graph 1.3:  Composition of investment spending (%GDP) 

estimated  to  have grown by 0.7 %  in 2016  and  to 
rise by 1.4 % in 2017 and 1.5 % in 2018. 

Inflation 

Consumer  inflation  rose  by  1.8 %  in  2016,  the 
biggest  increase  in  the  euro  area,  where  the 
average  was  0.2 %.  Price  pressures  are  expected 
to  remain  entrenched,  reflecting  crude  oil  price 
developments,  the  temporary  rise  in  unprocessed 
food  prices  due  to  poor  weather,  and  picking  up 
wage growth being  passed on  to  service  inflation.  
Inflation is projected to remain at broadly the same 
level in the near future, reaching 2.0 % and 1.9 % 
in  2017  and  2018  respectively.  This  implies  a 
narrowing of the difference with the euro area. 

Source: European Commission 

Graph 1.4:  Consumer inflation 

thanks 

projects.  Historically 

in  construction  has  also  been 
Investment 
to  housing  and  public 
buoyant 
infrastructure 
low 
mortgage  interest  rates  and  comparatively  low 
yields  on  alternative  investment  assets  set  the 
scene for continued investment in housing. At the 
same time, the local government investment cycle 
in the run-up to local elections in 2018 is forecast 
to  drive  public  investment  in  2017-2018.  The 
public investment-to-GDP ratio of around 2.4 % is 
nevertheless expected to remain among the lowest 
in the EU (see Section 3.4). 

Household  consumption  is  expected  to  gain 
momentum  in  2017-2018 as a  result of  job and 
wage growth. Private consumption grew by 0.7 % 
on  average  in  2011-2016,  half  of  the  2000-2011 
average.  This  trend  is  in  line  with  modest  real 
disposable  income  increases  until  2015,  which  in 
turn  reflect  a  sustained  effort  by  successive 
governments to moderate wage growth in order to 
correct  for  past  losses  in  cost  competitiveness. 
Income  growth  has  picked  up  since  2016.  Wages 
are  again  being  adjusted  for  the  cost  of  living 
following  a 
temporary  suspension  of  wage 
indexation  schemes.  In  addition,  some  real  wage 
increases  are  again  being  allowed,  while  income 
tax  cuts  have  also  been  introduced  since  2016  as 
part of a multiannual tax reform (see Section 3.1). 
A  relatively  strong  labour  market  performance  is 
contributing  to  growth  in  households’  purchasing 
is 
power.  Overall,  household 

consumption 

Source: European Commission 

inflation  has  been  a 
Comparatively  high 
recurrent  feature  of  the  Belgian  economy. 
Between 2012 and 2016, headline inflation was on 
average 0.4 pp. higher in Belgium than in the euro 
area  as  a  whole.  For  core  inflation  —  which 
excludes  energy  carriers  and  unprocessed  food 
items — the difference over the same period even 
amounted  to  0.7 pp.  (see  Graph  1.4).  The  drivers 
of  this  structural  differential  are  discussed  in 
Section 3.4. 

Labour market and social developments 

The  Belgian  labour  market  is  in  a  cyclical 
expansion.  The  number  of  bankruptcies  and 
resulting job losses has fallen back to a seven year 

5 

10%15%20%25%30%0%5%10%15%20%959799010305070911131517fhousing investmentpublic investmentbusiness investmenttotal investment (right)-1.5-1.0-0.50.00.51.01.52.02.53.03.5-3.0-2.0-1.00.01.02.03.04.05.06.07.0Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16Jan-17core inflation: BE vs. EA (pp.; right)overall inflation EA (%)overall inflation BE (%) 
 
 
1. Economic situation and outlook 

low (see Graph 1.5). Net employment is estimated 
to have increased by 1.3 % in 2016 and is expected 
to  continue  growing  in  2017-2018,  by  0.9 % 
annually.  This  makes  economic  growth  relatively 
job-intensive.  All  private  sectors  have  been 
contributing to job creation; in recent quarters even 
manufacturing added some jobs for the first time in 
five  years.  This  suggests  that employment  growth 
is benefiting from improved cost competitiveness. 

Graph 1.5: 

Bankruptcies and resulting job losses 

Source: European Commission 

Graph 1.6: 

Employment growth (y/y %change; self-
employed & employees) 

Source: European Commission 

Private  sector  employment  is  set  to  grow 
further,  thanks  to  continued  economic  growth 

6 

and  prospective  cuts  in  social  contributions  for 
employers.  Employment  in  the  public  sector  has 
been  roughly  constant  in  recent  years  and  is 
forecast  to  decline  in  2017-2018.  This  helps  to 
explain  why  total  employment  growth  has  not 
reached  the  rates  seen  during  past  economic 
upturns  (see  Graph  1.6).  In  addition,  past  job 
growth  in  the  private  sector  was  for  a  non-
negligible  part  due  to  subsidised  work,  which  has 
its  limits.  Overall,  the  unemployment  rate  is 
expected to decline from a peak of 8.5 % in 2015 
to 7.6 % in 2018. 

low 

The  good  recent  performance  in  terms  of  job 
creation  nevertheless  disguises  a  number  of 
structural  shortcomings.  There  remains  for 
example  substantial  untapped  potential  stemming 
from 
labour  participation  among  certain 
groups.  This  has  resulted  in  a  labour  market 
divided  between  insiders  and  outsiders,  which  is 
shown for example by the fact that the number of 
people  living  in  households  with  very  low  work 
intensity is one of the highest in the EU (see Graph 
1.7),  whereas  high-skilled  labour  is  approaching 
full  employment.  This  and  other  structural  labour 
market  issues  are  discussed  in  Section  3.3,  which 
takes  a  closer  look  at  regional  disparities  and  the 
effectiveness of activation policies as well.   

Raising  employment  and  activity  rates  will  be 
important to further reduce sustainability risks 
to  public  finances  from  an  ageing  population. 
The average working life in Belgium is one of the 
shortest  of  all  Member  States:  32.6  years,  versus 
35.4  years  in  the  EU28  in  2015.  Government 
measures to tighten eligibility conditions for early 
and  pre-retirement  have  nevertheless  led  to  an 
upward trend. 

Income  inequality  remains  relatively  low  and 
stable compared to EU averages (1). Since 2012, 
the  lowest  income  decile  has  benefited  from 
slightly  better  income  developments  than  the 
median  household,  reversing  the  previous  trend. 
The  gap  with  the  median  is  smaller  than  in  many 
other  EU  countries (2).  Social  transfers  are  also 

(1)  The Gini index of disposable income went down from 26.6 
in 2010 to 26.2 in 2015 and the income quintile share ratio 
from  3.9  to  3.8.  The  EU  averages  in  2015  were  31.0  and 
5.2, respectively. 

(2)  The  real  income  of  the  lowest  income  decile  actually 
declined between 2000 and 2012, whereas the real median 
income  grew.  However,  it  has  been  growing  again  since 

150002000025000300003500040000200025003000350040004500Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14Jan-15Jan-16# companies (12m moving sum; left)# job losses (12m moving sum; right)-1.0%-0.5%0.0%0.5%1.0%1.5%2.0%2.5% 
 
 
 
                                                           
1. Economic situation and outlook 

improving 

trend  —  as  well  as 

improved to a surplus of 0.4 % in 2015 and to an 
estimated  0.7 %  in  2016  (see  Graph  1.8).  The 
recent 
the 
deteriorating  trend  in  the  past  —  is  primarily 
reflected in the trade balance. Goods exports have 
been the more volatile component, with exports of 
services recording a broadly stable surplus over the 
years.  The  downward  drift  of  the  investment 
income  balance,  the  result  of  external  liabilities 
being  generally  higher-yielding 
than  external 
assets,  could  not  prevent  a  strengthening  of  the 
overall external position. 

Graph 1.8: 

Breakdown of current account balance 
(%GDP) 

(1) BPM5 methodology until 2007, BPM6 thereafter 
(2) 2016 based on data for first nine months 
Source: NBB 

Following  seven  years  of  deficit,  the  goods 
balance  returned  to  surplus  in  2015  and  this 
surplus is expected to have increased further in 
2016. While changes in the oil price go a long way 
in  explaining  developments  in  the  goods  balance, 
there is also a marked volume effect. Following a 
steady  decline  in  global  export  market  shares  by 
volumes gains were made in recent years.  

Belgium maintains  a  solid net  creditor  position 
in relation to the rest of the world. The balance 
between  external  financial  assets  and  liabilities 
stands at around 60 % of GDP, one of the highest 
in the EU. This surplus has its origin in the private 
sector, more in particular Belgian households, who 
own  gross  assets  —  foreign  and  domestic  — 
representing about 240 % of GDP. 

more  effective  in  reducing  income  inequalities  in 
Belgium  than  the  EU28  average (3).  Inequality  in 
net  wealth  (4)  was  higher  than  income  inequality, 
but  was  within  the  range  observed  in  other  EU 
countries  for  which  data  were  collected  in  2013-
2014  (ECB,  2016).  However,  there  are  signs  that 
the financial situation of lower income households 
has  worsened  in  2015-2016.  Survey  data  point  to 
an  increase  in  the  financial  distress  —  the 
necessity to draw on savings or incur debt to cover 
current  expenses  —  of  the  poorest  quartile  in 
Belgium (ESDE  Quarterly 
2017). 
Moreover, for the poorest income quintile, the rate 
of 
for  medical 
examination  due  to  their  cost  is  above  the  EU28 
average and has been increasing (5). 

self-reported  unmet  needs 

review, 

Graph 1.7: 

People living in households with very low work 
intensity (% total population aged less than 60) 

Source: European Commission 

External position 

In  2016  the  current  account  is  expected  to 
record  a  surplus  for  the  second  year  in  a  row. 
From  a  deficit  of  0.7 %  of  GDP  in  2014,  it 

2012, at a faster pace than the real median income. For the 
latest  available  year,  the  S50/S10  ratio  is  below  the  EU 
average. 

(3)  In 2015 the Gini coefficient was 48. It was 26.2 after taxes, 
social transfers and pensions were taken into account — a 
gap  of  21.8.  This  gap,  which  measures  how  effective  the 
tax-benefit  system  is  at  reducing  inequality,  is  above  the 
EU average of 19.9. 

(4)  Difference between total assets and total liabilities. 
(5)  It  was  7.1  in  2014,  up  from  4.1  in  2011.  The  2014  EU28 

average was 5.1. Source: EU-SILC, 2014. 

7 

681012141603040506070809101112131415EA19BEDEFRNL-6.0-4.0-2.00.02.04.06.0-6.0-4.0-2.00.02.04.06.0000204060810121416egood exports, netservices exports, netlabour incomesecondary incomeinvestment incomecurrent account 
 
                                                                                   
 
1. Economic situation and outlook 

Graph 1.9:  Credit growth (y/y): non-financial companies (left) and mortgage loans (right) 

Source: NBB 

Private indebtedness 

for 

non-financial 

Private debt stands at a relatively high level, in 
companies. 
particular 
However,  corporate  debt  figures  are  inflated  by 
widespread  intra-group  lending,  as  was  discussed 
in  earlier  country  reports.  This  practice  has  been 
stimulated  by  the  notional  interest  deduction,  an 
allowance  for  corporate  equity  within  corporate 
income  taxation.  The  increase  in  liabilities  as  a 
result of intra-group lending pushes up the debt-to-
GDP ratio, though these liabilities are matched by 
additional assets so that the debt-to-financial asset 
ratio provides for a better measure  of  companies' 
financial  situation.  This  ratio  has  been  steady  at 
around  50 %  in  consolidated  terms  since  2010, 
comparing favourably with other Member States. 

Access  to  finance  for  companies  and  the 
conditions  attached  to  it  do  not  appear  to 
impose  any  restrictions  on  Belgian  companies. 
Perceptions of credit constraints are at, or close to, 
a low for all company sizes. According to the most 
recent surveys, financing conditions are favourably 
assessed by companies in manufacturing, business-
related services and the building industry. Sluggish 
to  negative  credit  growth  in  recent  years  seems 
thus to have resulted from weak demand. In 2016, 
credit  to  non-financial  companies  grew  by  5.1 %, 
compared  to  -3.1 %  in  2015  and  0.1 %  in  2014 
(Graph 1.9). 

Although  household  debt  has  risen  from  40 % 
of  GDP  in  2000  to  60 %  in  2016,  the  ratio  of 
debt-to-assets  is  still  very  low,  reflecting  the 
favourable  wealth  position  of  households.  In 

8 

terms  of  disposable  income  household  debt  rose 
from around 60 % at the turn of the century to an 
estimated 104 % in 2016. This increase stems from 
mortgage  loans,  which  have  registered  strong 
growth in recent years thanks to the sharp decline 
in  interest  rates  (Graph  1.9)  and  despite  the  fact 
that tax deductions have been made less beneficial.  

House prices rose sharply in real terms prior to 
2008.  They  increased  by  around  70  %  in  1997-
2008  or  5  %  on  average  annually  (Graph  1.10). 
They  have  been  broadly  flat  since,  increasing  by 
0.5  %  on  average  annually.  Belgian  households 
spend  a  larger  proportion  of  their  disposable 
income on housing investment than was the case in 
the  past.  This  helps  to  explain  the  modest  growth 
in household consumption mentioned higher. 

their 

average 

suggests 

long-term 

Valuation  estimates  based  on  structural  ratios 
suggest some price overvaluation in the Belgian 
real  estate  market.  As  house  prices  grew  faster 
than  income  and  rental  costs,  price-to-rent  and 
price-to-income ratios have risen steadily. The gap 
to 
an 
overvaluation  of  20-25  %  with  no  adjustment 
taking  place 
in  recent  years  (Graph  1.11). 
However,  when  other  relevant  variables  are 
considered, it appears that prices are better aligned 
with  fundamentals,  with  a  narrowing  of  the 
valuation  gap  since  2009  as  a  result  of  the  strong 
decline  in  mortgage  rates.  Massive  refinancing  of 
mortgage  loans  and  the  closing  of  new  loans  at 
lower  rates  have  resulted  in  interest  payments 
dropping from around 3 % of disposable income in 
2007-2008  to  below  1 %  in  recent  years.  While 
supportive  financing  conditions  appear  thus  to 

0%5%10%15%20%-10%-5%0%5%10%15%20% 
 
have  prevented  a  house  price  correction,  this  also 
suggests  how  rising  interest  rates  might  put 
pressure on house prices. 

Graph 1.10:  Residential real estate 

(1) deflated by household consumption; 2016 based on 9m 
Source: European Commission 

Graph 1.11:  Valuation gaps: price/income, price/rent and 

fundamental model 

- long-term values are computed over 1995-2015 
- the model-based valuation gap uses five fundamental 
variables: the relative house price, total population, real 
housing investment, real disposable income per capita and 
real long-term interest rate.  
Source: European Commission 

As  a  result  of  the  fast  increase  in  household 
the 
indebtedness  and  price  developments, 
European  Systemic  Risk  Board  (ESRB)  has 
warned  for  medium-term  vulnerabilities  in  the 
Belgian residential real estate sector (6).  Despite 
the  fact  that  household  debt  amounts  to  only 
around  20  %  of  total  assets  held  by  Belgian 

(6)  The ESRB issued warnings to eight Member States. 

1. Economic situation and outlook 

to 

compared 

financial  wealth 

households  (up  from  14  %  in  2000),  there  are 
sizeable  pockets  of  vulnerability.  Specific  groups 
of  highly  indebted  households  (i)  hold  large 
mortgage loans in relation to the value of their real 
estate  property,  (ii)  spend  a  high  proportion  of 
income on debt service, or (iii) have a low level of 
net 
their 
indebtedness  (ESRB,  2016).  Risk  concentrations 
could  materialise  in  the  event  of  an  economic 
downturn with knock-on effects on income. Such a 
scenario  might  lead  to  credit  losses  to  banks, 
especially  if  accompanied  by  a  decline  in  house 
prices.  The  National  Bank  plans  to  introduce  an 
add-on to capital adequacy requirements for loans 
exceeding 80 % of the property’s purchasing price 
in  2017, 
the  general  add-on 
to 
introduced in 2013. The ESRB has pointed out that 
measures to directly address vulnerabilities due to 
highly indebted households have not been adopted, 
though, and that the tightening of credit standards 
applied in recent years appears to have halted. The 
financial  sector  is  covered  in  Section  3.2  of  the 
report. 

in  addition 

Public finances 

from 

resulting 

The  consolidation  of  Belgium’s  public  finances 
has been a slow-moving process, partly because 
of  extended  periods  of  political  stalemate.  The 
fiscal  deficit  improved  from  a  trough  of  5.4%  in 
2009  to  2.5 %  in  2015.  However,  in  2016  it  is 
expected to have widened again to 2.9 % of GDP. 
The  most  recent  deterioration  has  been  mainly 
revenue-driven, 
generally 
disappointing tax collection and revenue measures 
that 
fell  short  of  expectations.  Conversely, 
spending restraint has been thwarted by temporary 
expenditure  increases  related  to  the  influx  of 
asylum-seekers  and  the  security  situation  as  well 
as  high  inflation  leading  to  faster-than-initially-
anticipated  indexation  of  public  wages  and  social 
benefits.  According  to  the  latest  Commission 
projections,  the  deficit  would  narrow  to  2.2 %  of 
GDP  in  2017  and,  assuming  no  policy  changes, 
increase again to 2.3 % next year. 

Public debt rose by 20 pps. of GDP since 2008. 
It is estimated to have peaked at almost 107 % of 
GDP  in  2016  and  to  start  declining  as  of  2017 
thanks  to  the  return  to  a  primary  surplus  and  a 
negative ‘snow-ball effect’ as interest expenditures 
decline  while  nominal  GDP  growth  picks  up. 
Public finances are discussed in Section 3.1. 

9 

-2%0%2%4%6%8%10%12%14%0%2%4%6%8%10%12%9698000204060810121416ereal house prices (y/y %change; right) (1)housing investment as % of household disposable incomehousing investment as % of GDP-40-30-20-1001020309697989900010203040506070809101112131415Fundamental model-based valuation gapPrice to income vs. long-term averagePrice to rent vs. long-term average 
 
 
 
                                                           
1. Economic situation and outlook 

Table 1.1: 

Key economic, financial and social indicators —  Belgium 

(1) sum of portfolio debt instruments, other investment and reserve assets 
(2, 3) domestic banking groups and stand-alone banks 
(4) domestic banking groups and stand-alone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and 
non-EU) controlled branches 
(*) indicates BPM5 and/or ESA95 
Source: European Commission, ECB 

10 

2004-20082009201020112012201320142015201620172018Real GDP (y-o-y)2,5-2,32,71,80,1-0,11,71,51,21,41,6Private consumption (y-o-y)1,60,52,70,30,60,70,61,10,71,41,5Public consumption (y-o-y)1,61,11,01,31,40,11,40,50,0-0,20,3Gross fixed capital formation (y-o-y)5,1-6,6-0,84,20,2-1,55,12,42,32,32,9Exports of goods and services (y-o-y)4,8-9,410,36,71,80,85,14,35,53,94,3Imports of goods and services (y-o-y) 5,3-9,19,67,31,40,35,94,34,73,64,3Output gap1,5-1,6-0,20,2-0,7-1,5-0,8-0,4-0,5-0,5-0,2Potential growth (y-o-y)1,91,21,31,41,00,80,91,11,31,41,3Contribution to GDP growth:Domestic demand (y-o-y)2,2-1,11,51,40,70,11,81,20,91,21,5Inventories (y-o-y)0,4-0,90,50,7-0,9-0,60,40,3-0,5-0,10,0Net exports (y-o-y)-0,2-0,30,7-0,30,30,4-0,60,00,80,30,1Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0,50,30,60,70,30,20,20,30,50,50,4Capital accumulation (y-o-y)0,60,40,30,40,40,30,40,50,50,50,6Total factor productivity (y-o-y)0,70,40,40,30,30,30,30,30,30,30,4Current account balance (% of GDP), balance of payments1,6-1,11,8-1,1-0,1-0,3-0,70,4...Trade balance (% of GDP), balance of payments1,71,11,3-0,7-0,80,10,42,3...Terms of trade of goods and services (y-o-y)-1,03,1-1,6-1,2-0,20,10,41,00,2-0,10,0Capital account balance (% of GDP)-0,3-0,2-0,2-0,10,6-0,1-0,30,0...Net international investment position (% of GDP)39,657,565,260,951,852,059,361,2...Net marketable external debt (% of GDP) (1)23,736,543,743,537,733,625,925,3...Gross marketable external debt (% of GDP) (1)265,0238,7216,6212,7197,4169,9185,1181,0...Export performance vs. advanced countries (% change over 5 years)0,1-1,3-4,20,8-5,4-4,7-5,5-9,40...Export market share, goods and services (y-o-y)-2,31,0-6,6-2,5-6,11,41,4-5,7...Net FDI flows (% of GDP)-0,4-12,4-10,7-6,15,50,81,22,0...Savings rate of households (net saving as percentage of net disposable income)9,211,38,16,65,74,94,64,2...Private credit flow, consolidated (% of GDP)10,76,23,221,214,49,40,94,5...Private sector debt, consolidated (% of GDP)132,2164,8161,6174,1186,7163,9163,5166,3...of which household debt, consolidated (% of GDP)44,151,051,953,654,655,757,658,6...of which non-financial corporate debt, consolidated (% of GDP)88,0113,8109,7120,5132,1108,2105,9107,7...Corporations, net lending (+) or net borrowing (-) (% of GDP)1,31,44,92,24,82,92,02,32,72,62,6Corporations, gross operating surplus (% of GDP)24,723,725,525,524,524,324,925,725,926,126,5Households, net lending (+) or net borrowing (-) (% of GDP)2,64,72,72,11,61,20,70,40,90,40,4Deflated house price index (y-o-y)5,6-0,11,41,00,20,3-1,31,3...Residential investment (% of GDP)6,06,16,15,85,95,75,95,8...GDP deflator (y-o-y)2,10,81,92,02,11,20,70,91,61,71,8Harmonised index of consumer prices (HICP, y-o-y)2,60,02,33,42,61,20,50,61,82,01,8Nominal compensation per employee (y-o-y)2,91,11,43,13,22,51,00,00,12,01,9Labour productivity (real, person employed, y-o-y)1,1-2,12,00,4-0,30,31,20,6...Unit labour costs (ULC, whole economy, y-o-y)1,83,3-0,72,73,52,2-0,2-0,50,21,51,2Real unit labour costs (y-o-y)-0,32,4-2,50,71,41,0-0,8-1,4-1,4-0,1-0,6Real effective exchange rate (ULC, y-o-y)0,90,2-2,82,0-0,73,5-0,8-4,3-0,10,6-0,6Real effective exchange rate (HICP, y-o-y)0,80,5-2,60,6-2,31,50,2-2,92,7-0,6.Tax rate for a single person earning the average wage (%)42,142,042,142,242,742,442,442,0...Tax rate for a single person earning 50% of the average wage (%)26.0*25.826.126.427.526.225.925.2...Total Financial sector liabilities, non-consolidated (y-o-y)10,0-0,81,16,2-5,11,83,5-1,2...Tier 1 ratio (%) (2).12.614.113.314.816.915.517.0...Return on equity (%) (3).-8.010.8-3.22.66.98.312.2...Gross non-performing debt (% of total debt instruments and total loans and advances) (4).4.13.94.25.15.33.33.0...Unemployment rate7,97,98,37,27,68,48,58,58,07,87,6Long-term unemployment rate (% of active population)4,03,54,03,53,43,94,34,4...Youth unemployment rate (% of active population in the same age group)20,021,922,418,719,823,723,222,120,5..Activity rate (15-64 year-olds)66,566,967,766,766,967,567,767,6...People at risk of poverty or social exclusion (% total population)21,620,220,821,021,620,821,221,1...Persons living in households with very low work intensity (% of total population aged below 60)13,912,312,713,813,914,014,614,9...General government balance (% of GDP)-0,7-5,4-4,0-4,1-4,2-3,0-3,1-2,5-2,9-2,2-2,3Tax-to-GDP ratio (%)45,344,845,245,847,048,047,747,246,546,746,3Structural budget balance (% of GDP)..-3,9-4,0-3,4-2,7-2,9-2,6-2,5-2,0-2,2General government gross debt (% of GDP)92,399,699,7102,3104,1105,4106,5105,8106,8106,5106,1forecast 
 
 
 
 
 
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

with 

ageing 

implementing 

Progress 
the 
recommendations addressed to Belgium in 2016 
(7)  has  to  be  seen  as  part  of  a  process  which 
started  with  the  introduction  of  the  European 
Semester in 2011. First, against the backdrop of a 
public  debt  ratio  of  106.6 %  of  GDP  in  2014  and 
population 
rise 
costs 
considerably over the next decades, it was decided 
in 2014 to reform the pension system. This builds 
further  on  initial  steps  taken  in  previous  years  to 
raise  the  effective  retirement  age.  Legislation  has 
now  been  passed  to  tighten  up  the  minimum  age 
and  career  requirements  for  early  retirement  and 
raise  the  legal  pension  age  for  the  years  to  come. 
The  more  favourable  pension  scheme  for  civil 
servants underwent a reform as of 2016.  

expected 

to 

social 

losses 

reverse 

In  2015,  Belgium  has  pursued  measures  focusing 
on  wage  moderation  and  the  so-called  tax  shift, 
with  the  aim  to  raise  employment,  strengthen 
purchasing  power 
in 
and 
competitiveness.  In  this  respect,  measures  have 
been  taken  to  reduce  the  tax  wedge  on  labour 
through  gradual  decreases  in  personal  income 
taxation 
security 
employers' 
and 
contributions,  with  more 
than  proportional 
reductions for lower salaries. The targeting of low 
wages favours the young and the low-skilled, who 
tend  to  have  lower  wages,  but  also  the  lowest 
employment rates, and thus supports activation for 
some  of  the  most  vulnerable  groups.  Overall, 
estimates  by  the  Federal  Planning  Bureau and  the 
National  Bank  of  Belgium  suggest  an  additional 
job  creation  of  45,000–65,000  jobs  by  2021. 
Additional  positive  effects  are  expected  from 
reductions  targeting  SMEs  and  self-employed. 
Taken together, these measures should support job 
creation  and  significantly  reduce  the  projected 
increase in the economic cost of ageing. 

Investment  is  also  crucial  within  a  longer-term 
perspective.  Although  overall  investment  did  not 
experience  the  steep  decline  observed  in  other 
countries  in  the  wake  of  the  financial  crisis,  the 
situation  is  far  less  rosy  when  it  comes  to  public 
investment.  This  has  been  structurally  low  for 
several  decades,  as  a  result  of  policy  choices 
within a context of prolonged fiscal consolidation. 
Sustained  cutbacks  in  investment  budgets  have 

(7)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular section 4.  

resulted  in  net  public  investment,  averaging  zero 
since  the  1990s,  eroding  the  quality  of  public 
infrastructure  (cf.  section  3.4).  The  political 
agreement  for  a  national  pact  for  strategic 
investments,  the  announcement  of  an inter-federal 
energy pact in 2017 and calls for agreeing an inter-
federal  mobility  strategy  could  provide  renewed 
impetus  for  investment,  including  in  energy  and 
transport  infrastructure,  but  details  of  each  still 
need to be announced. 

the 

been 

made 

true  for 

the  publication  of 

the  recommendation 

the  government  has 

Overall, Belgium has made some (8) progress in 
addressing 
country-specific 
2016 
recommendations.  The  latter  identified  several 
priority  areas  for  reform  such  as  further  fiscal 
consolidation, the functioning of the labour market 
and 
the  wage-setting  system,  education  and 
vocational  training,  the  innovation  capacity  of  the 
economy,  competition  in  the  business  services 
sector  and  retail  sector,  and  investment  shortfalls. 
the  country-specific 
Since 
recommendations, 
taken 
limited  measures  on  the  budget  coordination 
between  the  different  levels  of  government.  The 
same  holds 
to 
simplify  the  tax  system  and  thus  limited  progress 
has 
country-specific 
recommendation  1.  Substantial  progress  has  been 
made in reforming the wage-setting framework as 
recently  the  government  adopted  a  reform  of  the 
1996  act  which  introduces  a  number  of  crucial 
amendments to the private sector wage negotiation 
framework,  on  issues  such  as  the  calculation  and 
legal status of the so-called ‘wage norm’, potential 
penalty  mechanisms  for  infringement  of  the  norm 
and  the  government’s  ability  to  take  measures  in 
the  event  of  excessive  wage  growth.  There  is 
moreover some progress on the functioning of the 
labour  market  and  on  vocational  and  educational 
reforms.  This  implies  substantial  progress  on 
country-specific  recommendation  2.  Progress  on 
country-specific  recommendation  3  is  limited  as 
some  measures  which  have  been  adopted  or 
announced  do  not  appear  to  fully  address  the 
challenge. 

on 

(8)  Information  on  the  level  of  progress  and  actions  taken  to 
address  the  policy  advice  in  each  subpart  of  a  country-
specific recommendation is presented in the Annex A. This 
overall  assessment  does  not  include  an  assessment  of 
compliance with the Stability and Growth Pact. 

11 

 
 
                                                           
     
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Summary Table on 2016 CSR assessment 

Source: European Commission 

12 

Belgium Overall assessment of progress with 2016 country specific recommendations (CSRs):  Some CSR 1: 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. Limited progress  Limited progress has been made towards an enforceable distribution of fiscal targets among the various levels of government.   Some progress has been made in reforming the tax system. CSR 2: Carry out the intended review of the Law of 1996 on the promotion of employment and the safeguarding of competitiveness 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 for disadvantaged groups, in particular people from a migrant background. Substantial progress  Substantial progress has been made in reforming the wage-setting framework to safeguard cost-competitiveness.   Some progress has been made on the functioning of the labour market.    Some progress has been made on vocational and educational reforms.  CSR 3: Boost the capacity to innovate, in particular 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. Limited progress   Limited progress has been made to foster stronger investment in private intangibles, including private R&D.  Limited progress has been made on increasing competition in the business services sector and retail sector.   Some progress has been made on addressing shortfalls in investment.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Progress with country-specific recommendations 

13 

 Box 2.1: Contribution of the EU budget to structural change in BelgiumThe total allocation of the European Structural and Investment Funds (ESI Funds) in Belgium amounts to EUR 2.7 billion under the current financial framework 2014-2020. This is equivalent to around 3 % of national public investment. (1) Belgium envisages putting around EUR 98 million into financial instruments, which mainly support SMEs, energy efficiency and research and innovation projects. By 31 December 2016, an estimated EUR 1.5 billion, which represents about 55 % of the total allocation for ESI Funds have already been allocated to concrete projects.   Financing under the European Fund for Strategic Investments (EFSI), Horizon 2020, the Connecting Europe Facility  and  other  directly  managed  EU-funds  is  additional  to  the  ESI funds.  By end 2016, Belgium has signed agreements for EUR 417 million for projects under the Connecting Europe Facility. The EIB Group approved financing under EFSI amounts to EUR 987 million, which is expected to trigger nearly EUR 4.8 billion in total investments (as of end 2016).  All necessary reforms required by the ex-ante conditionalities (2) to ensure a timely and efficient up-take of the funds have been met. These included establishing regional smart specialisation strategies and their available budgetary resources.                                                             (1) National public investment is defined as gross capital formation + investment grants + national expenditure on agriculture and fisheries. (2) At the adoption of programmes, Member States are required to comply with a number of ex-ante conditionalities, which aim at improving framework and investment conditions for the majority of areas of public investments. For Members States that do not fulfil all the ex-ante conditionalities by the end of 2016, the Commission has the possibility to propose the temporary suspension of all or part of interim payments. The relevant country-specific recommendations focusing on structural issues were taken into account when designing the 2014-2020 programmes. Examples include actions to reduce greenhouse gas emissions from non-ETS activities especially as regards buildings and urban transport;  support actions in the field of employment, social inclusion and education; helping Belgium reach its Europe 2020 targets in relation to reduction of poverty, early school leaving and greenhouse gas emissions and reaching an employment rate of 73.2 % by 2020. In this context, specific attention is devoted to young people, in particular with the implementation of the Youth Employment Initiative in Wallonia and in Brussels. ESI Funds also address wider structural obstacles to growth and competitiveness, including the promotion of an innovation-friendly business environment by improving SME competitiveness, improving innovation and research performance and stimulating growth of the e-economy. In this context, Belgium will focus on developing synergies between businesses, R&D centres and higher education. About 11% of total ESI Funds will support Research and Innovation projects and 10% of the total ESI Funds will be spent on actions in the area of low carbon economy.  https://cohesiondata.ec.europa.eu/countries/BE 
 
 
 
 
 
 
 
 
 
 
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

3.1.1.  FISCAL POLICY  

Belgium’s public finances bear the marks of the 
financial  and  economic  crisis.  The  general 
government balance went into deep deficit in 2009 
(see  Graph  3.1.1).  Ever  since,  Belgian  authorities 
have  had  difficulties  to  reconnect  with  the  pre-
crisis situation of a broadly balanced budget and to 
contain  the  increase  in  public  debt.  According  to 
Commission projections, the deficit widened again 
in 2016, to 2.9 % of GDP as compared to 2.5 % in 
2015. It is expected to narrow to 2.2 % in 2017 and 
widen  slightly  in  2018  unless  additional  budget 
measures  are  adopted.  Whereas  the  decline  in  the 
revenue-to-GDP ratio is the main driver behind the 
fiscal 
the 
deterioration since 2008 arose from an increase in 
primary expenditure. The latter went from  46.3 % 
of  GDP  in  2008  to  52.4 %  in  2013  and  around 
51 % in recent years.  

2014-2016, 

incurred 

delay 

in 

Graph 3.1.1:  Fiscal deficit: headline and structural 
developments (%GDP) 

Source: European Commission 

In  structural  terms,  too,  budget  consolidation 
has  made  only  modest  advances  so  far.  While 
the nominal balance improved by 2.5 pps. between 
2009  and  2016,  the  structural  balance  —  which 
adjusts  for  the  impact  of  the  business  cycle  and 
one-off  budgetary  measures  —  improved  by  only 
1.5 pps. over the same period, leaving a structural 

deficit  of  2.5 %  of  GDP  at  the  end  of  2016. 
Moreover,  this  net  structural  improvement  has 
been  nearly  completely  due  to  interest  windfalls, 
with the primary structural change turning negative 
in  recent  years  (see  Graph  3.1.1).  In  other  words, 
Belgium  has  not  made  full  use  of  the  supportive 
conditions for budget consolidation resulting from 
the sharp decline in interest rates. Long-term debt 
reduction  depends  on  a  return  to  sufficiently  high 
primary budget surpluses. There remains, however, 
a  long  way  to  go  towards  the  country’s  medium 
term  budgetary  objective 
the 
Stability and Growth Pact, of achieving a balanced 
terms.  Attaining  and 
budget 
maintaining this medium term budgetary objective 
would put the debt level on a downward path and 
pre-finance  part  of  the  projected  ageing  costs 
discussed below. 

(MTO)  under 

structural 

in 

Together  with  substantial  support  for  the 
financial sector, budget deficits have pushed up 
public  debt.  The  debt  ratio  is  estimated  to  have 
peaked  at  almost  107 %  of  GDP  in  2016.  The 
increase, by as much as 20 pps. since 2007, stands 
in  stark  contrast  to  the  period  of  sustained  debt 
reduction  that preceded  it  (see  Graph  3.1.2).  Debt 
rose  more  in  the  euro  area  but  the  euro  area  debt 
ratio peaked in 2014, whereas Belgian government 
debt is expected to start declining only from 2017. 
Aside from financial sector interventions, loans to 
Greece and contributions to the European Stability 
Mechanism  and  its  precursor  partly  explain  the 
increase  in  the  debt  ratio.  Some  of  the  financial 
sector bailout has been recovered, which has had a 
debt-reducing impact (9).  

The  high  public  debt  denotes  continuing 
economic  vulnerability.  Combined  with  a 
sizeable  budget  deficit,  it  limits  the  authorities’ 
margin 
for  countercyclical  policies  or  new 
policies,  for  that  matter,  considering  the  debt 
service on the hefty debt stock. The gradual advent 
of  age-related  costs  (see  lower)  only  adds  to  the 
challenge. 

(9)  In addition to the impact on the debt of asset sales and loan 
repayments,  there  has  also  been  a  positive  impact  on  the 
deficit  from  dividends  (BNP  Paribas,  Belfius),  guarantee 
fees and penalties. 

14 

-6.0-4.5-3.0-1.50.01.53.0-2.0-1.5-1.0-0.50.00.51.00607080910111213141516e17f18finterest windfallsprimary structural efforttotal change in structural balancenominal deficit (right) 
 
 
                                                           
3.1. Public finances and taxation 

100 basis points would imply higher costs of 0.1 % 
of GDP in 2017 and 0.3 % of GDP in 2019, though 
relative  to  a  baseline  of  falling  interest  payments 
(Chambre  des  représentants  de  Belgique,  2016). 
According to the ‘S0  indicator’ Belgium does not 
seem to face a high risk of fiscal stress in the short 
term,  i.e.  within  one  year  (12).  However,  the  S0 
fiscal sub-index exceeds the critical value, pointing 
to  some  challenges  in  the  short  term  due  to  the 
fiscal side. 

3.1.2.  LONG-TERM SUSTAINABILITY 

Longer-term  sustainability  indicators  paint  a 
less  benign  picture,  with  Belgium  facing  high 
sustainability risks  in  the  medium term,  i.e.  up 
to  10  years.  This  is  because  public  debt  is 
projected  to  reach  around  102 %  of  GDP  at 
unchanged  policy  and  because  it  is  sensitive  to 
potential  shocks  in  nominal  growth  and  interest 
rates.  Such  shocks  would  bring  the  debt  level  to 
108-109 % of GDP in 2027 (see Graph 3.1.3). On 
the  other  hand,  converging  towards  the  medium 
term  budgetary  objective,  as  required  by  the 
Stability  and  Growth  Pact,  and  maintaining  this 
structural  balanced  budget  stance,  would  put  the 
debt  ratio  on  a  clear  downward  path,  arriving  at 
80 % of GDP by 2027.  

the 

term 

objective 

budgetary 

considering 

The  required  fiscal  effort  for  reaching  the 
medium 
is 
estimated 
substantial, 
structural  deficit  of  2.5 %  in  2016.  Moreover, 
rising  expenditure  might 
require  additional 
measures  once  at  the  medium  term  budgetary 
objective.  This 
the 
sustainability  gap  indicator  S1,  which  points  to 
high  risks  in  the  medium-term (13).  These  are 
mainly  due  to  the  distance  between  the  debt  ratio 
and the 60 % of GDP reference value. To a lesser 
extent,  they  also  stem  from  the  projected  rise  in 
ageing  costs.  Reaching  a  debt  ratio  of  60 %  of 
GDP by 2031 would require a fiscal adjustment of 
as  much  as  4.1  pps.  of  GDP  between  2018  and 

is  confirmed  by 

risk 

(12)  The  S0  indicator  is  a  composite  indicator  of  fiscal  stress 
based  on  25  fiscal  and  macro-competitiveness  variables 
that  have  proven  to  perform  well  in  detecting  fiscal  stress 
events  in  the  past.  More  information  can  be  found  in  the 
European Commission Debt Sustainability Monitor 2016.  
(13)  The  S1  indicator  measures  the  required  fiscal  adjustment 
needed  between  2018  and  2023  to  bring  the  public  debt 
ratio down to 60 % of GDP by 2031. 

Graph 3.1.2:  Public debt trends 

Source: European Commission 

indebtedness  appear 

At  the  same  time,  short-term  risks  linked  to 
high  public 
to  be 
contained.  Belgian  authorities  have  been  using 
favourable  market  conditions  to  refinance  the 
outstanding  debt  against  much  lower  rates  at 
considerably  longer  maturity.  This  has  allowed 
interest  expenditure  to  fall,  even  despite  the 
increasing  debt  levels.  Total  interest  payments 
went from 4.0 % of GDP in 2008 to 3.0 % in 2015 
and 2.6 % in 2016. A further decline is expected in 
coming  years  (see  Graph  3.1.2).  The  average 
maturity  of  long-term  issuance  rose  to  17.5  years 
in  2016  (14.1  years  in  2015  and  15  years  and 
2014)  with  an  average  weighted  yield  of  0.8 % 
(0.9 % in 2015 and 2.2 % in 2014) (10).  

The proportion of short-term debt in total debt 
has  fallen.  This  is  reflected  in  the  average  life  to 
maturity  of  the  overall  federal  debt  portfolio.  It 
rose  from  around  6  years  until  2009  to  8  years  at 
the  end  of  2015  and  to  8.7  years  at  the  end  of 
October 2016, the longest ever. The longer average 
life shows in the 12-month and 60-month refixing 
risks  (11).  As  a  result,  if  interest  rates  rose,  this 
would  trickle  through  only  slowly  in  the  debt 
stock.  A  linear  increase  in  the  yield  curve  by 

(10)  The  data  source  is  the  Belgian  Debt  Agency,  which 
manages  the  federal  debt  portfolio,  representing  85 %  of 
total public debt. 

(11)  The  proportion  of  outstanding  debt  which  matures  in  a 
given time period or which is subject to changes in interest 
rates because of a floating interest rate. The 12-month and 
60-month refixing risks fell from around 22 % and 60 % in 
2010 to around 19 % and 43 % at the end of 2016. 

15 

0246810-6-4-2024689698000204060810121416e18fchange in public debt (pp. of GDP)of which: financial sector interventionsof which: contributions and loans to EFSF/ESM/Greeceof which: otherinterest expenditures (%GDP; right) 
 
                                                           
                                                           
3.1. Public finances and taxation 

2023 relative to the baseline scenario assuming no 
policy change. 

Graph 3.1.3:  Public debt: medium-term projection and 

scenarios (%GDP) 

pension  and  unemployment  systems 
to  exit 
through the sickness and disability schemes, which 
would  reduce  the  reforms’  projected  gains.  The 
government intends to lay the groundwork for the 
introduction  of  a  credit-based  public  pension 
system  by  the  end  of  its  term  in  2019.  Once 
operational,  such  a  system  would  provide  for 
automatic  adjustment  mechanisms  in  response  to 
structural demographic or economic developments. 
One  element  is  the  demarcation  of  criteria  for 
demanding  jobs.  People  in  such  jobs  will  still  be 
able  to  retire  early  following  the  reforms.  The 
government has asked social partners to determine 
these  criteria.  The  available  budget  for  the  period 
2018-2021  has  already  been 
the 
government. 

fixed  by 

Expenditure  projections  for  long-term  care 
contribute  to  sustainability  challenges  in  the 
long  run.  Following  the  most  recent  institutional 
reform,  regions  and  communities  have  become 
responsible  for  long-term  care.  Dependent  people 
represented  7.7 %  of  the  Belgian  population  in 
2013,  about  the  same  as  in  the  EU.  Belgium 
nevertheless  had  the  highest  proportion  of  the 
population  receiving  long-term  care.  As  a  result, 
Belgium spent 2.1 % of GDP on long-term care in 
2013, twice the EU average. In addition, while the 
total 
proportion  of  dependent  people 
population  is  projected  to  increase  less  by  2060 
than  the  EU  average  (+1.5 pps. vs.  +2.8 pps.),  the 
expected increase in spending on long-term care is 
1.5 pps.  of  GDP  for  Belgium,  compared  to  1.1 
pps. of GDP for the EU as a whole. 

the 

in 

3.1.3.  FISCAL FRAMEWORKS 

Effective  budget  coordination  is  essential  in  a 
federal  country  like  Belgium.  A  large  part  of 
spending power has been devolved to sub-national 
governments.  In  addition,  the  central  government 
— which  is  responsible  for  most  of  the  debt  and 
faces  the  bulk  of  age-related  costs —  does  not 
have  the  legal  authority  to  impose  budget  targets 
on  regions  and  communities.  In  an  attempt  to 
improve internal coordination and to transpose the 
Treaty on Stability, Coordination and Governance 
in  the  EMU  (the  ‘Fiscal  Compact’),  the  federal 
government  and  the  regional  and  community 
governments  concluded  a  cooperation  agreement 
in 2013. It requires the High Council of Finance to 
targets  for  each 
propose  multiannual  budget 

Source:  
European Commission (Debt Sustainability Monitor 2017) 

take 

Long-term fiscal risks are assessed as medium-
level. Ensuring the sustainability of public finances 
in  the  long  run  would  require  an  additional  fiscal 
adjustment of 3 pps. of GDP. The risks stem from 
the  projected  increase  in  age-related  spending, 
such  as  pensions,  long-term  care,  and,  to  a  lesser 
extent,  healthcare.  These  estimates 
into 
account  the  pension  reforms  enacted  by  the 
Belgian  authorities  in  recent  years  and  discussed 
also  in  previous  country  reports  (see  Box  3.1.1). 
The long-term impact of the measures is evident in 
the  latest  projections  of  the  Ageing  Working 
Group: pension expenditure is projected to rise by 
1.3 pps.  of  GDP  between  2013  and  2060, 
compared  to  3.3 pps.  before  the  most  recent 
reforms. The lower projections allowed Belgium to 
lower its medium term budgetary objective from a 
structural surplus of 0.75 % of GDP to a balanced 
budget in structural terms. 

Additional  pension  reforms  would  further 
improve  long-term  fiscal  sustainability.  There 
are  risks  of  a  shift  from  early  exit  through  the 

16 

100.8106.6106.479.6758085909510010511075808590951001051101112131415161718192021222324252627Baseline: no-policy change scenarioStandardised (permanent) positive shock (+1 pp.) to theshort- and long-term interest rates on newly issued androlled over debtStandardised (permanent) negative shock (-0.5 pp.) onnominal GDP growthStability and Growth Pact institutional scenario 
 
3.1. Public finances and taxation 

government in preparation for the annual Stability 
Programme. On this basis, the federal, regional and 
community  governments  are  expected  to  reach  a 
individual 
binding  agreement  on  overall  and 
multiannual  fiscal  paths.  The  High  Council  is 
responsible  for  monitoring  compliance  with  the 
agreed  targets  and  if  it  signals  a  significant 
divergence,  the  government  concerned  has  to 
the 
adopt  corrective  measures;  progress  on 
corrective  measures  is,  in  turn,  monitored.  The 
federal government is taking steps to reinforce the 
autonomy  of 
the 
independence of its members. 

the  High  Council  and 

Implementation  of 
the  2013  cooperation 
agreement  has  been  poor.  Both  in  2015  and  in 
2016,  the  federal  governments,  the  regions  and 
communities  did  not  achieve  an  agreement  to 
formally  commit  to  the  fiscal  trajectory  proposed 
by  the  High  Council  of  Finance.  This  lack  of 
internal 
sharing 
undermines  the  viability  of  the  country’s  overall 
trajectory  towards  its  medium  term  budgetary 
objective as laid down in the Stability Programme. 
A task force has been created to remedy the factors 
that  prevented  an  agreement  in  the  run-up  to  past 
Stability  Programmes.  However,  the  obstacles 
appear to be rather political than technical.  

cooperation 

burden 

and 

17 

 Box 3.1.1: Selected highlight: the Belgian pension reformThe Belgian — as many other European — pension system is facing the dual challenge of ensuring its financial and social sustainability. Maximizing employment is an additional goal of pension and retirement policies. The intensification of population ageing over the next couple of decades will increase the challenge of meeting these three objectives in many ways.  In view of this, at the end of 2011, the pre-pension system through the elderly unemployment benefit system has been replaced by a system known as ‘unemployment with company allowance’. The reform aimed at increasing employment among older workers by gradually raising the minimum age and career length requirements for early retirement from respectively 60 and 35 to 62 and 40 and helping to reduce the gap between the effective and statutory retirement age.  On a longer time horizon, a broader pension reform was adopted in the Law of 10 August 2015, the main effect of which is to raise the statutory retirement age from 65 up to 66 by 2025 and to 67 by 2030; second, to further raise the minimum age and number of career years required for qualifying for early retirement to respectively 63 by 2018 and 42 by 2019; and third, to increase the minimum age for survivor’s pension. The civil servant pension scheme underwent an additional reform as of 2016: the years of studies taken into account in the above mentioned career condition for early retirement will be progressively phased out as from 2015 (by steps of 4 to 6 months/year). The government also announced initiatives to encourage the development of occupational pension schemes to supplement the public pension. Finally, the government announced a transition towards a credit-based pension system (to be introduced as from 2030) to allow for a strengthening of the link between the retirement age and life expectancy. The 2015 pension reform is a major step toward addressing the long-term cost of ageing, as shown in the latest projections of the Ageing Working Group (EPC, 2015). Thanks to the reforms the cost of ageing in the long run is expected to increase but at a much slower pace: the annual growth in cost of ageing is expected to halve from the current 4–5 % per year; pension expenditures are projected to rise by 1.3 % of GDP between 2013 and 2060 (from 11.8% of GDP to 13% of GDP), compared to 3.3 % before the 2015 reforms. The difference is mostly due to the pension reform itself (-1.6 pp. of GDP), while other measures, such as the temporary suspension of indexation and lower public employment decided in the framework of the budgetary consolidation measures, will also curb public pension expenditure growth (by -0.4 pp. of GDP).  Insofar as the budget is concerned, the reforms also contributed to improve Belgium’s medium term budgetary objective (MTO). The reforms should also accelerate progress in increasing the employment rate (also due to the introduction of more advantageous arrangements for people working while receiving a pension) as well as the effective exit age from the labour market, which in 2014 was the second lowest in the OECD (60 years for men and 59.3 years for women).  
 
 
 
 
 
3.1. Public finances and taxation 

Flanders. No agreement has been reached so far to 
extend  road  pricing  to  passenger  cars  (see  also 
Section  3.5.2.).  A  study  of  the  Federal  Planning 
Bureau points to the fact that a kilometre charge on 
heavy  duty  trucks  alone  is  insufficient  to  have  a 
sizeable  impact  on  peak  hour  congestion. (16)  The 
tax  reform  also  provides  for  a  steady  increase  in 
excise duties on diesel and a reduction in those on 
petrol  with  the  aim  of  achieving  parity  by  2018. 
Belgium  is  also  one  of  the  few  Member  States  to 
have  introduced  indexation  for  environmental 
taxes  (excise  duties,  vehicle  and  road  taxes) (17). 
Moreover, the Brussels region has introduced a tax 
on car parks for office buildings, which is designed 
to become more dissuasive every year. 

in 

impedes 

further  progress 

Despite  past  measures  to  further  align  the  tax 
base  for  company  cars  to  CO2  emissions, 
private  use  continues  to  be  heavily  subsidised. 
This 
tackling 
congestion,  air  pollution  and  greenhouse  gas 
emissions.  In  its  draft  budget  plan  for  2017,  the 
federal  government  announced  changes  to  the 
company car system. First, since 1 January 2017, a 
tax  deduction  for  employers 
less  favourable 
concerns all company car costs when a fuel card is 
granted.  Second,  as  from  April  2017,  a    new 
framework  would  allow  employees  whose  pay 
package  includes  a  company  car  to  opt  for  a 
mobility  allowance  (net  pay)  budget  or  additional 
net pay instead, by agreement with their employer. 
Although  the  practical  details  have  yet  to  be 
spelled  out,  the  measure  is  planned  to  be  budget-
neutral.  Its  environmental  benefits,  however,  are 
probably limited, without a substantial reduction in 
the  number  of  company  cars  (currently  around 
450,000) and the change is unlikely to simplify the 
system. 

(16)  Federal  Planning  Bureau  (2009),  Analyse  de  l’impact  de 
différents  schémas  théoriques  d’une  taxe  routière  en 
Belgique, Working Paper 14-09. 

(17)  European  Commission  (2015),  Tax  Reforms 
Member States 2015, Institutional Paper 008, p. 68. 

in  EU 

3.1.4.  TAXATION  

The  effects  of  the  ongoing  tax  reform  are 
labour, 
beginning  to  materialise.  Taxes  on 
including social contributions, are being reduced in 
several steps between 2016 and 2020, while others, 
mainly  consumption  taxes,  have  been  increased, 
thus partially compensating for the labour tax cuts. 
Last  year’s  country  report  detailed  and  assessed 
the  measures mainly from a budgetary and labour 
market 
on 
competitiveness, employment and growth are also 
expected  to  help  fund  the  tax  cuts,  although  the 
overall  budget-neutrality  of  the  reform  is  not 
assured.  Additional  positive  effects  are  expected 
from reductions targeting small and medium-sized 
enterprises (SMEs) and self-employed people. 

perspective. 

Positive 

effects 

Nevertheless,  the  Belgian  tax  system  remains 
complex,  with  tax  bases  eroded  by  numerous 
exemptions,  deductions  and  reduced  rates. 
These  entail  revenue  losses,  economic  distortions 
and  a  heavy  administrative  burden.  The  latest 
figures  for  the  federal  government  show  that  the 
total amount of tax expenditures (i.e. tax relief) is 
sizeable,  and  that  the  rising  trend  as  a  percentage 
of  GDP  continues (14).  A  study  estimated  that  the 
actionable policy gap in VAT was 15.9 % in 2014, 
above  the  EU  average  of  14.9 %  (15).  In  some 
cases there may be good reasons to retain specific 
tax expenditures, e.g. innovative ways of financing 
start-ups are being fostered through tax breaks and 
level. 
incentives  at  federal  and  regional 
tax 
Nevertheless,  a  comprehensive  rethink  of  the 
design  of  the  tax  system  is  warranted  as  the  cost-
effectiveness  of 
the  various  exemptions  and 
reduced rates is not always clear.  

The  tax  shift  has  only  partially  exploited 
opportunities  to  shift  taxes  to  a  more  growth-
friendly  base,  amongst  others  environmental 
taxation  and  the  removal  of  environmentally 
harmful  subsidies.  The  most  positive  changes  in 
recent  years  were  the  introduction  of  road  pricing 
for  heavy  duty  trucks  in  all  regions  from  April 
2016  and  changes  to  vehicle  and  road  taxes  in 

(14)  Chambre  des  représentants,  2016.  Inventaire  2014  des 
exonérations, abattements et réductions qui  influencent les 
recettes  de  l’Etat,  annexe  au  projet  de  loi  contenant  le 
budget 2016.  

(15)  CASE,  et  al.,  Study  and  Reports  on  the  VAT  Gap  in  the 
Report, 

2016 Final 

States: 

EU-28 Member 
TAXUD/2015/CC/131. 

18 

 
                                                           
                                                           
Graph 3.1.4:  Low wage trap for second earners, 2015 

Source: Tax and Benefit database; European Commission 
(2016), EU Tax Policies: 2016 Scoreboard. 

for 

the 

receipt  of 

Certain features of the tax system still give rise 
to  labour  market  traps.  For  example,  the  upper 
limit 
‘marital  quotient’ 
constitutes a disincentive for second earners (18) to 
engage  in  the  labour  market  or  increase  their 
working hours. In 2015, the low wage trap and the 
inactivity  were  among  the  highest  in  the  EU.  In 
both cases, the contribution of the taxation system 
was  among  the  highest  in  the  EU  (Graph  3.1.4). 
However, this does not yet reflect the effect of the 
2016 tax reform. 

Some  of  Belgium's  tax  rules  may  be  used  in 
structures  of  aggressive  tax  planning. (19)  The 
absence  of  anti-abuse  rules (20)  and  notably  the 

(18)  Data for second earners in this paragraph refer to a second 
earner  with  two  children,  whose  partner earns  the  average 
wage.  The  low  wage  trap  supposes  a  move  from  33 %  to 
67 %  of  the  average  wage;  the  inactivity  trap  supposes  a 
move from inactivity to 67 % of the average wage. 

on 

2012 

aggressive 

(19)  Aggressive tax planning consists in taking advantage of the 
technicalities  of  a  tax  system  or  of  mismatches  between 
two  or  more  tax  systems  for  the  purpose  of  reducing  tax 
liability.  (source:  Commission  Recommendation  of  6 
December 
planning 
(2012/772/EU)).  For  an  overview  of  the  most  common 
structures of aggressive tax planning and the provisions (or 
lack  thereof)  necessary  for  these  structures  to  work,  see 
Ramboll  Management  Consulting  and  Corit  Advisory 
(2016),  Study  on  Structures  of  Aggressive  Tax  Planning 
and  Indicators,  European  Commission  Taxation  Paper 
n°61.  It  should  be  noted  that  country-specific  information 
provided  in  the  study  gives  the  state  of  play  by  May/June 
2015. 

tax 

(20)  For  example,  the  lack  of  Controlled  Foreign  Companies 
(CFC)  rules.  Furthermore,  while  the  tax  authority  is 
generally fighting hybrid loans and the qualification of the 
income  (interest  or  dividend),  no  linking  rule  exists,  also 

3.1. Public finances and taxation 

to  cascade  deductions  under 

possibility 
the 
allowance for corporate equity (ACE) are features 
of  the  tax  system  which  may  facilitate  aggressive 
tax  planning  by  multinational  groups  that  locate 
financial  companies  in  Belgium  to  minimise  their 
overall  tax  burden. (21)  In  that  respect,  the  high 
level  of  foreign  direct  investment  positions  but 
also the size and pattern of interest flows (22) as a 
percentage of GDP suggests that the country's  tax 
rules  are  used  by  companies  that  engage  in 
aggressive  tax  planning.  Within  this  context,  it  is 
also important to note that corporate tax initiatives 
the  Parent-
the  amendment 
(for  example 
Subsidiary  Directive  or  the  Anti-Tax  Avoidance 
Directive)  will  strengthen  Member  States'  anti-
abuse  framework  and  boost  tax  transparency  (for 
the  automatic  exchange  of 
example 
information  on  tax  rulings  or  on  country-by-
country reports). 

through 

to 

Belgium  has  taken  steps  to  adjust  some  of  its 
tax  rules  facilitating  aggressive  tax  planning. 
Belgium amended its patent box regime in order to 
bring it in line with Action 5 of the Base Erosion 
and  Profit  Shifting  project  (see  OECD,  2015)  as 
endorsed  by  the  Code  of  Conduct  for  Business 
Taxation. 

In  its  draft  budget  plan  for  2017,  the  federal 
government  announced 
several  measures, 
including  the  potential  overhaul  of  corporate 
income  taxation.  The  current  corporate  income 
tax system is characterised by a high statutory rate 
of  33.99 %  (with  a  lower  rate  for  SMEs),  with 
numerous  exemptions  and  allowances.  Reforms 
under consideration would move towards a system 
with  lower  statutory  rates  and  fewer  exemptions, 
and  possibly  raise  taxes  on  capital  gains  and 
increase 
into 
productive  investment.  Prior  assessment  of  the 
various  options  made  clear  the  difficulty  of 
carrying  out  a  budget-neutral  reform  that  would 
significantly  reduce  the  statutory  tax  rate,  even  if 
existing  exemptions,  deductions  and  specific 

to  channel  savings 

incentives 

there  is  a  lack  of  rules  to  counter  mismatches  in  tax 
qualification  of  domestic  companies  or  partnerships  and 
those of a foreign state. 

(21)  Advice  of  the  High  Council  of  Finance  of  July  2016 
(L'impôt des sociétés dans un contexte "Post-BEPS’’). 
(22)  In  2015,  the  level  of  inward  and  outward  foreign  direct 
investment  amounted  respectively  to  102%  and  100%  of 
GDP.  Moreover,  the  flows  of  interests  received  amounted 
to 105.3% of GDP in 2015. 

19 

-10010203040506070BEBGSIDEFRATPTLUITDKFINLHUIEROUKLVPLSEHRCZLTEEESELMTSKEU-28Low wage trap, wage increase from 33% to 66% average wageContribution of taxation to low wage trap (% points) 
 
                                                           
                                                                                   
3.1. Public finances and taxation 

schemes are abolished, in particular the allowance 
for  corporate equity.  The  proposals  are  still  under 
discussion. Both the budget-neutrality of potential 
reforms  and  the  impact  of  new  measures  on  the 
debt/equity bias need to be carefully assessed. The 
2017  budget  included  a  further  increase  in  the 
financial  withholding  tax  rate,  from  27 %  to 
30 % (23), an extension of the existing tax on stock 
exchange 
taxation 
ceilings  and  broadening  the  tax  base  to  include 
transactions on foreign trading platforms), and the 
abolition of the ‘speculation tax’.  

transactions  (doubling 

the 

(23)  This general increase in Belgium’s withholding tax rate has 
no effect on the numerous withholding tax exemptions. In 
addition,  some  types  of  income  are  still  eligible  for  a 
reduced  15 %  withholding  tax  and  personal  income  tax 
rate. 

20 

 
                                                           
3.2.  FINANCIAL SECTOR 

for 

The  financial  sector  seems  to  remain  relatively 
sound,  but  low  interest  rates,  digitalisation, 
clients’  changing  preferences  and 
intense 
traditional 
competition  are  challenges 
business  models.  Banks  and 
insurers  are 
undergoing  severe  and  sometimes  disruptive 
restructuring, some more visibly than others. With 
one of the highest cost-to-income ratio in the EU, 
restructuring  will  continue  and  consolidation  is 
likely. On the banking side, the minimum interest 
rate  on  savings  accounts  (0.11 %)  may  aggravate 
the  situation.  On  the  insurance  side,  the  negative 
effects  of  the  2 %  tax  on  life  insurance  premiums 
are still felt by the sector. In addition, if the current 
very 
interest  rate  environment  persists, 
employers  and  insurers  might  find  it  difficult  to 
achieve  the  guaranteed  return  of  1.75 %  over  the 
lifespan of the contract.  

low 

The  financial  crisis  has  left  the  Belgian  State 
with  participations  in  several  large  banks  and 
insurers.  It  has  a  share  of  about  10 %  in  BNP 
Paribas,  100 %  of  Belfius  bank,  100 %  of  insurer 
Ethias  (including  stakes  of  regions  and  local 
authorities),  and  50 %  of  Dexia  bank.  Dexia  is  in 
resolution  and  it  is  unclear  how  much  will 
eventually  be  recovered  because  full  resolution 
will  take  years  to  conclude.  Moreover,  Dexia 
accounts  for  sizeable  contingent  liabilities.  These 
stem from the Belgian State’s guarantee of 51.4 % 
of  the  bank’s  liabilities.  This  guarantee,  on  which 
only  limited  fees  are  due,  amounted  to  8.3 %  of 
GDP  on  average  in  2016,  compared  to  8.5 %  in 
2015 and 9.7 % in 2014. In nominal terms, it rose 
from  EUR 31.5 bn  at  the  end  of  2015  to  EUR 
36.7 bn  at  the  end  of  2016.  Government  plans 
concerning  other  stakes  in  the  financial  sector  are 
currently  unclear.  BNP  Paribas  and  Belfius  have 
been yielding dividends to the federal budget.  

Belgium  had  a  number  of  macro-prudential 
measures  in  place  in  2016,  which  were  either 
newly  activated  or  had  been  extended.  Besides 
phasing-in  buffers  on  systemic  banks,  in  its 
capacity  as  the  designated  authority  the  National 
Bank  of  Belgium  prolonged  a  measure  imposing 
higher  risk  weights  applied  by  banks  to  mortgage 
loans. The NBB has also announced its intention to 
introduce  an  additional  macro-prudential  measure 
in 2017 to address vulnerabilities in the residential 
real estate market (see Section 1).  

Table 3.2.1: 

Financial soundness indicators (in %) 

Note: (1) ECB aggregated balance sheet: the loan-to-
deposit ratio excludes to/from government and MFI. The 
loan-to-deposit ratio corrected for securitisation turns 
around 90%. 
Source: ECB CBD 

Belgian  capital  markets  function  well  but  are 
constrained  by  country-specific  factors.  Some 
features  of  the  taxation  system  favour  ‘risk-free’ 
capital like deposits and bonds over ‘risky’ capital 
like  shares.  The  stock  exchange  transaction  tax 
negatively  affects  efficiency  and  liquidity.  The 
large  inflow  of  household  funds  into  savings 
deposits  is  largely  determined  by  cyclical  and 
structural  factors  such  as  a  risk-averse  attitude  to 
savings,  which  could  be  a  serious  barrier  to 
investment  in  cross-border  funds,  and  the  tax 
exoneration  on  regulated  savings  accounts.  The 
lack  of  a  business  ecosystem  capable  of  helping 
SMEs with the listing process is another potential 
barrier to expanding Belgium’s capital markets. 

Efforts  to  increase  activity  and  value  added  in 
the financial sector could focus on niches where 
Belgium  is  already  well  positioned  to  compete. 
This includes financial market infrastructures (e.g. 
Euroclear),  but  also  communications  providers 
such as SWIFT. 

Belgium  is  consistently  late  in  transposing 
financial  directives.  It  is  among  the  Member 
the  highest  number  of  open 
States  with 
infringement  cases  for  non-transposition  of  post-
crisis  financial  directives.  For  most  Directives 
full 
Belgium  has  eventually  communicated 
the  full 
transposition  but 
transposition  of  four  Directives,  including  the 
Payment  account  Directive  and  the  Directive  on 
non-financial  reporting.   Belgium  is  following  up 
the  recommendations  of  the  high  level  expert 
group  created  by  the  Minister  of  Finance  in  view 
of improving the transposition process.  

is  still 

late 

in 

it 

21 

2010201120122013201420152016Q2Non-performing loans3.94.25.15.33.33.02.8Coverage ratio29.331.628.129.345.346.348.5Loan-to-deposit ratio (1)62.460.156.658.259.662.462.1Tier 1 ratio15.515.115.916.415.316.015.7Return on equity10.51.43.36.27.810.3-Return on assets0.50.10.20.40.50.7- 
 
 
 
 
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

3.3.1.  LABOUR MARKET  

Graph 3.3.1:  Differences in employment and 

unemployment rates (15-64 years) at regional 
level compared to the Belgian average. 

Source: Eurostat — Labour Force Survey 

of 

are 

types 

inactivity 

A relatively large proportion of the working-age 
population  is  not  employed.  Unemployment  and 
different 
largely 
concentrated  among  specific  groups  such  as  the 
low-qualified  young  people,  older  workers  and 
workers  with  a  migration  background  from  non-
EU countries. Trends also differ across population 
groups.  For  instance,  activity  and  employment 
rates are falling among low-qualified young people 
(20-24  years),  while  among  low-qualified  older 
workers  they  are  rising.  The  number  of  people 
below the age of 60 living in households with very 
low work intensity is one of the highest in the EU 
and  still  increasing,  contrary  to  the  average 
European  trend.  At  the  same  time,  a  relatively 
large  proportion  of 
in 
households  with  very  high  work  intensity  (Graph 
3.3.2).  

the  population 

lives 

of 

announcements 

subgroups  of 

The performance of the labour market remains 
mixed  as  large  differences  persist  between 
regions  and  between 
the 
population. Unemployment remains below the EU 
and euro area average at 7.9 %, but the proportion 
of long-term unemployment within unemployment 
has  risen  sharply  between  2012  and  2015  before 
stabilising  at  a  high  level.  Job  creation  has  been 
substantial over the past year (24), in spite of some 
high-profile 
collective 
dismissals. (25) The employment rate (67.2 %) and 
the  activity  rate  (73.0 %)  remain  well  below  the 
average  in  the  EU  and  euro  area. (26)  However, 
there  are  big  and  increasing  differences  between 
and  within  regions  (Graph  3.3.1). (27)  Labour 
market outcomes for the low-qualified, the young, 
older  workers  and  people  with  a  migrant 
background  are  far  below  levels  recorded  for 
the  other  Member  States. 
similar  groups 
Meanwhile,  job  vacancy  rates  consistently  exceed 
the  EU  average (28),  pointing 
to  mismatches 
between  labour  supply  and  demand  at  various 
levels. (29)  

in 

(24)  According  to  the  National  Bank  of  Belgium,  close  to 
110 000 jobs were created between Q4 2014 and Q3 2016, 
an increase of 2.5 %. Much of this job creation occurred in 
the private sector.  

(25)  For example, in 2016, Caterpillar announced the closure of 
its  Gosselies  plant,  resulting  in  job  losses  for  2 000 
employees  and  potentially  3 000  more  job  losses  for 
various  suppliers  and  subcontractors.  This  led  to  the 
Commission and the Walloon government setting up a joint 
task  force  to  help  with  restructuring  and  retraining, 
including  the  use  of  the  various  existing  EU  funding 
instruments as appropriate. 

(26)  Data  for  the  second  quarter  of  2016.  Activity  rate  (20-64 
years): EU & euro area 77.6 %; employment rate (20-64 y): 
EU  71.1  %,  euro  area  70.0  %;  unemployment  rate  (15-74 
y): EU 8.6 %; euro area 10.0 %. 

(27)  The  employment  rate  at  NUTS1  level  ranges  from  58.7% 
in  the  Brussels  Capital  Region  to  71.9%  in  Flanders.  At 
NUTS2 level, sizeable differences can be observed in both 
Wallonia  (Hainaut:  58%  v.  Brabant-Wallon:  69.2%)  and 
Flanders (Limburg: 68.7% v. West-Flanders: 73.6%). 
(28)  The  Belgian  job  vacancy  rate  stood  at  2.9 %  in  Q3-2016 

(against an EU average of 1.8 %). 

(29)  While  skills  mismatches  account  for  much  of  the  overall 
mismatch in the Belgian labour market, other factors such 
as  low  geographical  and  job  mobility  and  the  need  for 
language skills compound the issue. 

22 

-10%-5%0%5%10%ER BXLER FLER WALUR BXLUR FLUR WAL 
 
                                                           
 
3.3. Labour market, education and social policies 

Graph 3.3.2:  Distribution of the population (aged 0-59) by 

work intensity of the household — 2015 

invalidity  has  also  been  rising  annually,  by  4-5 % 
since 2006, accelerating to 7 % in 2014 and 6 % in 
2015.  This  increase  reflects  a  combination  of 
higher  numbers  of  cases  claiming  for  longer 
periods.  It  is  more  pronounced  among  workers 
aged over 50 and for women. 

type 

contract 

temporary 

Although temporary and part-time employment 
is  becoming  more  prevalent,  labour  market 
segmentation  by 
remains 
comparatively limited. While part-time work, as a 
percentage  of  total  employment,  is  above  the  EU 
average  (at  24.3 %,  against  19.6 %),  involuntary 
part-time  work  is  limited  to  10 %  of  the  total 
(against  29.9 %  in  the  EU).  The  proportion  of 
temporary  employees  in  the  total  workforce  has 
risen, from 7.6 % in 2010 to 8.5 % in 2015. This is 
still markedly below the EU average and the rates 
observed  in  neighbouring  countries.  The  average 
transition  rate  from 
to  permanent 
employment  also  compares  favourably,  by  these 
benchmarks.  This  is  particularly  true  for  young 
people,  but  not  for  people  with  a  migrant 
background, who are overrepresented in precarious 
employment  contracts  (FOD  Werk,  2015).  The 
percentage  of  temporary  contracts  among  newly 
recruited employees has risen, from about 30 % in 
2012 to 40 % in 2016. There has also been a steady 
and  slightly  accelerating  trend  towards  a  higher 
incidence of temporary employment among young 
people  in  the  past  4  years (SPF  Economy,  2016). 
Taken together, these observations suggest that the 
abolition  of  the  probation  period  for  open-ended 
increased 
contracts  may  have  contributed 
contract 
the 
although 
phenomenon remains comparatively limited. 

segmentation, 

type 

to 

The  Belgian  labour  market  is  characterised  by 
a high degree of mismatch between supply and 
demand  for  skills.  The  relative  dispersion  of 
employment and unemployment rates across skills 
groups is among the highest in the EU and shows 
significant  differences  in  the respective  likelihood 
of  being  employed  for  the  low-skilled,  medium-
skilled  and  high-skilled.  This  indicates  in  turn  a 
mismatch between the supply of skills (proxied by 
the  composition  of  the  working-age  population) 
the 
and 
the  demand  of  skills  (proxied  by 
composition 
(Graph 
3.3.3) (European  Commission,  2016a).  While  the 
employment  rates  of  recent  tertiary  education 
graduates  is  relatively  high,  the  gap  with  the 
employment  rate  of  those  who  have  completed 

employment) 

of 

Source: EU-SILC. 

Beyond  the  level  of  qualification,  inactivity  is 
strongly  linked  to  age,  gender  and  migrant 
(versus  native)  background.  For  young  people 
(under 24 years), inactivity is essentially explained 
by  education  and  training.  For  older  workers, 
retirement  is  the  major  reason.  Family  and  care 
responsibilities  are  major  explanations  for  women 
but not for men. In addition, sickness and disability 
are  increasing  reasons  for  inactivity  among  prime 
age  workers. 
Inactivity  among  non-EU-born 
residents is much higher than for Belgians without 
a migrant background. This is related to a specific 
combination of factors including the functioning of 
the labour market, taxation and welfare policies, as 
well  as  integration  measures  and,  specifically  for 
women,  differences  in  gender  roles  (FOD  Werk, 
2015). 

An increasing number of people are relying on 
welfare  and  invalidity  schemes.  The  number  of 
recipients  of  social  assistance  benefits  has 
increased  by  about  60 %  over  10  years,  with  a 
particularly  marked  rise  for  young  working  age 
adults  (20-39  years)  and  for  men.  The  10 % 
increase  in  2009  coincided  with  the  economic 
crisis,  whereas  the  13 %  rise  from  2014  to  2015 
reflects the entry into force of the reform limiting 
the  right  to  an  ‘insertion  allowance’  for  seeking 
work. About a third of those coming to the end of 
their insertion allowance rights seem to move onto 
the  social  assistance  benefit.  The  number  of  days 
paid  out  on  account  of  labour  incapacity  and 

23 

010203040506070LUSEEECZPLSKSLLVROATFRLTMTHUDENLEU28FICYPOEA19DKBGITUKHRBEESELVery high work intensityVery low work intensity 
 
3.3. Labour market, education and social policies 

the  federal  government  proposed  a  series  of 
measures  to  increase  the  flexibility  of  working 
time  arrangements  and  to  promote  in-company 
training.  The  regional  authorities,  meanwhile,  are 
in 
the  existing 
employment  incentives  aimed  at  specific  target 
groups and the monitoring and guidance activities 
of their respective public employment services. 

the  process  of 

reforming 

The ongoing tax and social security reforms are 
producing positive effects on take-home pay for 
low  and  average  wage  earners  and  on  the 
participation rate of older workers. The number 
of  young  people  benefiting  from  an  insertion 
allowance  is  dropping,  and  so  is  the  number  of 
people  resorting  to  early  labour  market  exit 
schemes. The employment rate of older workers is 
increasing,  from  42.7 %  in  2014  to  44.0 %  in 
2015 (30). However, the tax and benefit system still 
puts a heavy tax burden on second earners (usually 
women)  who  face  a  tax  wedge  which  was  among 
the highest in the EU in 2015 (see Section 3.1.4). 

Table 3.3.1:  Size of selected target groups (total population 

in thousands) 

Source: Eurostat (2015 Labour Force Survey; LFS ad hoc 
module: 2014. Migration and labour markets) — own 
calculations 

for 

People  with  a  migrant  background  represent  a 
large  proportion  of  the  target  groups  (31) 
selected 
support.  The 
employment 
employment  rate  of  non-EU-born  residents  in 
Belgium  remains  very  low  and  the  resulting  gap 
with  native-born  residents  is  one  of  the  largest  in 
the  EU.  The  gap  is  larger  for  women,  which  is 
mainly  explained  by  high  inactivity  rates,  by 

(30)  The trend is quite similar as regards their activity rate, from 

45.1 % in 2014 to 46.6 % in 2015. 
(31)  At the exception of older workers. 

only  secondary  education  is  markedly  wider  than 
in  neighbouring  countries.  This  sizeable  skills 
mismatch  is  the  product  of  various  factors.  The 
decline  of  manufacturing  in  Belgium  has  been 
faster and steeper than in other Western European 
countries. This contributes to low demand for low-
skilled  labour.  At  the  same  time,  Belgium  has  a 
relatively  high  proportion  of  early  school  leavers, 
mainly  concentrated  in  Wallonia,  in  Brussels  and 
in  other  urban  areas,  and  a  high  proportion  of 
young  adults  with  a  low  level  of  educational 
attainment.  Participation  in  adult  lifelong  learning 
is  also  markedly  below  the  EU  average  and  the 
levels in neighbouring countries. 

Graph 3.3.3:  Relative dispersion of employment rates by 

education level, 2010, 2014 and 2015 

Source: Own calculations based on Eurostat. Annual 
average based on the average of four quarters. 

to 

inactivity 

Measures 
and 
tackle 
unemployment focus on reducing overall labour 
costs, strengthening financial incentives to work 
and  activating  older  workers.  The  personal 
income  tax  reform  being  phased  in  includes 
several measures to increase net wages for low and 
average  wage  earners.  Earlier  reforms  that  limit 
young  jobseekers’  eligibility  for  benefits  and 
introduce degressivity of the overall benefit levels 
have  now  been  fully  phased  in.  With  regard  to 
older workers, access to the unemployment benefit 
system  with  a  top-up  from  the  company  is  being 
tightened  by  gradually  lifting  the  age  ceiling  and 
career  length  requirements.  The  transition  will  be 
complete  by  2020.  At  the  same  time,  it  was 
decided to increase the pensionable age from 65 to 
67, in two steps in 2025 and 2030. More recently, 

24 

0.00.10.20.3UKPTATNLEEDKDELVSICZSEFIELEU28LUROCYPLESFRMTHRHUSKITLTIEBGBE201520142010low-qualifiedmedium-qualifiedBrussels417250114Flanders4122741847Wallonia4813379465Belgium 1084021701 426of which:% of non-EU-born 14.1%6.3%29.9%6.3%% of native-born with one or two parents non-EU-born14.9%9.5%10.0%0.5%Older workers (55-64 years)Young people (20-24 years, except Brussels 20-29 years) LTU (25 – 54 years) 
 
 
 
 
                                                           
3.3. Labour market, education and social policies 

consistently  above  EU  and  euro  area  averages (33) 
and  is  higher  for  young  women  than  for  young 
men. 

Graph 3.3.4:  Labour transitions by employment status 

Source: Eurostat 

by 

existing 

The  measures 
subnational 
taken 
governments represent major simplifications of 
the 
schemes.  The 
employment 
sixth State  Reform  transferred  follow-up  of  the 
unemployed and 22 targeted employment incentive 
schemes  to  subnational  levels.  The  employment 
incentive  system  was  complex,  with  definitions 
and procedures not always aligned, and take-up of 
some  measures  was  low (Van  Landeghem  et  al, 
2015;  ONEM,  2015).  Throughout  2016,  the  three 
regions and the German-speaking community were 
reviewing these various schemes to streamline and 
focus  financial  support  on  a  limited  number  of 
priority groups and to better integrate employment 
support  with  other 
types  of  employability 
measures.  The  reformed  employment  support 
systems  have  already  become  fully  operational  in 
Flanders, and Wallonia and Brussels will follow in 
the course of 2017. 

However,  some 
the  reformed 
features  of 
employment  support  schemes,  including  wider 
targeting and  high  wage  ceilings,  may  result  in 
windfall  and  crowding-out  effects.  The  success 
of the new employment incentives will depend on 
the  extent  of  windfall  and  displacement  effects 

(33)  In 2015, the long-term unemployment rate for young low-
qualified  people  (15-24  years)  was  19 %.  The  euro  area 
average is 12 %. 

for 

outcomes 

contrast with non-EU-born men, for whom the gap 
is  chiefly  due  to  higher  unemployment.  The  low 
employment rate persists in the second generation, 
despite  their  being  educated  in  Belgium.  Overall, 
this  is  a  substantial  issue.  The  non-EU-born 
represent  8.5 %  of  the population but 14 %  of  the 
low qualified young people, and nearly 30% of the 
prime age long-term unemployed (Table 3.3.1). In 
addition,  the  second  generation  with  at  least  one 
non-EU-born parent represents 9.5 % of the 20-24 
age  group  but  10 %  to  15 %  of  the  target  groups. 
Employment 
first-generation 
migrants differ greatly according to the reason for 
migration and to individual characteristics such as 
age,  sex,  education  level  and  literacy.  However, 
even  when  adjusting 
individual 
is 
characteristics, 
significantly  less  represented  in  employment  than 
residents  without  a  migrant  background,  which  is 
also,  as  for  the  first  generation,  one  of  the  worst 
outcomes  among  Member  States  for  which  data 
are  available  (OECD,  2014a).  The  unexplained 
part  of  this  lower  employment  probability  may 
point  to  discrimination.  This  is  confirmed  by 
testing studies showing that being of foreign origin 
directly  impacts  on  the  probability  of  being 
recruited, other things being equal (OECD, 2013a). 
Therefore, 
legislation, 
discrimination  still  seems  to  be  an  important 
labour market barrier. 

for 
second 

generation 

extensive 

despite 

these 

the 

transition  rates 

Despite significant resources spent on activation 
into  employment 
policies, 
remain well below the EU average (graph 3.3.4). 
Consequently, although Belgium spends more than 
the average on active labour market measures, (32) 
the  phenomenon  of 
long-term  unemployment 
remains  widespread,  mostly  in  Brussels  and  in 
Wallonia  and  among  specific  population  groups. 
So  for  example, 
is 
slightly  below  the  EU  and  euro  area  averages 
among  the  prime  age  working  population,  but 
comparatively high among young people and older 
workers. In the latter case, this is partly due to the 
legacy  of  relatively  easy  access  to  early  exit 
the  unemployment  benefit 
opportunities  via 
system. The long-term unemployment rate of low-
qualified  young  people  in  Belgium  has  been 

long-term  unemployment 

(32)  Belgium  spends  around  0.52 %  of  GDP  on  active  labour 
market  policy  measures,  which  is  slightly  more  than  the 
EU  average  and  the  weighted  average  of  neighbouring 
countries. 

25 

051015202530354045SICYROFRELBGITBEPTPLLTEESKCZEA18LUMTEU28HUATDENLLVDKEEUKSEFIfrom unemploymentfrom inactivity 
                                                           
 
                                                           
3.3. Labour market, education and social policies 

infrastructure (including public transport) and wide 
publication of job offers are also important. 

3.3.2.  SOCIAL POLICY 

The  stability  of  the  overall  risk  of  poverty  or 
social  exclusion,  below  the  EU  average  but 
above  that  of  neighbouring  Member  States, 
trends  across  population 
hides  divergent 
the  at-risk-of-poverty-or-social-
groups.  While 
exclusion  rate  for 
the  overall  working  age 
population  is  stable,  it  has  fallen  for  the  elderly 
(older  than  65)  and  increased  for  young  people 
(16-24), notably for people with low qualifications, 
with disabilities or with a migrant background. The 
worsening  social  situation  of  the  low-skilled,  in 
particular,  is  explained  by  the  fall  in  employment 
rates  for 
this  group  and  a  higher  risk  of 
experiencing  (very)  low  work  intensity,  despite  a 
high  overall  vacancy  rate.  This  also  holds  for  the 
high proportion of non-EU born migrants living in 
a  situation  of  poverty  or  social  exclusion:  50.7 % 
in 2015 (vs. 27.5% for people born in the EU but 
not  in  Belgium  and  17.0 %  for  people  born  in 
Belgium), which is  higher than the level recorded 
for  non-EU  born  migrants  in  the  EU  (40.2 %  in 
2015). Moreover, the gap in the at-risk-of-poverty-
or-social-exclusion  rate  between  people  with  and 
without  disabilities  amounts  to  17.7  percentage 
points,  which  is  significantly  higher  than  the  EU 
average  of  9.7  percentage  points.  Belgium  is  one 
of the few Member States where financial distress 
for  households  in  the  lowest  income  quartile has 
increased  in  the  year  to  Q4  2016  (European 
Commission,  2016).  These  developments  may 
point to a shift from a ‘generation gap’ in poverty 
to  a  division  between  highly  educated  and  low-
educated 
the  working-age 
population. 

people  within 

rate 

among 

the  population 

This  is  largely  explained  by  inactivity  and 
unemployment,  which  markedly  raise 
the 
poverty  risk.  The  at-risk-of-poverty-or-social-
exclusion 
in 
employment  is  well  below  the  EU  average.  In 
contrast,  the  at-risk-of-poverty-or-social-exclusion 
rate among the inactive or unemployed population 
is  above 
the 
poverty-reducing impact of taxes and transfers for 
non-standard  working  and 
jobless  households 
tends  to  be  particularly  large  in  Belgium,  most 
notably for jobless households, whose poverty rate 

the  EU  average.  Nevertheless, 

they  create  and  whether  they  increase  labour 
demand or not. It is significant here that the target 
group  of  medium-qualified  young  people 
in 
Flanders  has  been  widened,  by  dropping  the  156 
days unemployment spell requirement.. This might 
entail a windfall effect as employers will pay lower 
social  contributions  for  someone  they  might  have 
recruited  anyway.  However,  displacement  effects 
may  be  reduced,  as  there  is  no  reason  for 
employers to prefer young people who have had a 
6-month spell of unemployment. At the same time, 
the  level  of  financial  support  for  low-qualified 
young workers  and  for  the  long-term  unemployed 
between 
the  ages  of  25  and  54  has  been 
reduced. (34) Also, in all regions, the wage ceilings 
set to qualify for employability measures or lower 
social contributions are high: about 80 to 90 % of 
young  people  and  older  workers  would  qualify, 
while  low  wage  earners  from  other  age  brackets 
will not receive any additional support. In addition, 
there  may  be  adverse  threshold  effects  close  to 
these  levels:  increases  in  wages  above  the  ceiling 
will cost employers much more as the advantage of 
the scheme disappears. (35) Close monitoring of the 
effects  of  these  design  features  will  be  needed  to 
evaluate whether the newly reformed schemes are 
properly targeted and cost-effective. 

The different choices made may promote inter-
regional movement of labour from Brussels and 
Wallonia 
are  major 
to  Flanders.  There 
differences  in  terms  of  the  instruments  selected. 
Flanders has opted for a policy based on the place 
of  employment  (thereby  potentially  covering 
workers  commuting  from  other  regions),  whereas 
Wallonia  and  Brussels  have  opted  for  a  broader 
mix  of  instruments,  based mostly on  the worker’s 
place  of  residence.  Brussels  is  also  planning  to 
introduce  a  training  budget  for  low-qualified 
young people (aged under 30). These choices make 
sense in view of the higher unemployment rates in 
Wallonia  and  Brussels  compared  to  Flanders. 
However, 
is  not  only 
determined  by  labour  cost  considerations.  Other 
factors,  such  as  command  of 
language, 
registration fees on real estate purchases, transport 

inter-regional  mobility 

the 

(34)  The Flemish government decided to shift part of the budget 
intended  to  support  employment  of  this  latter  group  from 
wage  cost  reductions  to  guidance,  training  and  work 
experience measures. 

(35)  To  remedy  the  issue,  the  Flemish  employment  incentive 
scheme  for  young  workers  provides  for  a  slightly  higher 
wage ceiling as of the second year of employment. 

26 

 
                                                           
3.3. Labour market, education and social policies 

is  more 
halved 
transfers (OECD, 2015a).   

than 

after 

taxes 

and 

The  proportion  of  children  living  in  very  low 
work-intensity  households  is  above  EU  and 
euro  area  averages.  Belgium  has  reached  the 
Barcelona  targets,  with  49 %  of  children  younger 
than  3  in  childcare,  and  98 %  of  those  between  3 
and  minimum  compulsory  school  age.  However, 
the  number  of  income-related  places  in  out-of-
school care services remains small, particularly in 
Brussels.  

3.3.3.  EDUCATION AND SKILLS  

for 

2003, there has been a rapidly down turning trend 
of  top  performers  in  mathematics  even  when 
adjusted 
the  demographic  changes.  The 
decrease  is  especially  pronounced  in  the  Flemish 
community.  The  proportion  of  top  performers  in 
the  French  and  German  community  is  below  the 
national average in all three areas and is little more 
than 5 % in science. Moreover, the low proportion 
of  students  and  graduates 
in  science  and 
technology  might  hamper  future  innovation  as 
discussed  in  the  2016  country  report.  For  further 
details  on  science,  technology,  engineering  and 
mathematics  (STEM)  students  and  graduates,  see 
Section 3.4.2. on innovation. 

the  2015 OECD  PISA 

inequalities  and  wide  gaps 

The  Belgian  education  system  continues  to 
combine  good  average  performance,  by 
international comparison, with persistently high 
educational 
in 
performance  between  schools.  The  impact  of 
socioeconomic  status  on  basic  skills  proficiency 
remains  above  the  EU  average.  Compared  with 
2012, 
results (OECD, 
2016a)  point  to  an  increase  in  the  percentage  of 
15-year-olds  who  are  low  achievers  (performing 
below level two in science 19.8 %, reading 19.5 % 
or mathematics 20.1 %). This is consistent with an 
the  EU. 
even  greater  deterioration  across 
Disparities between communities remain, in terms 
of  mean  scores  and  percentages  of  low  and  top 
performers.  Despite  some 
the 
the  French 
low  achievers 
percentage  of 
community  (around  23 %  in  science  and  reading 
and  24 %  in  mathematics)  is  still  larger  than  the 
national  average.  In  the  Flemish  community,  the 
percentage of low achievers has been rising and is 
now  close  to  17 %  in  all  areas  tested;  for  the 
German-speaking  community  this  percentage  is 
14.3%.  Although  national  performance  on  early 
school  leaving  is  slightly  better  than  the  EU 
average,  large  differences  between  communities 
and regions persist. 

improvements, 

in 

results,  Belgium’s  share  of 

Nurturing  excellence  is  essential  in  order  to 
counter  the  declining  share  of  top  performers 
among  the  15-year-olds  students.    According  to 
Pisa  2015 
top 
performers is still above the OECD average in all 
three  areas  tested,  at  15.9 %  in  mathematics 
(against  an  OECD  average  of  10.7 %),  9 %  in 
science  (OECD  average  7.7 %)  and  9.3 %  in 
reading  (OECD  average  8.4 %).  However,  since 

In  addition  to  the  impact  of  socioeconomic 
status  on  performance  above  the  EU  average, 
there  also  is  a  large  gap  in  performance 
between  EU-born  students  and  those  non-EU 
born  or  with  at  least  one  parent  non-EU  born. 
Despite  an  improvement,  the  second  generation 
performs  only  slightly  better  than  the  first,  even 
taking  socioeconomic  background  into  account. 
Belgium has a comparatively high proportion of 15 
year-old  students  with  a  migrant  background,  and 
this rose from 15.1 % to 17.7 % between 2012 and 
2015  (PISA,  2015).  They  are,  however,  unevenly 
spread across the communities (the figure is 14 % 
in  the  Flemish  community).  In  2015,  the  share  of 
second-  and  first-generation  students  with  a 
migrant  background  in  Belgium  was  respectively 
at  9.0%  and  8.7%.  The  percentage  of  first-
educated  parents 
generation  migrants  with 
increased compared to 2012; The language spoken 
at  home  and  the  country  of  origin  explain  a  large 
part of the difference in basic skills The increased 
number  of  refugees  since  2015  has  reinforced  the 
challenges. The communities have taken measures 
to  increase  the  capacity  of  reception  classes,  the 
number  of  language  teachers  and  the  budget  to 
support  newly 
(European 
Commission, 2016c).   

students 

arrived 

Increasing  child  poverty  and  greater  diversity 
in 
language,  culture  and  family  structure 
compound the equity challenge. Often pupils do 
not have sufficient support from their families due 
to lower social and/or financial capital, challenges 
with  language  of  instruction  and  other  related 
factors.  The  family  structure  also  matters,  with 
families 
students 
underperforming  more 
other 
countries (OECD,  2013b).  Divergent  levels  in 

single-parent 

from 

than 

in 

27 

 
3.3. Labour market, education and social policies 

and 

retirement 

conditions; 

‘Education’,  there  is  a  shortage  of  qualified 
teachers.  The  main  reasons  are  the  difficulty  of 
attracting the most suitable students and candidates 
to the profession; the high exit rate among starting 
teachers; 
the 
unavailability  of  a  proportion  of  teachers  for 
teaching. Barriers also include the big difference in 
status  and  employment  conditions  of  starting 
teachers compared with those of (not very mobile) 
established teachers (OECD 2015; Delvaux, B., et 
al., 2013). Finally, recognition of foreign teachers’ 
qualifications  is  one  of  the  barriers  for  teachers 
with  a  migrant  background  (OECD,  2014b). 
Participation 
in  a 
multicultural or multilingual setting is significantly 
below 
the  EU  average (OECD,  2013b).  The 
diversity of the student population is not reflected 
in the teaching profession. In-work teacher training 
is not used well to develop skills, or recognised for 
career  development  purposes.  Teachers’  contracts 
are still based only on teaching hours. 

teaching 

training 

for 

in 

schools 

Performance 
are 
gaps  between 
reinforced  by  uneven  access  to  experienced 
teachers,  going  beyond  residential  background 
and  also  reflecting  academic,  socioeconomic, 
language  and  migrant  background  (Belgian 
Court  of  Auditors,  2015;  Mc  Kinsey,  2015). 
Schools  with  the  most  disadvantaged  pupils  are 
unable to attract the most experienced teachers and 
school heads, and face greater turnover in teaching 
staff. Equal opportunities policies for such schools 
have not delivered the results expected, despite the 
student-teacher ratio in these schools being one of 
the  lowest  by  international  comparison (OECD, 
2013b).  There 
the 
performance 
schools (OECD, 
2016b).  

little  monitoring  of 

individual 

of 

is 

towards 

Major  school  reforms  have  been  launched, 
aiming to improve equity, key competences, and 
the  quality  and  relevance  of  vocational 
education  and  training.  The  reform  process  for 
the  French  community  attests  so  far  to  a  positive 
transparent,  participatory  and 
shift 
the  main 
evidence-based  policy.  Based  on 
guidelines  of  the  reform  adopted  in  mid-2016  by 
the  government  and  on  an  impact  assessment,  the 
December  2016  draft  advice  from  the  steering 
group for the reform proposes a five-point strategy, 
objectives and priorities, taking into account strict 
budget constraints. This is an important step in this 
major  reform,  which covers  the  whole system: 

the 

van 

between 

school 
poverty 
amongst 
population (Studiedienst 
de  Vlaamse 
Regering,  2015;  Mc  Kinsey,  2015)  reinforce 
and 
disparities 
regions (European  Commission,  2016c).  The 
problem is especially acute in the Brussels region.    
Therefore,  addressing  educational 
inequalities 
requires  a  broad  policy  response  going  beyond 
education. 

communities 

Moreover,  the  projected  growth  of  the  school 
population  is  among  the  largest  in  Europe  and 
the  pace  will  be  even  faster  for  disadvantaged 
groups,  in  particular  pupils  with  a  migrant 
background  who  are  largely  concentrated  in  big 
cities (European  Commission,  2016d).  Efforts  are 
made  to  spread  the  refugees  across  the  country. 
However,  past  experience shows  that  they tend  to 
move  to  big  cities  to  join  people  with  similar 
migrant background. Growth disparities (36) of the 
language 
school 
communities,  regions  and  educational  levels  are 
forecast.  The  growth  is  the  highest  in  the  French 
Community  with  a  7  %  increase  forecast  for  the 
next decade.  

population 

between 

the 

are 

result, 

in 
growing 

educational 
shortages 
As 
a 
infrastructure 
concern, 
a 
particularly  in  cities.  A  geographical  shift  in 
enrolments, demographic pressure and insufficient 
in 
planning  —  coupled  with 
renovation  and  building  —  have 
to 
infrastructure  capacity  and  quality  issues.  At 
6.6 %,  the  proportion  of  public  expenditure  spent 
on  school  infrastructure  is  below  the  EU  average 
of 7.4 %. 

long  delays 
led 

teachers  are 
Shortages  of  well-qualified 
emerging  and  teachers  are  not  always  well 
prepared  or  supported 
to  cope  with  an 
increasingly diverse school population. Despite a 
higher  than  average  enrolment  rate  of  students  in 

(36)  According  to  a  forecast,  between  2015  and  2025  the 
growth of the school population will accelerate in BE fr to 
reach 7 % (+13 % in Brussels and +5 % in Wallonia) (Mc 
Kinsey, 2015). In BE nl (Flanders and Brussels), the school 
population  is  expected  to  increase  by  4 %  between 
2015/2016  and  2020/2021  (Nusche,  D.,  et  al.,  2015). 
Between 2016 and 2026, the Flemish school population in 
pre-primary, primary and secondary is expected to grow by 
5 %,  2 %  and  11 %,  respectively.  In  the  German-speaking 
community,  the  number  of  pupils  in  primary  schools  has 
been  stabilising  in  the  last  years,  whereas  the  number  of 
pupils  in  secondary  school  is  expected  to  continue  to 
decrease in the coming years. 

28 

 
                                                           
3.3. Labour market, education and social policies 

pupils  and  competencies, 
teachers,  education 
provision  and  governance  of  the  system.  After  a 
consultation  process,  the  Flemish  government 
adopted in January 2017 the final key measures of 
the master plan secondary education. They will be 
progressively implemented as of September 2018. 
A  new  ordering  of 
the  study  offer  and  a 
rationalisation  of  the  study  areas  are  foreseen. 
Most  of  the  measures  are  optional.  The  general, 
technical  and  vocational  streams  are  maintained. 
Future monitoring to ensure that the current pitfalls 
on  educational 
is 
important.  Other  specific  measures  aim  to  reduce 
the  high  rate of  children  enrolled  in  special  needs 
education  by  fostering  greater  inclusion  in  the 
mainstream system; in particular, a major Flemish 
initiative  (the  ‘M-decree’)  came  into  force  in 
2015/2016.  However,  full  implementation  of  the 
decree  will  take  time.  All  three  communities  are 
further  developing  dual 
involving 
companies,  as  part  of  secondary  education,  and 
pursue  the  preparation  of  the  reform  of  initial 
teacher education. 

inequalities  are  addressed 

learning, 

Performance  at  school  also  depends  on  a  large 
number  of  external  factors.  A  good  knowledge 
of the teaching language at school is an important 
key  to  a  successful  school  career.  Addressing 
inequalities  also 
requires  policy 
educational 
responses 
anti-
employment, 
on 
discrimination and migration policies, coordinated 
between  the  various  competent  authorities.  The 
is  particularly 
governance 
challenging. 

in  Brussels 

social, 

issue 

29 

 
3.4. COMPETITIVENESS AND INVESTMENT 

3.4.1.  PRICES, COSTS AND COMPETITIVENESS  

Inflation 

An  inflation  gap  has  been  widening  between 
Belgium  and 
its  neighbouring  countries. 
Between 2006 and 2016, the accumulated inflation 
differential between Belgium and the neighbouring 
countries reached around 7 % (Graph 3.4.1), with a 
comparable  differential  built  up  for  core  inflation 
over  this  period.  This  inflation  gap  widened 
considerably in the last couple of years. Moreover, 
according  to  the  latest  Commission  projections,  it 
would continue to widen in 2017-2018. 

Graph 3.4.1:  Cumulative (core) inflation and nominal ULC 

differential between Belgium and 
neighbouring countries 

Source:  European Commission 

In  2016,  prices  increased  by  1.8 %  in  Belgium, 
compared  with  0.2 %  in  the  euro  area  and 
Belgium's  neighbouring  countries.  Increases  in 
indirect taxation explain only part of the difference 
(see  Graph  3.4.2).  Core  inflation  —  excluding 
unprocessed  food  and  energy  items  —  was  also 
notably  higher  last  year.  It  amounted  to  2 %, 
compared  to  0.8 %  in  the  euro  area  and  0.7 %  in 
the three neighbouring countries, where it dropped 
for the third year running. 

The fact that price growth is structurally higher 
in Belgium could have implications for external 
competitiveness. As nearly all Belgian companies 
the  cost  of 
automatically  adjust  wages 

to 

living (37), higher consumer prices reflect in faster 
rising 
labour  costs,  which  undermines  cost 
competitiveness  when  not  offset  by  gains  in 
productivity.  As  low  productivity  jobs  become 
relatively  more  expensive  than  high  productivity 
jobs,  labour  shedding  risks  to  occur  and  have  a 
downward  impact  on  the overall  employment  rate 
over time. Graph 3.4.1 shows that in Belgium  the 
nominal  unit  labour  cost  differential  has  evolved 
— with a small time lag — in parallel to the total 
inflation  differential  between  Belgium  and  its 
neighbouring  countries.  A  decoupling  has  taken 
place  from  2014  onwards,  though,  when  wage 
moderation  policies  started  to  take  effect  and  the 
unit  labour  cost  gap  started  narrowing.  However, 
without  permanent  wage  moderation,  fast  price 
growth  risks  undoing  the  gains  made  in  recent 
years.  The  recent  reforms  in  the  wage  setting 
mechanism  (reform  of  the  Law  of  1996)  aim  to 
address this risk by introducing a safety margin to 
avoid  faster  wage  growth  in  Belgium  than  in  its 
neighbouring countries (cf. infra). 

inflation 

Electricity  prices  contributed  significantly  to 
in  2015-2016. 
the  acceleration  of 
Indeed,  electricity  alone  was  responsible  for 
0.3 pp. and as much as 0.7 pp. of total inflation in 
2015  and  2016.  Although  energy  price  increases 
are  subject  to  the  ‘safety  net  mechanism’,  the 
impact of this price control mechanism is limited, 
especially  on  electricity  prices.  This  is  because 
almost  two  thirds  of  contracts  are  fixed-price 
contracts to which  the  mechanism  does not apply. 
Moreover,  non-energy  components  account  for  a 
large and increasing percentage of the retail energy 
prices. Around 75% of consumer electricity prices 
are network charges (distribution and transmission 
costs),  levies,  taxes  and  VAT,  which  are  not 
subject to the price control mechanism.  

in  hikes 

is  rooted 

The  fast  rise  in  electricity  prices  for  end 
for  price 
consumers 
components  other  than  generation  costs.  The 
reduction in the VAT rate on household electricity 
consumption from 21 % to 6 % introduced in April 
2015. 
2014  was 
Intercommunales,  which  include  utility  suppliers, 
are  subject  to  corporate  income  taxes  since  2015 

in  September 

reversed 

(37)  All wage indexation schemes in Belgium are based on the 
so-called health index, which excludes petrol and diesel (as 
well  as  alcohol  and  tobacco),  while  taking  into  account 
heating oil, gas and electricity prices, 

30 

-202468109698000204060810121416e18finflationcore inflationNULC 
 
 
                                                           
3.4. Competitiveness and Investment 

and have increased distribution charges as a result. 
In  Flanders,  owners  of  green  energy  installations 
have been required to pay a fixed surcharge for use 
of the distribution network since 2015. Finally, in 
2016  Flanders 
increased  a  general  energy 
contribution  and  abolished  the  free  electricity  all 
households were receiving. 

Graph 3.4.2:  Inflation, inflation at constant tax rate and core 

inflation – Belgium and euro area (January 
2005 – December 2016) 

Source: European Commission 

31 

-2-101234567Inflation0.00.51.01.52.02.53.03.5Core inflationEABE-2-101234567Inflation at constant tax rate 
 
  
3.4. Competitiveness and Investment 

Graph 3.4.3:  Contribution of the main product groups to the inflation differential between Belgium and its main neighbouring 

countries 

Source: INR - ICN 

Steady  core  inflation  in  the  range  of  1.5-2% 
primarily reflects services prices. For the period 
2008-2016, services explain about half of the core 
inflation  differential  (excluding  energy  and  non-
processed  food)  with  neighbouring  countries,  a 
third  is  the  result  of  higher  prices  for  processed 
food, and the residual is due to price developments 
in  non-energy  industrial  goods.  According  to  the 
Price  Observatory,  bars  and  restaurants  (which 
have  a  higher  weight  in  the  Belgian  price  index), 
telecommunication and culture accounted for most 
of the service price differential  between 2008 and 
2016 (Price Observatory, 2016) (Graph 3.4.3). 

Considering  that  labour  is  the  predominant 
input  for  services,  the  key  determinant  of 
service  prices  are  wage  costs.  Several  service 
sectors  have  built  up  wage  gaps  relative  to  the 
average for the three neighbouring countries. This 
is  particularly  true  for  the  sheltered  non-tradable 
services sectors, where productivity growth cannot 
always  keep  pace  with  nominal  wages  (cf.  infra), 
such as the information and communication sector, 
bars,  restaurants  and  accommodation,  retail  and 
Commission; 
transport 
Price 
Observatory).  However, 
the  sustained  wage 
moderation  in recent  years does  not seem  to  have 
resulted in price adaptations in these sectors, which 
points to downward price rigidities. 

(European 

and 

regulation, 

concentration, 

Less  intensive  competition  in  service  markets 
may help explain price rigidities. Indicators that 
can be used as proxies for competition include the 
mark-ups  (a  proxy  for  profit),  the  market  churn 
rate (the sum of birth and death rates expressed as 
a  percentage  of  the  total  number  of  active  firms), 
e.g. 
market 
entrepreneurship  and  administrative  barriers  (see 
Section  3.4.3).  Several  important  service  markets 
show a high degree of concentration, which might 
hamper  market  dynamics.  There  are  for  example 
only  a 
the 
telecommunication  market 
in  Belgium.  Low 
margins  could  also  have  an  impact  in  certain 
subsectors; in restaurants and bars increasing costs 
due  to  the  labour  force  regularisation  and  due  to 
the  rise  of  food  prices  have,  in  combination  with 
low  margins,  resulted  in  higher  prices  in  2016. 
High  minimum  wages  have  compounded  this 
dynamic. 

few  big  players  present  on 

Prices  of  regulated  services  are  also  influenced 
by administrative decisions. Given that regulated 
services  account  for  28 %  of  all  services  in  the 
price basket (38), its effect on overall inflation can 
be  considerable.  For 
the  Flemish 
authorities  increased  education  tuition  fees  in 

instance, 

(38)  This  is  comparable  to  the  average  weight  in  neighbouring 
countries, which however varies across them: 34% for the 
Netherlands, 25% for Germany and 17% for France. 

32 

-1.0-0.50.00.51.01.52.0EnergyNon processed foodProcessed foodNon energetic manufacturing goodsServicesTotal inflation 
                                                           
 
3.4. Competitiveness and Investment 

falling  back  as  a  result  of  wage  moderation 
policies (Graph 3.4.1 and 3.4.4).    

Graph 3.4.4:  Unit labour cost by sector 

2015,  pushing  up  overall  service  prices  by  an 
estimated  0.4 pp.  and  total  inflation  by  around 
0.2 pp. (Price Observatory, 2016). Other regulated 
services  which  have  contributed  to  an  increase  of 
services  inflation  since  2015  include  the  sewer 
system,  medical  services  and  hospital  care.  An 
additional  factor  explaining  the  higher  service 
market  prices  could  be  that  some  services  in 
Belgium,  such  as  notaries,  public 
transport, 
education  and  insurances,  are  index-linked  — 
albeit with some  time  lag.  Rent  increases  are  also 
administered,  but  have  not  contributed  to  the 
inflation differential. 

strategies 

countries.  Factors 

Concerning processed food and retail, different 
factors  can  explain  the  price  differential  with 
identified 
neighbouring 
include  unfavourable  market  conditions  related  to 
bargaining  power,  the  skills  and  commercial 
strategy of market players, labour and exploitation 
and 
costs,  distributors’  business 
consumer preferences (see, e.g., SPF 2012; Federal 
Planning  Bureau,  2012).  Establishment  and 
operation  conditions  for  retailers  could  also affect 
market functioning and indirectly impact the price 
of  (supermarket)  goods.  Some  of  the  factors  that 
explain  less  advantageous  wage  costs  in  the 
Belgian retail sector include: the employee profile 
(usually  older  and  full  time  in  Belgium),  the 
rigidity  of  the  labour  market,  fiscal  pressure  and 
the  automatic  wage 
indexation  mechanism 
(Centrale  Raad  voor  het  Bedrijfsleven,  2010; 
Cornille  &  Langohr,  2011;  SPF,  2012).  However, 
while  these  factors  could  help  explain  differences 
in  price  levels,  they  cannot  explain  higher  price 
growth,  which  may  be 
to 
insufficient competition (see Section 3.4.3.). 

instead 

linked 

Labour cost competitiveness 

exceeded 

frequently 

Belgian  relative  labour  cost  competitiveness 
eroded  steadily  for  almost  a  decade  until  2014, 
as  a  result  of  dynamic  wage  increases.  Starting 
level,  nominal  wage 
from  an  already  high 
increases 
average 
the 
in  neighbouring  countries 
increases  observed 
between  2004  and  2013.  At  the  same  time, 
productivity increases, equally starting from a high 
level, lagged behind, especially between 2010 and 
2014. As a result, the total nominal unit labour cost 
differential between Belgium and its three biggest 
neighbouring countries rose to 7 % in 2013 before 

Source: Eurostat 

To  deal  with  eroding  cost  competitiveness,  the 
federal  government  has  successfully  enacted 
wage  moderation  policies.  The  need  for  prompt 
action was shown in particular by the sharp rise of 
to  neighbouring 
nominal  wage  costs  relative 
countries in 2009-2010. Since then, the authorities 
have  intervened  in  the  wage-setting  process  to 
slow down wage growth, by setting lower margins 
for  real  wage  growth  throughout  the  period 
between  2011  and  2016.  In  order  to  close  the 
nominal  wage  handicap  with  neighbouring 
countries accumulated since 1996, the government 
also  imposed  a  temporary  suspension  of  wage 
indexation  clauses 
the  private  and 
in  both 
government  sectors  (39)  and  is  gradually  reducing 
employer social contributions in the framework of 
the ongoing tax reform (see Section 3.1.4.). 

Since the beginning of 2014, the measures taken 
have  curbed  the  unfavourable  unit  labour  cost 
trends compared to neighbouring countries. Not 
only  did  hourly  wages  in  Belgium’s  business 
sector rise at a slower pace than in the three main 
neighbouring  countries (40),  productivity  also 

(39)  The  temporary  suspension  of  wage  indexation  clauses  in 
collective  bargaining  agreements  was 
introduced  by 
keeping  the  ‘smoothed  health  index’  unchanged  from 
March 2015 to April 2016, thus effecting a real wage cut of 
2 %.  

(40)  According to the Central Economic Council secretariat, in 
terms of hourly labour costs, the gap narrowed from 4.1 % 
in  2013  to  2.9  %  in  2014,  to  1.5  %  in  2015  and  then  to  -
0.3% in 2016. 

33 

 
 
                                                           
3.4. Competitiveness and Investment 

handicap  since  1996  and  further  close  the  wage 
gap  with  neighbouring  countries  measured  in 
absolute terms. The new wage norm for 2017-2018 
has  been  set  at  1.1 %,  which  should  allow  for  a 
further reduction in the absolute wage gap relative 
to the reference countries. 

to 

relative 

framework 

long  way 

the  euro  area.  Due 

improving  Belgium’s 

to 
taken  go  a 
The  measures 
preventing  a  wage  handicap  from  reoccurring 
and 
cost 
competitiveness  vis-à-vis  key  trading  partners 
within 
the  more 
conservative  baseline  projections  and  the  built-in 
prior  adjustments  in  the  calculation  of  the  wage 
norm, 
the  margin  for  negotiated  real  wage 
increases is likely to remain very small in coming 
years. This should result in a steady and sustained 
decrease  in  the  nominal  wage  handicap  vis-à-vis 
neighbouring  countries.  The  reform  of  the  wage 
bargaining 
also  provides  more 
guarantees  that  government  measures  to  reduce 
non-wage labour costs will effectively benefit cost 
competitiveness,  as  it  stipulates  that  all  tax  shift 
reductions 
in  employers’  social  contributions 
introduced  between  2016  and  2020  are  not  to  be 
taken  fully  into  account  when  calculating  the 
margin for real wage increases. Instead, they are to 
be  used  to  further  reduce  the  nominal  labour  cost 
handicap  with  neighbouring  countries.  (43)  In 
addition, the reformed framework expands the role 
of  the  government  in  preventing  detrimental  cost 
competitiveness  trends  as  a  result  of  excessive 
inflation.  It  is  given  the  responsibility  of  taking 
corrective measures if negotiated wage indexation 
agreements  or  wage  scale  increases  at  sector  or 
company  level  lead  to  nominal  wage  handicaps 
that cannot be corrected in the space of two years. 
Although  the  framework  does  not  establish  any 
formal link between wage and productivity trends, 
it  provides  for  close  monitoring  of  the  latter  as 
well  as  of  non-cost  competitiveness  determinants 
by  the  social  partner  organisations  represented  in 
the Central Council for the Economy.  

Productivity 

While  the  Belgian  economy  is  still  among  the 
in  the  euro  area,  recent 
most  productive 

(43)  Additional  non-wage  labour  cost  reductions  introduced 
after or on top of those already decided are to account for 
50 %  of  the  reduction  of  the  remaining  nominal  wage 
handicap. 

changed favourably and, consequently, unit labour 
costs were down both in 2014 and 2015, allowing 
the  economy  to  close  part  of  the  labour  cost  gap 
with  neighbouring  countries  (Graph  3.4.4).  Unit 
labour  costs  are  expected  to  increase  at  a  more 
moderate pace in 2017-2018 than has been the case 
in the past. 

Moreover,  to  prevent  past  problems  from 
reoccurring,  the  current  federal  government 
has  tightened  the  existing  wage  bargaining 
framework.  Wage  negotiations  in  Belgium  have 
been  regulated  by  the  1996  law  on  employment 
and  the  safeguarding  of  competitiveness. (41)  As 
illustrated  above,  however,  this  arrangement  did 
not prevent the appearance of a growing wage cost 
handicap,  as  predicted  real  wage  in  neighbouring 
countries  often  turned  out  to  be  overestimated 
whereas  domestic  inflation  frequently  exceeded 
expectations  (cf.  supra).  In  addition,  wage  growth 
in Belgium regularly exceeded the nominal ceiling 
implied by the wage norm as a result of forecasting 
errors  and/or  because  of  composition  effects  of 
workers  in  certain  industries.  To  prevent  such 
overshoots  from  happening  in  the  future,  the 
federal  government  has  amended  the  1996  law  in 
several respects. From 2017, the calculation of the 
wage  norm  incorporates  two  prior  adjustments. 
The first is intended to prevent the reappearance of 
an  hourly 
cost  handicap  vis-à-vis 
neighbouring  countries  compared  to  the  1996 
baseline. (42) The second adjustment takes the form 
of  an  additional  safety  margin  of  a  minimum  of 
0.5 %  of  the  calculated  margin  for  real  wage 
growth.  Unlike  the  existing  system,  the  new 
method  of  setting  the  wage  norm  would  also  go 
beyond  the  historically  accumulated  labour  cost 

labour 

(41)  The 

law  provides  a  framework  for  biannual  wage 
bargaining  rounds  among  social  partner  organisations 
represented  in  the  Central  Council  for  the  Economy, 
compelling  them  to  take  the  international  economic 
environment  into  account  when  discussing  potential  wage 
increases at national, industry and company level. The law 
requires  the  social  partners  at  national  level  to  take 
expected  real  wage  trends  in  the  three  neighbouring 
countries  into  account,  as  well  as  projected  domestic 
inflation,  when  setting  the  biannual  ‘wage  norm’,  i.e.  the 
maximum  margin  for  real  wage  increases  covering  the 
entire private sector. 

(42)  The year 1996 is chosen as reference by the law which was 
passed  in  the  same  year.  The  accumulated  labour  cost 
handicap  since  that  year  amounted  to  over  almost  5%  in 
2012.  As  a  result  of  the  wage  moderation  measures  taken 
by the previous and the current federal governments, it has 
gradually decreased to turn negative in 2016 when it stood 
at -0.3%. 

34 

 
                                                           
 
                                                           
3.4. Competitiveness and Investment 

their  size 

pharmaceuticals and chemicals. This partly reflects 
their  already  high  productivity  level,  and,  without 
considering  innovation  aspects,  it  testifies  to  the 
limits  and  risks  of  a  strategy  based  mainly  on 
deepening  capital.  Given 
the 
manufacturing sector, with close to 28 % of value 
added  and  55 %  of  business  R&D  expenditure  in 
manufacturing,  regaining  productivity  growth  in 
these  two  sectors  is  crucial.  In  addition,  Belgium 
has  low  labour  productivity  growth  in  some 
manufacturing industries that have the highest EU 
growth  rates,  such  as  motor  vehicles,  computers, 
electronics and optical products. 

in 

Graph 3.4.5:  Labour productivity in EU-28 (2006-2015) — 
average % annual change 

Note: Labour productivity is defined as the ratio between 
value added in constant prices and the labour input, the 
latter given by hours worked by people employed (incl. self-
employed) or, in case this data is not available, by total 
employment in persons. Primary data on value added and 
labour input –both hours worked and total employment- 
was retrieved from Eurostat for the EU-28 aggregate and 
country members (data on 'value added, gross' in constant 
prices (chain-linked volumes) and for labour input data in 
terms of 'hours worked' or 'persons'). 2006-2014 average for 
all industries in CZ and IE, 'C', 'G_N' and  'J61_J63' in EU28, 
'J61_J63' in CY, DE, ES, FR, LT, LV, PL, PT, RO, SE; 2008-2014 
average in HR; 2009-2010 change excluded in HU due to 
methodological change; no available data for MT.  
Source: Eurostat 

flattening  of  overall 

The  recent 
labour 
productivity  growth  points  to  a  number  of 
major challenges. First, the already high degree of 
capital  intensity  reduces  the  scope  for  future 
productivity  gains 
through  additional  capital 
deepening  in  various  sectors,  except  by  means  of 
in  organisational  or 
radical  breakthroughs 
respect, 
change. 
technological 

this 

In 

this 

is  explained  by 

increases  have  been  subdued,  especially  in  the 
services  sector.  While  slower  labour  productivity 
gains in the services sector are not uncommon, this 
unfavourable  development  has  been  more 
pronounced  in  Belgium  than  in  neighbouring 
countries.  Part  of 
the 
reallocation  of  labour  factors  to  sectors  with 
levels  and 
lower  productivity 
comparatively 
slower  productivity  growth.  Particularly  in  non-
market,  non-tradable  services  such  as  real  estate 
activities  and  education,  health  and  government 
activities, Belgium’s productivity growth has been 
very  slow  in  the  last  10  years.  Part  of  the 
phenomenon  is  explained  by  the  rapid  increase  in 
low-productivity  household  help  services  since 
2004,  as  a  result  of  the  government’s  attempt  to 
reduce  informal  economic  activity  and  raise  low-
through 
skilled  employment 
the  system  of 
for  household  help. (44) 
subsidised  vouchers 
Meanwhile, 
the  productivity  growth  rate  of 
information  and  communication  technology  (ICT) 
services is amongst the lowest in the EU according 
to the latest available data (Graph 3.4.5). The only 
services sector where productivity growth is more 
in  neighbouring 
favourable 
countries  is  financial  and  insurance  services, 
incidentally  also  one  of  the  largest  tradable 
services  sectors. 
than 
If  wages 
productivity  (i.e.  nominal  unit  labour  costs  rise), 
price  levels  may  rise  as  firms  pass  on  the  higher 
labour costs — which constitute the lion’s share of 
their  total  production  costs  —  into  product  and 
service prices (cf. supra).  

in  Belgium 

faster 

than 

rise 

Within  the  broad  group  of  manufacturing 
industries,  productivity  growth  trends  vary 
considerably  between  individual  sectors.  The 
most productive firms, the so-called global frontier 
firms, have not been so affected by the slowdown 
in  productivity  growth.  They  display  more  robust 
productivity  growth  rates  than  other  businesses. 
Productivity  growth  has  been  very  strong  in  the 
food  and  basic  metals  industries,  with  Belgium 
being a leader in the food industry, which accounts 
for  15 %  of  manufacturing  gross  value  added. 
Meanwhile,  productivity  growth  has  been  less 
industries: 
good 

leading 

other 

two 

in 

(44)  After the scheme started in 2004, the number of employees 
working  in  the  service  voucher  system  rose  rapidly  for  9 
years.  At  its  peak  in  2012,  some  151 000  people  were 
employed  in  the  sector,  representing  some  4 %  of  total 
employment  in  Belgium  (Idea  Consult,  2014;  Marx  & 
Vandelannoote, 2014).  

35 

-8-5-21471013EU28ELLUFIHRITHUUKCYSEBEFRNLSIDEDKATCZPTESEELVSKIELTPLBGROAll sectorsManufacturing (C)Construction (F)Marketable Services (G_N)ICT Services (J61_J63) 
                                                           
 
3.4. Competitiveness and Investment 

ICT 

than 

from 

returns 

manufacturing and, to a lesser extent, the services 
sector in Belgium seem to have benefited less from 
growth 
in  most 
neighbouring  countries  (FPB,  2015).  This  may 
have had the effect of hampering potential growth. 
More  in  general,  investment  in  research  and 
knowledge-based  capital  accumulation  remains  to 
a large extent concentrated in a handful of sectors. 
A  better  diffusion  of  innovation  across  industries 
might help to upscale the product and services mix 
with  which  Belgium  competes  in  global  markets 
(see  Section  3.4.2).  Second,  future  productivity 
growth in many sectors is constrained by persistent 
skills  gaps  and 
in  certain 
occupations.  In  a  context  of  rapid  technological 
change  since  the  beginning  of  the  century,  labour 
demand  in  Belgium  has  rapidly  shifted  towards 
high-skilled occupations since the beginning of the 
century  (close  to  +25 %  between  2000  and  2010) 
(Maselli,  2012)  and  maintained 
low-skilled 
functions, mostly at the expense of middle-skilled 
functions  (De  Mulder  &  Duprez,  2015).   Labour 
supply,  however,  has  not  adapted  as  swiftly.  This 
is  shown,  for  instance,  by  the  low  proportion  of 
tertiary education graduates in science, technology, 
engineering and mathematics (see Section 3.3).  

labour  shortages 

uses 

indicator 

information 

More efficient allocation of resources, especially 
across market services, could imply large gains 
in  productivity  (European  Commission,  2015a; 
European  Commission,  2016e).  The  allocative 
efficiency 
on 
employment  and  value added  distribution  across 
firm-size  classes.  It  captures  the  extent  to  which 
productive  resources  are  allocated  to  their  most 
productive  uses.  Allocative  inefficiencies  have 
increased  in  professional,  scientific  and  technical 
services (45)  and 
ICT  services,  as  well  as 
transportation and storage (European Commission, 
2015a). It  suggests that regulatory restrictions  and 
a  lack  of  market  dynamism  are  inhibiting  further 
efficiency  increases  and  that  reducing  barriers  to 
innovation and entrepreneurship and improving the 
overall business and investment environment could 
positively contribute to the overall growth capacity 
of the Belgian economy. 

(45)  This 

category 

includes: 

scientific 

and 
development;  legal  and  accounting  activities;  architecture 
and  engineering;  technical  testing  and  analysis;  head 
offices; management consultancies; advertising and market 
research;  veterinary  activities;  and  other  professional, 
scientific and technical activities. 

research 

in  most 

to  differences 

sectors  makes 

the  widespread  practice  of  wage 
Finally, 
full 
indexation 
adjustment  of  wages 
in 
productivity across firms within the same sector 
more  difficult.  Automatic  indexation  makes  real 
wages  more  rigid  and  consequently  works  against 
adjustment 
thereby 
increasing the risk of misallocation of labour, with 
high  wages  (and  low  employment  and  value 
added)  in  low-productivity  firms.  Although  firm-
level  derogations  from  sector-level  agreements 
(opt-outs)  are  possible  under  specific  conditions, 
they are rarely used.  

labour  market, 

the 

in 

3.4.2.  NON-COST COMPETITIVENESS  

Upscaling  the  product  range,  enlarging  the 
accumulation of knowledge-based capital across 
a  wider  spectrum  of 
the  economy,  and 
improving market functioning will be crucial to 
safeguarding  potential  growth  over  the  long-
term. This depends on a broad range of conditions, 
linked  to  innovation  and  technology  content, 
company creation and growth, product and process 
development, 
factors 
conducive  to  a  supportive  business  environment. 
These  various  factors  contributing  to  non-cost 
competitiveness  are  discussed  in  more  detail 
below. 

trade  participation  and 

Quality of exports 

exports 

range,  while  French 

Belgium  exports  mainly  and 
increasingly 
medium-quality  goods.  On  average  product 
quality,  peer  countries  are  generally  found  to 
perform  better,  as  do  most  EU-15  countries: 
Germany  and  the  Netherlands  are  situated  in  the 
middle 
are 
concentrated  more  at  the  upper  end  of  the  quality 
spectrum.  Graph  3.4.6  shows  the  share  of  value 
that  Belgium  was  exporting  in  each  quality 
category in 2010 and in 2015. This shows that the 
share of the ‘bottom’, ‘middle’ and ‘top’ categories 
increased  between  2010  and  2015.  However,  the 
‘high’ category’s share fell. Nevertheless, Belgium 
lags behind its neighbours in terms of the number 
of  different  top-quality  products  exported  (Graph 
3.4.7 ).   

36 

 
                                                           
3.4. Competitiveness and Investment 

products is also highly elastic, as they are easy to 
substitute.  Furthermore,  the  value  added  in  these 
industries  has  also  evolved  much  less  favourably 
than that of neighbours. 

Innovation capacity 

Belgium  is  a  strong  innovator  with  an  above-
EU-average  performance,  although  it  declined 
slightly in 2015 and remains below the group of 
EU innovation leaders (Graph 3.4.8). (46) Its good 
performance can be explained by the openness and 
quality  of  its  science  base,  which  is  reflected  in 
strong  public-private  collaborations,  a  high 
proportion of public R&D financed by the business 
sector and the its attractiveness to foreign doctoral 
students. However, the high quality of the science 
base  is  not  sufficient  by  itself  to  translate  into 
innovation output. The proportion of high-growth, 
innovative enterprise in the total economy remains 
low (0.10 %, against an EU-28 average of 0.16 %), 
especially  compared  to  EU  innovation  leaders 
(which  have  an  average  of  0.24 %)  (Costa  et  al., 
2016).  

Graph 3.4.8:  European Innovation Scoreboard — distance 

to EU innovation leaders and to EU average 

(1) A score of 0 indicates the lowest performance among all 
countries in the sample, whereas 1 indicates the frontier of 
best practice. 
Source: European Innovation Scoreboard (2016) 

Regional innovation strategies, coupled to fiscal 
incentives  at  the  federal  level,  have  aimed  at 
business 
innovation-led 
fostering 

(46)  Sweden, Denmark, Finland, Germany and the Netherlands 
in  2015  -  European 

ranked  as  ‘innovation 
Innovation Scoreboard (European Commission, 2016). 

leaders’ 

Graph 3.4.6:  Share of export value by quality rank, Belgium 

Source: COMEXT (Eurostat) and ORBIS 

Graph 3.4.7:  Share of number of different products exported 

in the top-quality category, EU-28 countries 
plus Japan, U.S. and China 

Source: COMEXT (Eurostat) and ORBIS 

in 

specialisation 

Generally  upscaling  the  product  range  or  mix 
would help to compensate for high labour costs 
and  to  allow  future  export  growth.  Belgium’s 
product 
the  middle-quality 
product  segments  seems  to  be  misaligned  with  its 
high  labour  costs.  This  is  particularly  relevant  to 
manufacturing  industries  exposed  to  fierce  global 
competition  and  facing  a  fall  in  relative  prices: 
rubber  and  plastic  products,  transport  equipment 
and, 
textiles,  metallurgy, 
chemicals, wood, paper and printing, and electrical 
equipment. Producers cannot easily pass on higher 
input  costs  in  the  price  of  their  products,  most  of 
which  are  standardised,  can  be  easily  copied  and 
are  abundantly  available.  Price  demand  for  these 

lesser  extent, 

to  a 

37 

0.000.100.200.300.40bottom(0.0 - 0.2)low(0.2 - 0.4)middle(0.4 - 0.6)high(0.6 - 0.8)top quality(0.8 - 1.0)201020150.00.10.20.30.40.50.60.7ESDEPLBECZNLSKPTLTHUITBGELHRROSIFRUKLVATEESEDKFICYLUIEMTJPCNUS201020150.00.20.40.60.81.0HumanresourcesResearchsystemsFinanceandsupportLinkages&entrepreneurshipFirminvestmentIntellectualassetsInnovatorsEconomiceffectsBelgiumEUInnovation leaders 
 
 
 
 
                                                           
competitiveness.  Following  overall  evaluations, 
regional  development  strategies  have  expanded 
their initial science/technology focus to encompass 
innovation  more  broadly.  Wallonia  and  Flanders, 
in their efforts to streamline and simplify research 
and 
the 
innovation  support,  recently  merged 
agencies responsible  in  their  regions.  (47)  The 
focus  on  boosting  innovation  in  SMEs  and  start-
ups has increased. (48) The federal government also 
recently aimed to increase the availability of equity 
financing,  with  the  introduction  of  a  ‘tax  shelter’ 
for  investment  in  start-ups.  Federal  fiscal  support 
for  business  R&D  has  also  increased  to  over 
EUR 1.2 billion, accounting for over two thirds of 
total  public  support  for  business  R&D, 
in 
particular due to increased use of the partial salary 
withholding tax exemption for researchers (OECD 
(2015b;  Belgium  National  Reform  Programme 
2016).  

Total R&D intensity in Belgium reached 2.45 % 
of  GDP  in  2015,  narrowing  the  gap  both  with 
the Europe 2020 target (3 % of GDP), and with 
the  average  of  innovation  leaders  (3.05 %). 
However,  public  R&D  intensity (49),  at  0.68 %, 
remains  low  compared  to  the  EU  average  and 
innovation leaders (50), whereas the business sector 
remains  the  largest  and  an  expanding  source  of 
R&D investment, with spending of 1.77 % of GDP 
in  2015  (Belgian  Court  of  Auditors,  2013; 
Dumont, M., 2012; Dumont, M., 2015).  

Ensuring the efficiency and coherence of public 
support  for  research  and  innovation  remains  a 
challenge,  especially  to  foster  high-growth 
innovative enterprises (Graph 3.4.9). Total public 
support for private R&D has become the highest in 
the  OECD,  reaching  0.41 %  of  GDP  (OECD, 

(47)  In  Flanders,  as  from  January  2016,  Enterprise  Flanders 
(AO)  and  the  Agency  for  Innovation  by  Science  and 
Technology  (IWT)  merged 
the  Innovation  and 
Entrepreneurship  agency  (VLAIO).  In  Wallonia, l'agence 
de stimulation technologique and the agence de stimulation 
économique were  merged 
l'Agence  pour 
l'entreprise et l'innovation (AEI) in March 2015. 

into 

into 

the 

(48)  Notably,  initiatives  in  Wallonia  under the  ‘Walloon  Small 
Business Act’, ‘Creative Wallonia’ and ‘Digital Wallonia’; 
the 'Small Business Act' and the ‘regional innovation plan’ 
in Brussels; the ‘Digital Belgium’ action plan at the federal 
level;  in  2016,  the  Flemish  Government  also  launched  the 
SME growth subsidy programme, managed by VLAIO.  
(49)  R&D  expenditure  as  a  percentage  of  GDP  is  used  as  an 
indicator of an economy’s relative degree of investment in 
generating new knowledge. 

(50)  Sweden, Denmark, Finland, Germany, the Netherlands; see 

European Innovation Scoreboard 2016. 

3.4. Competitiveness and Investment 

2016c). However, reflecting its generic nature and 
the concentration of R&D, more than 90 % of this 
fiscal  support  goes  to  large  companies,  mostly 
those active in high-tech sectors (Belgian Court of 
Auditors,  2013;  Dumont,  M.,  2012). The  lack  of 
evaluation of potential overlaps between the many 
support 
regions  and 
communities is an issue. The scope for increasing 
the  efficiency,  effectiveness  and  coherence  of 
public  support  for  R&I  in  Belgium  is  likely  to  be 
significant. 

instruments  across 

the 

Graph 3.4.9:  Efficiency of public funding of private R&D 

Source:  OECD 

Furthermore,  a  wider  base  of  businesses 
investing in knowledge-based capital (KBC) (51) 
could  help  boost  innovation  and  productivity 
growth.  Belgium  has  a  relatively  high  percentage 
of  knowledge-based  capital (OECD,  2015b),  of 
which  R&D  constitutes  more  than  half.  However, 
most business R&D spending is concentrated in a 
large 
few 

industries (52) 

featuring 

few 

a 

(51)  According 

to 

the  OECD,  knowledge-based  capital  
encompasses  all  assets  that  lack  physical  substance  but, 
like  physical  capital,  generate  economic  benefits  that  can 
be  retained  by  firms,  at  least  to  some  extent,  for  a  period 
that exceeds one year. Three main categories of intangible 
assets  are  usually  measured:  computerised  information 
innovative 
(which 
property  (covering  R&D,  design,  mineral  exploration, 
financial  innovation  and  artistic  originals)  and  economic 
competencies  (including  advertising,  marketing  research, 
own-account organisational capital and training).  

includes  software  and  databases), 

(52)  In  particular:  pharmaceuticals  (28.8 %  of  total  business 
R&D  expenditure  in  2013),  manufacturing  of  computer, 
electronic  and  optical  products  (7.1 %)  and  IT  & 
information  services 
(RIO  Country  Report 
Belgium 2016 - publication pending). 

(6.3 %) 

38 

BEFRIEHUATSIUKNLCZPTSEDKELESDEFIEEITPLROSKLTLVBGCYHRMTEU0.0%0.5%1.0%1.5%2.0%2.5%0.0%0.1%0.2%0.3%0.4%0.5%Total private  R&D expenditure (% of GDP, 2015)Government funding of business R&D, % of GDP (2014 or latest available) 
                                                           
 
                                                           
3.4. Competitiveness and Investment 

secondary  education.  The  proportion  of  people 
with high computer skills (24 %) is below the EU 
average  (29 %),  and  well  below  the  highest 
percentage observed in innovation leaders. (57) The 
shortage of qualified experts in ICT is expected to 
rise  from  about  8,000  in  2012  to  30,000  in  2020 
(EC, 2016b).  

in 

The  quality  of  the  justice  system  faces  serious 
challenges  regarding  monitoring  tools.  Recent 
GRECO  and  High  Council  investigation  reports 
identify  a  number  of  shortcomings 
the 
reliability,  comparability  and  uniformity  of  court 
in  court.  (58) 
data,  and  on  case  allocation 
Furthermore,  there  is  room  for  improvement  in 
continuous 
judges  and  online 
publication  of  judgments  (EU  Justice  Scoreboard, 
2017,  forthcoming).  The  ongoing  Justice  Plan 
reform  that  the  government  announced  in  March 
2015  could  address  some  of  these  issues,  such  as 
the use of ICT in courts. However, its impact will 
have to be closely monitored. 

training  of 

3.4.3.  COMPETITION IN PRODUCT AND SERVICE 

MARKETS  

sectors  of 

links  with  other 

There is strong evidence that the functioning of 
service  sectors  affects  the  whole  economy,  not 
only  due  to  their  sheer  size  but  also  through 
their 
the 
economy. (59)  Services  are  used  as  inputs  in  the 
production  process  of  downstream  firms,  and 
service  sectors  are  in  turn  a  major  source  of 
demand  for  upstream  producers.  Well-functioning 
markets for services will thus also have a positive 
impact  on  the  growth  performance  of  the  rest  of 
the economy. While value added shares of services 
provide an output-based measure of their economic 
importance,  employment  shares  provide  further 
information from the input side. 

In the case of Belgium, the average value added 
in  market 
and  employment  growth  rates 

that 

(2016)  concluded 

(57)  Finland (46 %), Denmark (39 %) and Germany (30 %). 
(58)  GRECO 

‘Belgium  has  not 
satisfactorily  implemented  or  dealt  satisfactorily  with  any 
of the 15 recommendations contained in the Fourth Round 
Evaluation Report.’  

(59)  The services sector plays an increasingly important role in 
the global economy and has become crucial for a country’s 
economic  development.  Services  represented  around  two 
thirds  of  gross  value  added  and  almost  three  quarters  of 
total employment in the EU-28 in 2015. 

is 

also 

This 

companies. (53) 
multinational 
high 
concentration of business R&D suggests that much 
knowledge-based 
highly 
capital 
concentrated  in  a  small  number  of  firms,  since 
R&D  investment  is  one  of  the  main  assets  of  this 
kind  (Biatur  and  Kegels,  2015),  and  that  strong 
R&D performers tend to also invest more in other 
forms  of  intangibles  (ICT  and  skills  notably). 
Furthermore,  while  the  stock  of  knowledge-based 
capital is high, investment mostly occurs in highly-
productive innovative firms, while a large pool of 
firms  underinvests  (OECD,  2015).  This  decline 
can  in  future  lead  to  a  slowdown  in  innovation 
performance  of  certain  sectors  and  partly  explain 
the  slowdown  in  total  factor  productivity  growth. 
Investment  in  knowledge-based  capital  is  a  major 
driver  of  productivity  and  growth  as  it  usually 
underpins 
subsequent 
adoption  (Corrado  et  al.,  2012,  Corrado  et  al., 
2013, and Andrews and Criscuolo, 2013). (54) 

innovations  and 

their 

technology, 

engineering 

A  skilled  workforce 
to  develop  and  use 
technology  for  new  ideas  and  products  is  also 
essential  to  boost  innovation.  The  comparably 
low percentage of students and graduates in STEM 
(science, 
and 
mathematics)  might  become  a  concern  for  future 
innovation  capacity.  By  international  comparison, 
the  proportion  of  tertiary  education  graduates  in 
STEM  fields  (17.8 %  in  2014)  has  increased 
slightly  in  recent  years,  but  is  still  one  of  the 
lowest  in  Europe.  This  is  partly  caused  by  the 
relatively  low  rate  of  new  entrants.  (55)  Flemish 
students perform relatively well in engineering and 
sciences  (Lambert,  2015). However,  only  5 %  of 
their  15  year-old  French  community  peers  are 
among  the  top  achievers.  The  communities  and 
regions  are  taking  action  to  make  STEM  more 
attractive  at  different  levels  of  education  and 
training  (EC,  2015b,  2016c).  Monitoring  of  the 
Flemish  STEM  action  plan (56)  points  to  positive 
results  in  higher  education  but  mixed  results  in 

(53)  For  instance,  around  30 %  of  R&D  expenditure  in  the 
pharmaceutical industry in 2014 was carried out by a single 
large multinational. 

(54)  Investments 

in 

intangibles, 

innovation  activities  and 
productivity all appear to be intrinsically linked. It has been 
estimated  that  investment  in  knowledge-based  capital  has 
accounted  for  one  fifth  to  one  third of  labour productivity 
growth.  

(55)  In  comparison  with  the  EU-21  and  OECD  averages,  the 
2012 Belgian enrolment rates for new entrants was lower in 
sciences (5 % against 11 % in EU-21) and engineering (10 
% against 15 % in EU-21). 

(56)  STEM action plan and STEM monitor 2016. 

39 

 
                                                           
                                                           
3.4. Competitiveness and Investment 

services  may  actually  be 
than 
corresponding number for manufacturing. (63) 

larger 

the 

Graph 3.4.10: Value added share and employment share - 

professional, scientific, technical, 
administrative and support service activities 

Source: Eurostat 

Belgium’s  regulation  framework  for  product 
markets  is  around  the  OECD  average. (64)  The 
World Economic Forum’s Global Competitiveness 
Report ranks Belgium above its peers and 13th in 
the world, with a goods market efficiency index of 
5.2 (Graph  3.4.10).  (65)  The  average  OECD  score 
is the result of extremely low barriers to trade and 
investment (the second lowest in the OECD, after 
the  Netherlands)  on  the  one  hand,  but  relatively 
high barriers to entrepreneurship and a high degree 
of State control on the other. 

(63)  In Belgium, services trade has almost doubled over the past 

10 years. 

(64)  OECD index of product market regulation. 
(65)  It measures, for example, the level of competition in local 
the 

the  extent  of  market  dominance  and 

markets, 
effectiveness of anti-monopoly policy. 

in  Belgium, 

services  have  been  falling  since  the  2008  crisis 
but,  unlike  in  many  other  countries,  have 
remained positive. Belgium has the highest value 
added  shares  in  GDP  in  the  business  services 
subsector,  as  do  the  Netherlands  and  France. 
Moreover, 
the  proportion  of 
‘performance-enhancing  business  services’ (60)  by 
gross value added is among the highest in the EU. 
These  are  business  services  with  a  significant 
potential  to  increase  productivity. (61)  Legal  and 
accounting  services,  with  a  share  of  more  than 
7 %,  are  particularly 
in  Belgium. 
Computer programming follows with a 2 % share. 
The  professional  services  sector  also  accounts  for 
the  highest  proportion  of  employment,  above  the 
EU  average.  This  demonstrates  that  this  sector  is 
more labour-intensive. 

important 

large  supply 

Market  services,  and  most  notably  business 
services,  also  have 
linkages 
(forward  linkages) (62)  with  the  rest  of  the 
economy  and  make  up  the  bulk  of  services 
embodied  in  manufactured  exports.  Business 
services, wholesale trade and financial services are 
at  the  top  of  the  ranking  of  key  inputs  into  the 
economy. These service sectors are also in the top 
ranking when intermediate inputs of manufacturers 
are  included.  Since  an  increasing  number  of 
services  is  potentially  internationally  tradable,  or 
are traded indirectly as part of trade in goods, their 
unit  labour  costs  can  also  directly  affect  external 
of  workers 
competitiveness.  The 
in 
trade 
potentially  exposed 

number 
international 

to 

services 

(60)  Business services are a set of services provided to firms to 
support  their  activities.  They  include  more  standardised 
labour 
business 
(such  as  office 
recruitment  and  employment,  security  and 
industrial 
cleaning  activities)  and  knowledge-intensive  business 
services  (such  as  management  consultancy,  accountancy 
and legal services, but also more technical services such as 
design, engineering and architectural services). 

leasing, 

(61)  Performance-enhancing  business  services  are:  computer 
service 
programming,  consultancy  and 
activities; architectural and engineering activities, technical 
testing  and  analysis;  scientific  research  and  development; 
advertising  and  market  research;  other  professional, 
scientific  and  technical  service  activities;  and  veterinary 
activities. 

information 

(62)  Forward linkages reveal the role of services as intermediate 
inputs  in  the  production  of  all  goods  and  services  in  the 
economy. It includes services’ share both as direct inputs in 
the production of other goods and services and as indirect 
inputs  via  other  industries  (the  ‘feedback  effect’).  The 
larger  the  feedback  effect,  the  larger  the  efficiency  gains 
generated by well-functioning service sectors. 

40 

05101520NLBEFRUKMTDELUSICYSEIEITATEEDKHUFIESHRPLROSKLVPTCZLTBGELValue added shareEmployment share 
                                                           
 
                                                           
3.4. Competitiveness and Investment 

Graph 3.4.11: Goods market efficiency indicator, 2016 

Graph 3.4.12: Ease of doing business (distance to frontier), 

2017 

1= Very inefficient; 7= Very efficient 
Source: The Global Competitiveness Report 2016/2017, 
World Economic Forum 

Business environment and entrepreneurship 

in 

Little progress has been made in enhancing the 
business environment. Belgium continues to rank 
low 
terms  of  ease  of  doing  businesses, 
according to the World Bank. (66) Furthermore, in 
contrast  with  other  Member  States  with  relatively 
ranking,  Belgium's  position  has  not 
low 
significantly  progressed  in  recent  years  and  the 
distance to the best world performers remains very 
significant  on  a  number  of  indicators  (Graph 
3.4.12). Belgium reports one of the highest rates of 
cost  and  time  to  transfer  property  in  the  EU, 
although  steps  have  been  taken  to  address  this 
challenge. Despite favourable financing conditions 
for businesses, Belgium also scores under average 
in  the  World  Bank's  indicators  on  getting  credit 
since  the  availability  of  credit  information  from 
privately  owned  credit  bureaus  –as  opposed  to  a 
public 
in 
is  more 
neighbouring economies. Effective credit reporting 
and  availability  of 
the 
allocation of new credit. Collateral and bankruptcy 
laws  could  be  adapted  to  further  protect  creditors 
and thus facilitate access to risk-capital. 

information 

improves 

registry- 

limited 

than 

(66)  Belgium  is  ranked  42nd  in  the  World  Bank’s  Doing 
Business  2017,  while  it  was  ranked  43rd  in  the  previous 
edition. It ranks 22nd among Member States (World Bank -
Doing Business, 2017). 

A score of 0 indicates the lowest performance among all 
countries in the sample, whereas 100 indicates the frontier of 
best practice. 
Source: World Bank, Doing Business Report 2017. 

Belgium is showing some progress in the area of 
entrepreneurship,  although  challenges  remain. 
Although  recent  policy  efforts  and  numerous 
initiatives  to  favour  entrepreneurship  seem  to  be 
bearing  fruit,  leading  to  a  slight  but  noticeable 
change (67), the results in terms of entrepreneurship 
spirit  and  number  of  new  companies  could  still 
improve  further  (Graph  3.4.13).  Some  regulatory 
and  fiscal  barriers  to  starting  businesses  remain, 
including  the  fact  that  the  cost  for  starting  a 
business  is  still  60%  higher  than  the  EU  average; 
the cost to transfer property is three times as high 
as  the  EU  average  and  takes  more  than  twice  as 
long.  New  policies  and  strategies  at  regional 
level (68) have been put in place, but their impact is 
still unknown. In 2016, under its ‘Digital Belgium’ 
initiative,  the  federal  government  adopted  a  legal 
framework for the ‘sharing economy’. (69) 

(67)  This is shown for example by a rise of 15 % from last year 
in early-stage entrepreneurial activity in general and a 60 % 
rise in the number of new women entrepreneurs. 

(68)  Namely:  the  'Small  Business  Act  2015-2019:  Walloon 
Government’ Strategy for fostering creation and growth of 
SMEs,  adopted  in  June  2016;  the  ‘Stimulating  more  and 
more ambitious entrepreneurship in Flanders’ Strategy; and 
the  Strategy  2025  adopted  in  Brussels,  which  includes  a 
Small Business Act. 

(69)  Loi-programme  du  1er  juillet  2016,  M.B.,  4  juillet  2016 
(éd.2)  and  Exposé  des  motifs  du  Projet  de  loi-programme 
du  2  juin  2016  (Chambre  des  représentants  doc  54 
1875/001. 

41 

05101520253035404550556065707501234567ITFRDEBEUKNLGoods Market Efficiency ScoreWorld Rank (rhs)020406080100Starting a businessDealing withconstruction permitsGetting electricityRegistering propertyGetting creditProtecting minorityinvestorsPaying taxesTrading across bordersEnforcing contractsResolving insolvencyBEEU (simple average)DK 
 
                                                           
 
                                                           
3.4. Competitiveness and Investment 

indicator  developed by the European Commission 
(71)  indicates  that  the  level  of  restriction  is  lower 
than  the  EU  average  for  patent  agents,  civil 
engineers,  lawyers  and  tourist  guides,  while  it  is 
higher  for  real  estate  agents,  architects  and 
accountants  (Graph  3.4.14).  In  addition,  for  all  of 
these  (except  patent  agents,  for  which  it  is  not 
turnover) 
the  business  churn  (or 
calculated), 
rate (72) is significantly lower than the EU average. 
This  seems  to  indicate  relatively  low  dynamism 
and  competition 
in 
Belgium.  The  national  action  plan  submitted  by 
Belgium  for  the  purpose  of  mutual  evaluation  of 
professional  services  proposes  very  little  change. 
Reducing  these  barriers  could  generate  more 
intensive  competition  as  a  result  of  more  firms 
entering  the  market.  It  could  also  lead  to  benefits 
for consumers in terms of lower prices, as a result 
of reduced profit rates. Recent research shows that 
lowering  restrictions  in  the  services  sector  could 
increase labour productivity (Van der Marel et al., 
2016).   

in  professional  services 

businesses; 

compulsory  membership 

or 
a 
professional/business  association;  authorisation  schemes; 
and 
insurance 
requirements. 

professional 

indemnity 

specific 

of 

(71)  The European Commission has developed a new composite 
indicator of  the  restrictiveness  of  most  existing barriers  to 
access to and provision of professional services. It is based 
on  data  collected  from  Member  States,  complemented  by 
desk  research.  This  new  indicator  has  many  similarities 
with  the  Commission’s  indicator  of  barriers  in  business 
services  published  in  2015,  but  also  differs  from  it  in 
certain aspects (SWD (2016) 436 final).  

(72)  The business churn rate is calculated as the ratio of the sum 
of  newly  founded  and  closed  enterprises  to  the  total 
number  of  enterprises  in  year  t.  No  data  are  available  for 
patent agent-related activities. 

Graph 3.4.13: Ease of doing business and number of reforms, 

2010-2016 

Distance to frontier measures the position in relation to the 
reference value of 100.  
The vertical segment indicates the variation in the indicator 
between 2010 and 2016, with the upper and minimum levels 
reached during the period; the rhombus indicates the value 
for 2016 and the circle indicates the number of reforms that 
were adopted in the same period. 
Source: World Bank, Doing Business Database 

Sector regulation 

trade, 

highly 

remain 

A  large  proportion  of  the  service  economy,  in 
particular  comprising  network 
industries, 
professional  services  and  to  some  extent  the 
regulated. 
retail 
Eliminating unwarranted restrictions and rigidities 
is  a  key  factor  to  boost  productivity.  Anti-
competitive  regulation  in  services  can  result  in 
costs on downstream industries that use the output 
of  these  sectors  as  intermediate  inputs  in  the 
production process, and can contribute to inflation 
(Section 3.4.1). 

In  some  network  sectors,  overall  regulatory 
management  is  very  extensive  compared  to 
other  Member  States  (Égert  &  Wanner,  2016). 
This is the case mainly in electricity, gas and water 
supply; 
transport  and  storage;  and  post  and 
telecommunications.  The  resulting  inefficiencies 
not only weigh on the cost of living but also affect 
the  competitiveness  of  export  industries  that  use 
these services as inputs. 

some  professional 

In 
barriers remain 

significant. 

services,  regulatory 
(70)  A 
new 

(70)  Regulatory  barriers 

reserved 
professions  or  businesses;  shareholding  and  voting 
requirements; restrictions on combining certain professions 

for  example, 

include, 

42 

0510152025505560657075808590MTELLUITCYHRBEHUBGROSKESSIFRNLCZPTPLLTATIEDELVFIEESEUSUKDKnumber of reformsdistance to frontier2017 (lhs)2010-2016 (rhs) 
 
                                                           
                                                                                   
3.4. Competitiveness and Investment 

both  processed  and  non-processed  food  in  2016, 
the latter being partially explained by higher excise 
duties on  alcohol  and  tobacco  (Price  Observatory, 
2016). Estimates for the EU-27 point to relatively 
high,  but  decreasing,  mark-ups (73)  in  Belgium  in 
the  retail  sector (Thum-Thyssen  and  Canton, 
2015),  with  higher  values  only  for  Luxemburg  in 
2013.  These  abnormal  rents  could  be  linked  to 
shelter  from  competition.  Also  regulatory  factors 
(such as establishment and operational restrictions) 
affect  market  functioning  and  could  contribute  to 
higher  consumer  prices.  According  to  the  OECD 
indicators  of  product  market  regulation  (OECD, 
2017)  Belgium  is  the  second  most  restrictive  EU 
Member  State  for  retail  sector  regulation,  after 
Luxemburg, and the country also scores very high 
retail 
in 
Regionalising 
restrictiveness. 
establishment 
responsibility 
has 
retail 
simplified  the  regulations  to  a  degree,  but  the 
substantive  conditions  for  granting  authorisations 
in the new regional laws leave a broad margin for 
interpretation.  The  concrete  implementation  of 
these rules will be important to ensure that this do 
not lead to market entry barriers. 

the  Commission 

assessment  of 

establishment 

for 

The  potential  of  e-commerce  is  considerable 
and could be further exploited. The development 
of new technologies is helping to offset the impact 
of  barriers  to  market  integration  in  services.  As 
multichannel  marketing  is  increasing  in  the  retail 
market,  e-commerce  is  challenging  traditional 
forms of retailing in different sectors, including the 
groceries subsector. In Belgium, the percentage of 
SMEs selling online is above the EU average. This 
is  reflected  in  the  higher  than  average  proportion 
of e-commerce in retail turnover. Belgian retailers 
also  appear  to  have  seized  the  opportunities 
offered by digital technologies faster than retailers 
in  several  other  Member  States,  and  are  intensive 
users of digital technologies and processes (Graph 
3.4.15). While the percentage of customers buying 
online  is  slightly  below  the  EU  average,  Belgians 
are  more  likely  than  other  EU  citizens  to  buy 
online  from  another  Member  State.  Further 
fostering  the  use  of  e-commerce,  but  also  the 
business 
regulatory 
framework  friendly  to  its  development,  could 
contribute to increasing consumer choice. A recent 

environment 

and 

the 

(73)  I.e. the difference between the price charged for a good or 
service  and  the  cost.  This  is  an  important  determinant  of 
the producer and consumer surplus. 

Graph 3.4.14: Restrictiveness indicator, 2016, Belgium and  

the EU 

Note: Numerical values on a scale from 0 to 6 are attributed 
for every restriction/variable. The higher the score, the more 
restrictive is the assessment. For the profession of civil 
engineer the restriction measured is the protection of the job 
title. 
Source: European Commission services 

Differences  in  regulation  of  the  collaborative 
economy  between  regions  may  hamper  its 
development.  Belgium’s  approach  to  regulating 
the collaborative economy differs between regions, 
ranging  from  facilitating  new  business  models  to 
being  very  conservative.  This  fragmentation  and 
divergence  is  creating  disparities  between  service 
providers. 
In  accommodation,  Flanders  and 
Wallonia  have  adopted  a  regulatory  framework 
designed  to  facilitate  development  of  the  short-
term  accommodation  market  in  the  collaborative 
economy. The Brussels region, on the other hand, 
has 
regulatory 
tourist  accommodation,  with 
framework  on 
different  market  access  conditions  for  different 
categories of providers. Some of the requirements 
risk impeding the development of short-term rental 
of  primary  residences,  as  they  impose  similar 
conditions to those on professional hotel providers. 
Belgium  has  adopted  a  ceiling  for  ‘collaborative’ 
income 
collaborative 
services.  A  reduced  income  tax  rate  of  10 % 
applies to annual gross income below a ceiling of 
EU 5,000. 

recently  adopted  a  complex 

for  people  providing 

The  increases  in  retail  prices  may  point  to 
regulatory  restrictions  and  a  low  level  of 
competition.  The  inflation  has  been  higher  in 
Belgium  than  in  the  neighbouring  countries  for 

43 

01234AccountantArchitectCivil engineerLawyerPatent agentReal estateagentTourist guideEUBE 
 
                                                           
3.4. Competitiveness and Investment 

legislative  change  has  made  night  work  in  e-
commerce possible. 

Graph 3.4.15: Enterprises with high levels of digital intensity 

— Retail trade, except motor vehicles and 
motorcycles  (2015) 

trend  shift  towards  services  and  a  decline  in 
competitiveness  or  the  effect  of  specialisation  in 
some  categories  of  products  that  have  faced 
difficulties. 

Graph 3.4.16: Gross investment rate of non-financial 
corporations (2000–2015) 

Source: European Commission, Digital Scoreboard 

Source: Eurostat 

3.4.4.  INVESTMENT  

The  overall  investment  rate  in  Belgium  is 
robust and has proved resistant in recent years. 
Between  2000  and  2008  it  averaged  22.1 %  of 
GDP. This increased to 23 % in 2015, and modest 
improvements can be expected in 2016 and 2017.  

achieving 

Business  investment  has  been  resilient,  with 
non-financial 
an 
corporations 
average  gross  investment  rate  of  24.5 %  from 
2009  to  2015  (Graph  3.4.16). (74)  Although  there 
remain  general  and  sector-specific  barriers  to 
investment  in  the  private  sector (75),  business 
investment,  notably  in  construction  and  other 
investment (e.g. R&D and software), in contrast to 
many other countries, has remained broadly stable 
since 
financial  crisis.  Although  overall 
investment in R&D is higher than the EU average 
(as a percentage of GDP), it lags behind the best-
performing  advanced  countries. Investment  has 
increasingly  focused  on  services  and  has  fallen  in 
manufacturing  since  the  2000s,  reflecting  both  a 

the 

The  most  resilient  components  since  the  crisis 
are  construction  and 
intellectual  property 
products  (Graph  3.4.17).  Compared  with  other 
euro  area  countries,  it  is  especially  the  ‘buildings 
other  than  dwellings’  category  that  has  pulled 
investment  upwards.  Regarding  investment  in 
knowledge,  Belgium  invests  heavily  in  foreign 
patents,  explaining  part  of  the  rapidly  increasing 
intangible (76) 
to  GDP  ratio.  The 
relatively large business services sector in Belgium 
also  explains  part  of  the  substantial  percentage  of 
computerised 
intangible 
information,  scientific  and  creative  property  and 
skills)  and  ICT.  The  least  resilient  investment 
component  since 
in 
the  crisis 
machinery  and  equipment.  This  fell  from  an 
average of 8.9 % of GDP between 2000 and 2008 
to 7.5 % of GDP between 2009 and 2015.   

investment 

investment 

(including 

assets 

is 

(76)  Comprising fixed assets such as R&D, mineral exploration, 
software and databases, literary and artistic originals, etc. 

(74)  Against  an  average  of  22.5 %  for  France,  19.8 %  for  the 

Netherlands and 16.9 % for Germany (Eurostat). 

(75)  Box 1.1. of last year’s Belgian country report lists the main 
barriers,  including  higher  labour  and  energy  costs,  skill 
shortages and regulatory requirements. 

44 

05101520253035NLDKSILTBESEATMTDEEESKFIESCZHRFRIEUKCYPLLVITHUBGELRO% of enterprises15171921232527EABelgiumGermanyFranceNetherlands 
 
                                                           
 
 
                                                           
3.4. Competitiveness and Investment 

and  to  a  lesser  extent  in  other  network  sectors 
(digitalisation).  All  are  essential  to  deepen  the 
internal  market,  the  transition  towards  a  low 
the  digitalisation  of  our 
carbon  society  and 
economies.  Energy  and  transport  infrastructure 
(including for managing demand) play a vital role 
in  the  Belgium’s  economic  competitiveness,  as 
there is a positive relationship between them, total 
factor productivity and economic growth (Brons et 
al.,  2014).  Belgium’s  location,  coupled  with  its 
hosting international organisations, has enabled the 
to  attract  many  distribution  centres, 
country 
international  company 
logistics  centres  and 
in  combination  with 
headquarters.  However, 
fragmented 
steady 
population increase, there is a growing problem of 
the 
peak  hour  congestion 
country’s  foreign  investment  attractiveness  and 
entails 
and 
environmental costs. 

spatial  planning  and  a 

that  undermines 

economic, 

sizeable 

social 

Graph 3.4.18: Current spending vs. gross fixed capital 
formation, 2015 (% of GDP) 

Graph 3.4.17: Gross fixed capital formation by asset type – 

evolution 2000-2007 and 2008-2015 (% of 
chain linked volumes 2010) 

Source: Eurostat 

Meanwhile,  despite  its  potential  to  stimulate 
economic  growth  in  the  long  run,  (77)  public 
investment is very low by European standards, 
in particular in relation to total public spending 
(Graph  3.4.18).  Net  public  investment  has  been 
averaging  zero  since  the  1990s.  As  a  result,  not 
only is the public capital stock among the lowest in 
Europe, but the quality of public infrastructure has 
been  eroded.  All  too  often, the  focus  has  been  on 
investment in government buildings at the expense 
of 
for 
stimulating  future  growth.  Given  the  very  tight 
budgetary constraints for all levels of government, 
preserving  enough room  for  investment  hinges on 
improving  the  efficiency  of  public  services  and 
policies,  and  on  reversing  the  rapid  increase  in 
some government spending. (78)     

investments  with  a 

large  potential 

Investment  needs 
in 
infrastructure  (education,  energy,  transport) 

are  most  urgent 

Source: Eurostat 

that 

(77)  A simulation by the Federal Planning Bureau published on 
27  January  2017  estimates 
increasing  public 
investments from  2.5% to 2.9% of GDP (or EUR 2 bn. in 
2017) could increase GDP the first year by 0.24% due to an 
increased  demand  for  goods  and  services.  After  twenty 
years  the  additional  growth  would  rise  to  2.77%.  The 
overall  effects  on  the  economy  would,  however,  strongly 
depend on how these investments are financed and how the 
impacts on inflation are accommodated. 

(78)  Social  spending  is  high  and  among  the  highest  in  the 
OECD. Over the last decade, social spending increased by 
over  5  percentage  points  of  GDP.  In  the  recent  past, 
increases  were  especially  pronounced  in  sickness  and 
disability, pensions and family allowances (see Section 3). 

the  Prime 
In  his  September  Declaration 
Minister called for ‘a national pact for strategic 
investments’. Like the European Investment Plan, 
this calls upon private and public investors to work 
together  to  boost  investment  in  a  number  of  key 
strategic  sectors, 
including  energy,  security, 
transport  and  the  digital  economy.  It  also  aims  at 
reinforcing  investment  policies,  while  respecting 
the division of responsibilities between the various 
levels  of  government.  To  ensure  that  financing 
the  Prime 
reaches  growth-enhancing  projects, 

45 

-35-25-15-5515253545EABEDEFRNLEABEDEFRNLEABEDEFRNLEABEDEFRNLConstructionMachineryandequipmentTransportequipmentIntellectualpropertyproducts2000-20072008-2015EUEABEBGCZDKDEEEELESFRHRITLVLTLUHUMTNLATPLPTROSISKFISEUKNOCH22.533.544.555.566.57303540455055Gross fixed capital formationCurrent spending 
 
                                                           
 
3.4. Competitiveness and Investment 

Minister  envisages  an 
independent  selection 
committee  and  a  steering  committee  to  monitor 
and support the pact. The Prime Minister plans to 
set  out  the  detailed  rules  in  a  policy  note  in 
2017.When  made  operational,  the  pact  would  be 
aimed  at  providing  support  for  implementation  of 
the inter-federal energy pact that is to be agreed in 
2017,  as  well  as  for  a  possible  future  long  term 
inter-federal  mobility  strategy  called  for  by  the 
Federal  Minister  for  mobility.  The  proposal  for  a 
national pact for strategic investments will contain 
measures  and  actions  across  the  responsibilities 
levels  of 
and  competence  of 
government and will be concerted. 

the  various 

46 

 
3.4. Competitiveness and Investment 

47 

Box 3.4.1: Investment challenges and reforms in BelgiumSection 1. Macroeconomic perspective Total investment in Belgium (measured as gross fixed capital formation) proved to be quite resilient to the crisis. Together with supportive financing conditions, improving competitiveness relative to peer-countries further underpins business investment, with risks surrounding this positive outlook mainly rooted in the external environment. Construction investment has also been dynamic, due to housing and public infrastructure projects, such as school buildings. While historically low mortgage interest rates and comparatively low yields for alternative investment assets create the setting for a continuation of housing investment, the investment cycle of local governments is forecast to drive public investment. Section 2. Assessment of barriers to investment and ongoing reforms  Regulatory/ administrative burdenTaxationCSRPublic administrationAccess to financePublic procurement /PPPsCooperation btw academia, research and businessJudicial systemFinancing of R&D&IInsolvency frameworkBusiness services / Regulated professionsCSRCompetition and regulatory frameworkRetailCSREPL & framework for labour contracts ConstructionWages & wage settingCSRDigital Economy / TelecomEducation CSREnergyCSRLegend:TransportCSRNo barrier to investment identifiedCSRInvestment barriers that are also subject to a CSRSome progressNo progressSubstantial progressLimited progressFully addressedPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education Barriers to private investment in Belgium are overall relatively moderate as confirmed by the European Commission assessment. Substantial progress was made on wage setting. Some progress was also made on education. More ambitious liberalisation of regulated professions and business services and the retail sector could spur investment in the affected sectors as well as economy-wide.  Main barriers to investment and priority actions underway: 1. Unjustified restrictions in the services sectors give rise to low productivity and uncompetitive pricing which affects also the costs and performance of recipient sectors.  2. Public sector investment remains a major challenge, both in terms of levels as well as orientation of investment in order to boost the country's potential growth. Since the '80s not only did overall investment levels decrease, there was also a shift away from network infrastructure towards building construction. This has created scope for redirecting public investment towards more productive projects. 3. The scope for public investment tends to be narrowed by a mismatch between the available resources of the different governments and their individual investment responsibilities. There is also scope for improvement of the efficiency and coherence of public support for research and innovation policies.  
 
 
 
 
 
 
3.4. Competitiveness and Investment 

11%  for  passengers  and  44%  for  goods  (Federal 
Planning  Bureau,  2015).  Meanwhile,  according  to 
OECD data on Transport infrastructure investment 
and  maintenance  spending,  Belgium  has  among 
the  lowest  share  of  investment  in  inland  transport 
infrastructure in the EU. Over the period 2000-14, 
annual  inland  transport  infrastructure  investment 
(0.44%  of  GDP)  was  well  below  the  EU  average 
(1.01%). 

and 

federal 

regional 

The intention to tackle congestion announced in 
the 
government 
agreements  is  still  to  be  turned  into  tangible 
measures.  Positive  developments  include  road-
pricing  for  lorries,  the  extension  of  the  car-free 
zone in central Brussels, the green tax in Brussels 
on  excessive  car  parks  for  office  buildings,  an 
increase in sharing schemes — mostly in Brussels, 
Antwerp,  Ghent  and  Leuven  —  and  initiatives  to 
to  become  more  sustainable. (79) 
help  cities 
Antwerp  has  introduced  a  low-emission  zone  in 
February  2017,  Ghent  is  proposing  to  extend  its 
pedestrianized  zone  further  in  2017,  and  Brussels 
is  preparing  to  introduce  a  single  low-emission 
zone  covering  the  entire  regional  territory.  In 
addition, EUR 5.2 billion will be invested over the 
next  10  years  in  Brussels  through  a  multiannual 
investment plan for public transport..  

Several  activities  are  ongoing  or  planned  to 
deploy  Intelligent  Transport  Systems  using 
applications  for  optimum  road  use,  traffic  and 
travel data, road safety and security. Flanders is 
also  participating  in  three  Connecting  Europe 
Facility projects dealing with cooperative ITS, and 
working on standardising these services in Europe 
to provide continuity of service. Such cooperative 
systems  have  the  potential  to  improve  road  safety 
and  congestion,  two  topics  that  are  intrinsically 
related (because of the saturation level of Belgian 
roads, even small incidents create massive delays). 
Although  some  measures  have  been  taken  to  deal 
with  the  excessive  use  of  company  cars,  progress 
remains  limited.  No  decision  has  been  taken  to 
extend road pricing to passenger cars. 

The  inland  waterway  network  in  Belgium,  one 
of  the  densest  in  the  EU,  requires  major 
infrastructure  work.  There  appears  to  be  ample 
scope for renewal of locks and canals and upgrades 

(79)  Stadsontwikkelingsprojecten;  duurzaamheidsmeter;  natuur 

in je buurt. 

3.4.5.  TRANSPORT 

Given  the  high  concentration  of  economic 
activity  around  the  capital  and  the  port  cities, 
the most urgent challenges are upgrading basic 
rail  and  road  transport  infrastructure.  Current 
through 
capacity  usage  could  be  optimised 
demand-side  measures, 
Intelligent  Transport 
Systems (ITS) and shifts between transport modes, 
and by eliminating missing links between the main 
economic  hubs.  Investments  in  inland  waterways, 
removing  bottlenecks  and  allowing  better  use  of 
the  dense  waterway  network,  have  great  potential 
to  achieve  modal  shifts.  Belgium  is  working  on 
this but in the short term this has not yet resulted in 
congestion 
curbing 
problem. 

ever-growing 

road 

the 

rather 

(e.g.  RER-GEN), 

Within  transport  infrastructure,  the  priority 
appears  to  be  maintenance  and  better  use  of 
existing infrastructure and to achieve as soon as 
possible  the  planned  investment  in  the  rail 
network 
than 
expanding the size of the networks, as Belgium 
already  has  an  extremely  dense  road  and  rail 
network.  The  quality  of  Belgium’s  transport 
infrastructure 
in 
neighbouring countries and as deteriorating faster, 
mostly  due  to  insufficient  maintenance  spending 
and 
(IMF,  2016). 
Consumer  assessment  of  train  services  is  very 
the  Consumer  Markets 
poor.  According 
Scoreboard 2016 Belgian consumers gave them the 
fifth lowest score for train services in the EU.  

the  ageing  of  networks 

is  perceived  as 

lower 

than 

to 

around 

Antwerp 

Belgium  remains  Europe’s  most  congested 
country  in  terms  of  hours  wasted  and  delays, 
especially 
and 
Brussels. Transport  also  causes  significant  air 
pollution problems. In 2014 it was responsible for 
22.2%  of  greenhouse  gas  emissions  (20.8  in 
EU28), 54.6% of NOx emissions (45.4% in EU28) 
and 16.4% of PM2.5 emissions (14.92% in EU28). 
A 2011 study by CE Delft (Van Essen et al., 2011) 
referred to in the 2013 OECD economic survey of 
Belgium estimates the costs of congestion at 1-2% 
of  GDP.  Since  then  structural  traffic  jams  have 
more  than  doubled.  In  2013,  78.5%  of  transport 
was  by  private  car  (FPB,  2016)  and  in  Flanders, 
75%  of  commuters  still  use  their  private  car 
(European  Commission,  2014,  p.5-6).  By  2030 
transport  demand  is  expected  to  grow  by  another 

48 

 
                                                           
3.4. Competitiveness and Investment 

of  bridges  and  cargo-handling  facilities,  to  cope 
with  heavy-load  traffic  between  the  Benelux, 
France  and  Germany.  The  lack  of  investments 
threatens  to  reduce  the  quality  of  service  and 
aggravate  even  more  the  chronic  road  congestion 
problem 
centres 
key 
(Antwerp, Brussels and Ghent in particular).  

production 

affecting 

3.4.6.  ENERGY, RESOURCES AND CLIMATE 

ACTION 

A  major  challenge  is  to  ensure  that  power 
supply  remains  adequate  and  becomes  flexible, 
and  is  aligned  with  Belgium’s  commitments 
under  the  Paris  agreement  and  the  five 
dimensions of the energy union. Having receded 
when  the  operational  lifetime  of  the  Doel  1  &  2 
and  Tihange  1  nuclear  reactors  was  extended, 
short-term  supply  concerns  have  recently  come 
back strongly. The temporary outage of 22 nuclear 
plants in France and 2 in Belgium, combined with 
cold  weather,  resulted  in  day-to-day  prices  for 
electricity peaking far above those in neighbouring 
countries,  excluding  France.  In  the  longer  term, 
Belgium  has  high  investment  needs  (80),  partly  in 
view of the nuclear phase-out that is now planned 
to  take  effect  between  2022  and  2025.  Structural 
shortages  may  occur  if  investment  in  new  and 
replacement  capacity  is  further  delayed,  but  the 
repeatedly revised timetable for the nuclear phase-
out  has  deterred  investors,  in  particular  those 
looking  to  invest  in  renewables  and  gas-fired 
power  plants,  and  has  created  a  climate  not 
conducive  to  long-term  investment  decisions.  A 
strategic 
reserve  has  been  created,  keeping 
potentially  mothballed  plants  online  and  pushing 
the  development  of  demand-side  management. 
Belgium’s interconnection level in 2016 was 17 % 
of  installed  generation  capacity,  and  ongoing 
projects will increase this percentage further. 

A  decrease 
in  primary  and  final  energy 
consumption is needed to achieve the indicative 
national  2020  targets  on  energy  efficiency. 
Although  some  actions  have  been  taken,  progress 
remains  limited.  A  strategic  reserve  has  been 
created,  keeping  potentially  mothballed  plants 

(80)  In its 2014 publication on energy and emissions projections 
for 2050, the Federal Planning Bureau assessed investment 
needs  and  the  overall  direction  in  the  power  sector  in  the 
reference scenario at EUR 62 billion by 2050. This would 
rise to EUR 71 billion in a high GDP scenario. 

in 

indicative 

intensity  and 

online  and  pushing  the  development  of  demand-
side management. Belgium’s interconnection level 
in 2016 was 17 % of installed generation capacity, 
and ongoing projects will increase this percentage 
further. The idea of creating an ‘energy norm’ (by 
analogy with the salary norm) is still being studied. 
In  2015,  Belgium  had  a  primary  energy 
consumption  of  45.7  Mtoe  (81),  still  far  from  the 
2020 
target  of  43.7 Mtoe.  Some 
improvements  have  been  observed  in  industry’s 
final  energy 
final  energy 
consumption  per  m2  for  the  residential  sector. 
However, actions are needed in transport and other 
sectors to achieve energy efficiency improvements 
in  2014-2020  faster  than  in  2005-2013.  Some 
progress  has  been  made  on  the  2020  renewable 
target  of  13%.  At  8 %  of  gross  final  energy 
consumption  in  2014,  the  Belgium’s  renewable 
energy  percentage  is  above  its  2013/2014  interim 
target  of  5.4 %  and  2015/2016  interim  target  of 
7.1 %,  but  there  is  a  need  to  assess  whether  the 
tools  are  sufficient  and  efficient  to  meet  the  2020 
target.  Agreement  has  been  reached  on  dividing 
responsibility for meeting the 13% target between 
the  different  regions,  but  attention  should  be  paid 
to monitoring implementation of the sub-targets. 

measures, 

demand-side 

that  explores  further  steps 

There  is  currently  no  suitable  legal  framework 
to  promote  the  required  increase  in  generation 
capacity,  interconnections,  smart  grids  and 
other 
plus 
decarbonisation  of  the  whole  energy  system. 
There is a considerable lead time for large projects 
in 
the  energy  sector  and  a  great  need  for 
replacement  capacity  in  the  next  decade.  The 
Federal  Energy  Ministry  is  working  on  a  new 
study 
towards  a 
sustainable  energy  supply  by  2050.  In  parallel,  a 
steering  group  composed  of  federal  and  regional 
representatives  has  been  tasked  with  preparing  an 
integrated climate and energy plan for 2030, as set 
out  in  the  energy  union  strategy.  The  regional 
authorities  are  also  preparing  their  own  energy 
vision. In Flanders, this is being shaped through a 
participatory  process  (stroom-versnelling).  Five 
the  electricity 
working  groups,  chaired  by 
regulator  VREG  and  with  representatives  from 
civil  society,  are  discussing  needs  for  flexibility, 
finance, 
renewables,  energy  efficiency  and 
governance.  Citizens  are  also  consulted  through  a 
series  of  workshops  and  online  tools.  Wallonia’s 

(81)  Eurostat: Gross inland consumption of energy, 1990-2014. 

49 

 
                                                           
                                                           
3.4. Competitiveness and Investment 

alternative-fuel  vehicles  in  recent  years,  though 
absolute  numbers  are  still  very  low  and  large 
regional  differences  exist.  Targets  have  been  set 
for  2020  on  both  number  of  vehicles  and 
supporting infrastructure for alternative fuels. 

this  earlier  political 

Belgium  is  expected  to  miss  its  greenhouse  gas 
emission reduction target for 2020, compared to 
2005,  by  5  percentage  points. (83)  More  resolute 
action  has  long  been  hindered  by  the  lack  of  an 
internal  climate  agreement  between  federal  and 
regional  authorities.  This  was  only  reached  in 
December  2015.  On  11 October  2016,  the  federal 
and  regional  authorities  agreed  on  the  legal 
transposition  of 
internal 
climate  agreement.  Now  that  a  legally  binding 
agreement  has  been  reached,  the  accumulated 
revenues  from  auctioning  emission  allowances 
under the EU emissions trading system (according 
to  Belgium’s  own  reporting  amounting  to  around 
EUR 354  million)  will  be  distributed  between  the 
federal  and  regional  governments  to  be  used  for 
climate-related  purposes.  For  the  long  term,  there 
is  no  policy  vision  in  place  on  matters  such  as 
decarbonising  the  power  sector.  The  authorities 
aim to agree on an ‘energy pact’ for the next 20-25 
years, though little progress has been made so far. 
It  is  vital  to  implement  the  internal  climate 
agreement  for 2020,  to update  existing policies  in 
light of that agreement, and to develop a long-term 
policy vision. 

(83)  Under the EU 2020 strategy, BE has committed to reduce 
its  greenhouse  gas  emissions  from  sectors  not  covered  by 
the  EU  Emissions  Trading  System  (ETS)  by  15 %  below 
2005 levels by 2020. 

energy vision will be based on the Plan air, climat, 
énergie  2030  adopted  in  April.  In  2017,  these 
visions  will  have  to  be  combined  to  form  a 
common vision that results by the end of the year 
in  an  energy  pact  containing  common  targets  and 
complementary,  mutually  reinforcing  measures 
and an overall policy vision for the power sector. 

The  measures  put  in  place for  gas  security  of 
supply  are  sufficient  at  the  moment.  Total 
demand  for  consumption  that  can  be  satisfied  if  a 
large disruption of gas occurs is very high (246 %). 
However,  like  other  Member  States,  Belgium  is 
facing a new challenge in view of the phase-out of 
Dutch  gas  deliveries  (from  the  Groningen  field). 
Price  reductions  in  the  gas  sector  are  in  line  with 
those  seen  in  other  Members  States,  and  the  gas 
market is functioning well. 

Belgium  has  made  substantial  progress  on 
promoting a circular economy. The 2014 federal 
roadmap (SPF  Santé  Publique  &  SPF  Economie, 
2014)  led  to  21  draft  government  proposals  in 
2016,  The  Plan  Marshall  4.0  presented  in May 
2015,  promoting  clean  energy  and  the  circular 
economy, is one of five priority areas for action. In 
March 2016, Flanders approved a transition policy, 
‘Vision 2050’, with the circular economy as one of 
seven  proposed  transitions. The  policy  is  being 
developed  with  the  continuation  of  the  Flemish 
materials  programme  as  a  circular  economy 
platform  focused  on  innovation.  In  March  2016, 
the  regional  government  of  Brussels  adopted  a 
circular  economy  regional  plan,  laying  out  a 
transition  strategy  containing  111  measures  in  4 
fields. 

Belgium is among the top performers in the EU 
with  regard  to  waste  management,  with  a 
recycling  rate  for  municipal  waste  of  55 %  in 
2014  (EU  average  44 %  in  2014). At  the  same 
time,  air  quality  in  Belgium  continues  to  give 
rise  to  serious  human  health  concerns,  which 
also  have  a  substantial  bearing  on  the  budget 
(EEA,  2016).  Sizeable  breaches  of  EU  air  quality 
standards (82) are  due  to  traffic  congestion,  in  the 
context  of  national  policy  on  company  cars  and 
fuels. The extension of the car-free zone in central 
Brussels  and  the  planned  low-emission  zones  in 
Antwerp and Brussels are positive measures in this 
respect. Belgium has also seen a steep increase of 

(82)  Directive 2008/50/EC and Directive 2004/107/EC. 

50 

 
                                                           
                                                           
ANNEX A 

Overview Table 

2016 Country-Specific recommendations (CSRs) 

Commitments 

CSR 1:  

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.  

Summary assessment (84) 

Belgium  has  made  limited  progress  in  addressing  country-
specific  recommendation  1  (this  overall  assessment  of 
country-specific  recommendation  1  does  not  include  an 
assessment of compliance with the Stability and Growth Pact): 

Limited  progress  has  been  made  towards  an  enforceable 
distribution  of  fiscal  targets  among  the  various  levels  of 
government.  The  lack  of  any  formal  commitment  by  the 
regions and communities to disaggregated fiscal trajectories at 
their own level undermines the credibility of Belgium's overall 
trajectory and hampers debt reduction efforts. 

Some progress has been made in reforming the tax system:  

  The  federal  government  has  announced  its  intention  to 
reform  corporate  taxation  in  the  direction  of  reducing  the 
nominal  statutory  rate.  A  report  of  the  High  Council  for 
Finance was published in July 2016 analysing options. As 
yet, no firm plans have been brought forward. 

  Measures included in the draft budgetary plan: 

  a further increase of the withholding tax rate, from 27 % to 

30 %; 

  an  increase  (ceiling  is  doubled)  and  broadening  (foreign 

(84)  The following categories are used to assess progress in implementing the 2016 country-specific recommendations: 

No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures    to  address  the  country-specific 
recommendation. Below a number of non-exhaustive typical situations  that could be covered under this, to be interpreted on a 
case by case basis taking into account country-specific conditions: 

•  no  legal,  administrative,  or  budgetary  measures  have  been  announced  in  the  National  Reform  Programme  or  in  other  official 
communication  to  the  national  Parliament  /  relevant  parliamentary  committees,  the  European  Commission,  or  announced  in 
public (e.g. in a press statement, information on government's website);  
• no non-legislative acts have been presented by the governing or legislator body;   
•  the  Member  State  has  taken  initial  steps  in  addressing  the  country-specific  recommendation,  such  as  commissioning  a  study  or 
setting up a study group to analyse possible measures that would need to be taken (unless the country-specific recommendation 
explicitly  asks  for  orientations  or  exploratory  actions),  while  clearly-specified  measure(s)  to  address  the  country-specific 
recommendation has not been proposed. 

Limited progress: The Member State has: 
• announced certain measures  but these only address the country-specific recommendation to a limited extent; and/or 
• presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-legislative 

further work is needed before the country-specific recommendation will be implemented;  

• presented non-legislative acts, yet with no further follow-up in terms of implementation which is needed to address the country-

specific recommendation. 

Some  progress:  The  Member  State  has  adopted  measures  that  partly  address  the  country-specific  recommendation  and/or  the 
Member State has adopted measures that address the country-specific recommendation, but a fair amount of work is still needed 
to  fully  address  the  country-specific  recommendation  as  only  a  few  of  the  adopted  measures  have  been  implemented.  For 
instance: adopted by national parliament; by ministerial decision; but no implementing decisions are in place. 

Substantial  progress:  The  Member  State  has  adopted  measures  that  go  a  long  way  in  addressing  the  country-specific 

recommendation and most of which have been implemented. 

Full  implementation:  The  Member  State  has  implemented  all  measures  needed  to  address  the  country-specific  recommendation 

appropriately. 

51 

 
 
                                                           
 
 
 
A. Overview Table 

platforms also taxed) of the stock-exchange tax; 

 

the abolition of the 'speculation tax';   

 

the introduction of a mobility budget for employees as an 
alternative  to a  company car  and of  a fixed  levy  imposed 
on employers for company fuel cards. 

  Other measures legislated or announced since July 2016: 

  Abolition  of  existing  patent  income  deduction  regime  (1 
July 2016); approval by Council of Ministers of draft bill 
on  Innovation  Income  Deduction  regime  (2  December 
2016); 

  Legislation  for  the  specific  fiscal  treatment  of  income 
received by private individuals providing services through 
the sharing economy under certain circumstances (1 July); 

  Online  betting  and  gambling  activities  no  longer  exempt 

from VAT (1 August); 

  New  single  annual  bank  tax  replaces  four  existing  taxes 

(act passed on 3 August). 

CSR 2:  

Belgium  has  made  substantial  progress  in  addressing 
country-specific recommendation 2: 

Carry  out  the  intended  review  of  the 
Law  of  1996  on  the  promotion  of 
employment  and  the  safeguarding  of 
competitiveness  in  consultation  with 
the social partners. Ensure that wages 
can evolve in line with productivity. 

Ensure  the  effectiveness  of  labour 
market activation policies.  

training 

Move  forward  with  education  and 
reforms  and 
vocational 
provide 
for 
support 
disadvantaged  groups,  in  particular 
people from a migrant background.  

training 

Substantial  progress  has  been  made  in  making  wage 
formation more responsive to the business cycle and changes 
in  productivity.  The  law  on  the  revision  of  the  1996  Law  on 
employment and competitiveness is to be voted by parliament 
in February 2017. It has already been taken into account in the 
Inter  Professional  Agreement  agreed  between  the  Social 
Partners on 31/01/2017. 

Some  progress  has  been  made  on  ensuring  the  effectiveness 
of labour market activation policies.  

  Taxes  on  labour  are  being  progressively  decreased  and 
eligibility conditions for pre-retirement and retirement are 
progressively  being  tightened.  These  ongoing  reforms  are 
producing  positive  effects  on  take  home  pay  for  low  and 
average wage earners as well as on the participation rate of 
the older workers. 

  The law on flexible and workable work includes a number 
of  measures  to  increase  the  flexibility  of  working  time 
arrangements and to promote in-company training. It also 
reintroduces the possibility of a lower minimum wage for 
young people. 

52 

 
A. Overview Table 

  The  three  regions  and  the  German-speaking  Community 
have started to reform the recently devolved competences 
in  the  area  of  activation.  The  existing  employment 
incentive schemes are being rationalised to focus financial 
support  on  a  limited  number  of  priority  groups  and  to 
better  integrate  employment  support  with  other  types  of 
activation  measures.  The  reformed  employment  support 
systems  are  already  operational  in  Flanders  as  of  January 
2017  and  will  become  fully  operational  in  Wallonia  and 
Brussels in the course of 2017. 

 

In  November  2016  the  "Individualised  Project  for  Social 
the  Federal  government  became 
Integration"  of 
compulsory for all new living wage beneficiaries.  

  At  the  end  of  2016  the  federal  government  introduced  a 
number  of  measures  to  make  resuming  work  after  work 
incapacity financially more attractive.  

Some progress has been made on educational and vocational 
reforms. 

 

‘Modernising 

In  May  2016,  the  Flemish  Community  launched  two 
concept  notes 
education, 
measures  for  primary  education  and  the  first  stage’  and 
‘The second and third stage of secondary education’. This 
started the rollout of the final measures of the master plan 
secondary education.  

secondary 

the 

final  measures  of 

  After  a  consultation,  the  Flemish  government  adopted  in 
January  2017 
the  Flemish 
modernisation of secondary education. Key measures plan 
for a new ordering of the study offer and the rationalisation 
from  29  to  8  study  areas.  In  2017  a  first  draft  a  new 
parliamentary  act  for  the  modernisation  of  secondary 
education  will  be  presented  to  the  government.  The 
legislative  framework  will  be  elaborated  with  the  aim  of 
reaching  a  progressive  implementation  school  year  by 
school year from 1st of September 2018 onwards (starting 
with the first grade of the first stage).  

  On  learning  outcomes,  the  2016  societal  debate  on  the 
attainment targets resulted in final reports which have been 
handed  over  to  the  Flemish  Parliament.  In  the  phased 
rollout  of  the  renewed  attainment  targets,  the  update  and 
development of attainment targets for a selection of sets of 
targets  for  primary  education  and  the  first  stage  of 
secondary education will start in 2017. 

  The French Community has launched a process to reform 
its  compulsory  education  system  over  the  period  2015-
2030  (Pacte  pour  un  Enseignement  d’Excellence).  Based 

53 

 
A. Overview Table 

on the main orientations approved by the government mid-
2016  and  on  an  impact  assessment,  the  December  2016 
draft  advice  of  the  steering  group  sets  the  proposed  five 
strategic  axes,  objectives  and  priorities.  Great  attention  is 
given  to  early  childhood  education.  Initial  Vocational 
Education  and  Training  (IVET)  would  be  reduced  to  one 
track  with  fewer  study  options  and  apprenticeships 
integrated  into  the  education  system.  After  a  two  months 
consultation  period,  the  advice  is  expected  to be finalised 
in view of its adoption by the government, early 2017. The 
implementation  period  has  been  extended  from  2025  till  
2030;  

 

Independently  of  the  "Pacte",  first  measures  have  been 
approved  namely  with  the  so-called  "Décret  fourre-tout" 
adopted  in  2016.  Mandatory  support  to  starting  teachers 
has been introduced in September 2016. Each school will 
also  be  required  to  establish  by  2018/2019  a  6-year  pilot 
plan with objectives in more than 10 key areas. The heads 
of  underperforming  schools  have  to  draw  up  a  remedial 
action plan with the support of their umbrella organisation; 

  Both  communities  are  pursuing  the  preparation  of  their 
reform  of  initial  teacher  education  launched  under  the 
previous  governments.  On  teachers'  careers,  the  Flemish 
education  minister  and  social  partners  are  still  pursuing 
their  negotiations  on  a  ‘career  pact’  (Loopbaanpact).  The 
reform of teacher's careers is part of the school reform of 
the French Community.  

CSR 3:  

Belgium  has  made  limited  progress  in  addressing  country-
specific recommendation 3. 

Boost  the  capacity  to  innovate,  in 
particular  by  fostering  investment  in 
knowledge-based capital.  

Limited  progress  has  been  made  to  boost  the  capacity  to 
innovate: 

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.  

  Major  multi-annual  plans  for  R&I  include  successive 
versions of the 'Marshall plan' complemented by ‘Creative 
Wallonia’  and  ‘Digital  Wallonia’  in  Wallonia;  regional 
innovation plan in Brussels; and ‘VISIE 2050: a long-term 
strategy  for  Flanders’  in  Flanders.  These  main  regional 
strategies  reflect  a  broad  political  commitment  to  boost 
productivity  and  address  societal  challenges  through 
research and innovation. 

 

 

In  July  2016,  the  Brussels  region  updated  its  innovation 
strategy plan for the period 2016-2020.  

In  July  2016,  the  federal  government  introduced  a  fiscal 
regime  for  workers  of  the  “Collaborative economy”.  This 
was  introduced  under  the  “Digital  Belgium”  initiative, 
to  stimulate  entrepreneurship  and  new 
which  aims 

54 

 
A. Overview Table 

economic  activities,  while  providing  a  clear 
legal 
framework. The regime foresees an effective 10% tax rate 
under  5.000  EUR  gross  income  for  individuals  providing 
services  via  a  recognized  collaborative  platform  (Loi-
Programme/Programmawet  01/07/2016  and  two  Royal 
Decrees 24/01/2017). 

  The  Belgian  ‘Patent  Box’  regime  has  effectively  been 
abolished  on  1  July  2016.  It  will  be  accompanied  by  a 
transitory regime of five years. The federal government is 
working  on  a  new  regime  entitled  ‘deduction  for 
innovation  income’  to  bring  it  in  line  with  the  ‘modified 
nexus approach’ as introduced by the OECD (BEPS/action 
5). The draft law has been submitted to the State Council 
for its opinion. Adoption is expected early 2017.  

  Flanders and the French Community agreed on the future 
of  the  Interuniversity  attraction  poles  whose  current 
financing commitment ends in September 2017 (managed 
at  Federal  level  before  the  6th  State  Reform).  A  new 
programme  will  start  in  2018,  co-managed  by  FWO  and 
CNRS with a dedicated budget of 17.7 million (Flanders) 
and 13.9 million (French Community) starting in 2018. 

  The Brussels Small Business Act is a plan/vision structured 
around 77 measures within five development pillars to be 
implemented  between  2016  and  2025.  It  covers  enabling 
an environment for creation, regardless of the life stage of 
the  company  or  its  model;  improving  access  to  finance, 
using  a  credit  intermediary  (development  of  a  regional 
strategy 
the  microfinance 
capacity);  supporting  the  diversity  of  entrepreneurs  and 
businesses  through  segmented  measures;  improving  the 
relations between SMEs and the Brussels capital region by 
making  the  administration  more  "business  friendly"; 
supporting  companies  in  their  development  (innovation, 
internationalization,  digitization,  circular  economy).  Most 
of the implementation should start in 2017. 

for  microcredit, 

increase 

 

In October 2016 the Flemish region adopted a new action 
plan  for  innovation  procurement.  The  new  action  plan  is 
based  on  a  combination  of  pre-commercial  procurement 
(PCP)  and  public  procurement  of  innovative  solutions 
(PPI).  It  foresees  co-financing  for  Flemish  procurers  to 
kick-start  5  new  PCP  and  10  PPI  lighthouse  projects  in 
2017. 

  As announced in its 2017 budget, Flanders will structurally 
increase  its  public  R&D  budget,  mostly  to  the  benefit  of 
its 
Public  Research  Organisations, 
commitment that public R&D intensity should reach 1% in 

line  with 

in 

55 

 
A. Overview Table 

Flanders (currently 0.78%).  

Limited progress has been made on increasing competition in 
the business and professional services: 

intra-Belgian  consistency 

End  of  2016,  a  proposal  for  on  the  transposition  of  the 
Directive  2013/55/EU  was  voted  in  the  Belgian  parliament. 
reasons,  a  cooperation 
For 
agreement  will  be  drafted.  For  Flanders,  an  implementation 
law has been submitted to the Flemish parliament. According 
to the Walloon representative, an orientation note is submitted 
to  the  Walloon  government,  presenting  the  screening  of 
existing legislation in the area of regulated professions. In the 
Brussels  region,  the  regional  government  needs  to  decide  on 
the proposal for the implementation law.   

Limited  progress  has  been  made  on  removing  unwarranted 
operational and establishment restrictions in the retail sectors:  

  Further to the 6th State reform transferring competences on 
retail  establishment,  the  three  regions  have  adopted  acts 
regulating  this  field  (Flanders,  as  the  last  region,  adopted 
the  relevant  act  in  July  2016,  however  the  provisions 
relating  to  authorisations  for  retail  outlets  will  not  enter 
into force before 2018). The new regional laws provide for 
some  simplification  of  administrative  procedures,  but  the 
substantive  conditions  for  granting  authorisations  leave  a 
broad  margin 
concrete 
implementation  of  these  rules  will  be  important  to  ensure 
that these do not lead to market entry barriers.  

interpretation.  The 

for 

  As  regards  e-commerce,  the  Royal  Decree  from  March 
2016  has  made  night  work  related  to  on-line  sales  in  the 
retail sector possible.  

Some  progress  has  been  made  on  addressing  shortfalls  in 
investment:  

 

In  September  2016,  the  federal  government  proposed  to 
implement  a  National  Pact  for  Strategic  Investments, 
calling upon private and public investors to work together 
in  order  to boost investment  in  a  number  of  key  strategic 
sectors,  namely  energy,  security,  transport  and  the  digital 
economy.  The  roll-out  of  the  plan  is  foreseen  over  the 
period 2017-2030. The governance and policy choices will 
be  determined  in  more  detail  in  cooperation  with  the 
concerned government levels in order to ensure the speedy 
implementation of the Pact, with respect for the division of 
competences  between  the  various  entities.  A  steering 
committee to monitor and support the Pact will be installed 
within  the  Chancellery  (of  the  Prime  Minister).  The 
detailed  rules  will  be  defined  in  2017  on  the  basis  of  a 

56 

 
A. Overview Table 

Europe 2020 (national targets and progress) 

policy note. 

Employment rate (20-64): 

73.2 %. 

The  employment  rate  for  20-64  years  old  workers 
marginally decreased from 67.3 % in 2014 to 67.2 % 
in  2015,  remaining  almost  3  pps.  below  the  EU 
average.  

Signs  of  improvement  on  job  creation  can  be 
observed  since  2015.  Should  this  trend  take  further 
pace,  they  could  contribute  to  strengthening  the 
employment 
target 
remains  still  out  of  reach  at  this  stage  and  could 
require further job-rich economic impetus. 

rate.  However, 

the  73.2 % 

R&D: 

3 % of GDP. 

Greenhouse gas emissions: 

-15%  in  2020  compared  to  2005  (in  the 
sectors  not  covered  by  the  EU  Emissions 
Trading System (ETS)). 

Renewable energy: 

13%,  with  a  share  of  renewable  energy  in  all 
modes of transport equal to 10 %. 

R&D  intensity  has  pursued  its  increase  to  reach 
2.45 %  in  2015.  This  is  due  to  increasing  private 
R&D (1.77 %) while public R&D remains  relatively 
stable (0.68 %). 

According to the latest national projections submitted 
to  the  Commission  and  taking  into  account  existing 
measures, it is expected that the target will be missed: 
-10 %  in  2020  compared  with  2005  (i.e.  projected 
shortfall of 5 percentage points). 

renewable  energy  share 

The 
decreased from 8% in 2014 to 7.1% in 2015. (85) 

in  Belgium  has 

Energy efficiency: 

43.7 Mtoe 
primary 
32.5 Mtoe final energy consumption  

consumption 

and 

Belgium  increased  its  primary  energy  consumption 
from 45.2 Mtoe in 2014 to 45.7 Mtoe in 2015. Final 
energy  consumption  increased  from  34.2  Mtoe  in 
2014 to 35.8 Mtoe in 2015. 

Early school leaving: 

9.5 %. 

Early  school  leaving  remains  below  the  EU-28 
average (10.1% compared with 11.0%) but above the 
2020 target of 9.5%: 

  11.0% in 2013; 

  9.8% in 2014; 

  10.1 % in 2015. 

(85)  Renewable energy shares for 2015 are approximations and not official data, reflecting the available data (04.10.2016). See the 
the  2016  Report  on  Renewable 

in  Realisation  of 

Öko-Institut  Report:  Study  on  Technical  Assistance 
Energy,  http://ec.europa.eu/energy/en/studies. 

57 

 
 
                                                           
Tertiary education: 

47 % of the population aged 30-34 years old. 

A. Overview Table 

This  average  masks 
large  disparities  between 
population  sub-groups  and  regions.  The  rate  among 
young people with a migrant background is twice the 
in 
overall  rate.  Rates  are  significantly  higher 
Wallonia  (13.1%)  and  Brussels  (15.8%)  than  in 
Flanders (7.2%). 

Belgium's  rate  significantly  exceeds  the  EU  average 
(38.7% in 2015):  

42.7% in 2013; 

  43.8% in 2014; 

  42.7% in 2015. 

  The rate of 42.7% in 2015 is 4.3 pps. short of the 
47 %  national 
target  set  for  2020.  Women 
outperform men by 48.7 % to 36.7 % — a gender 
gap wider than the EU average. Whilst narrowing, 
the  gap  between  EU-born  and  non-EU-born 
students is still large at 44.8 % to 35.6 %. 

Target  for  reducing  the  number  of  people  at 
risk of poverty or social exclusion: 

The  number  of  people  at  risk  of  poverty  or  social 
increasing.  The  cumulative 
exclusion  has  been 
difference from 2008 stood at (in thousands): 

- 380 000 compared to 2008. 

  + 92 in 2013; 

  + 146 in  2014; 

  + 143 in 2015. 

Belgium is therefore unlikely to achieve its target of 
reduction by 380 000. 

58 

 
ANNEX B 

MIP Scoreboard 

Table B.1: 

The MIP Scoreboard for Belgium 

1) Unemployment rate: for 2005 i = Eurostat back-calculation to include 2011 Population Census results.  
2) Youth unemployment rate: for 2005 i = Eurostat back-calculation to include 2011 Population Census results 
3) b: break in time series. 
Note: Figures highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism 
Report. For REER and ULC, the first threshold applies to euro area Member States. 
Source: European Commission, Eurostat and Directorate General for Economic and Financial Affairs (for Real Effective 
Exchange Rate), and International Monetary Fund  

59 

Thresholds201020112012201320142015Current account balance, (% of GDP) 3 year average-4%/6%-0.1-0.10.2-0.5-0.3-0.2-35%65.260.951.851.959.461.3Real effective exchange rate - 42 trading partners, HICP deflator3 years % change±5% & ±11% 0.5-1.6-4.2-0.2-0.6-1.2Export market share - % of world exports5 years % change-6%-11.1-7.2-14.9-12.4-12.1-11.3Nominal unit labour cost index (2010=100)3 years % change9% & 12% 7.55.35.68.65.51.56%1.41.00.20.3-1.31.3p14%3.221.314.49.40.94.5133%161.6174.1186.7163.8163.5166.360%99.7102.3104.1105.4106.5105.8Unemployment rate3 year average10%7.77.87.77.78.28.516.5%-0.57.4-6.3-1.33.5-1.0-0.2%0.6-0.40.0-0.21.00.70.5%0.20.2-0.1-0.10.81.02%3.60.7-2.11.34.52.3Activity rate - % of total population aged 15-64 (3 years change in p.p)Long-term unemployment rate - % of active population aged 15-74 (3 years change in p.p)Youth unemployment rate - % of active population aged 15-24 (3 years change in p.p)External imbalances and competitivenessNew employment indicatorsNet international investment position (% of GDP)Deflated house prices (% y-o-y change)Total financial sector liabilities (% y-o-y change)Private sector credit flow as % of GDP, consolidatedPrivate sector debt as % of GDP, consolidatedGeneral government sector debt as % of GDPInternal imbalances 
 
 
 
 
ANNEX C 

Standard Tables 

Table C.1: 

Financial market indicators 

1) Latest data Q2 2016. 
2) Quarterly values are not annualised 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

60 

201120122013201420152016Total assets of the banking sector (% of GDP)316.7280.1260.8274.9261.6264.2Share of assets of the five largest banks (% of total assets)70.866.364.065.865.5-Foreign ownership of banking system (% of total assets)64.364.165.465.663.3-Financial soundness indicators:1)              - non-performing loans (% of total loans)4.25.15.33.33.02.8              - capital adequacy ratio (%)18.518.218.717.618.718.3              - return on equity (%)2)1.43.36.27.810.34.9Bank loans to the private sector (year-on-year % change)-1.4-1.26.29.97.05.9Lending for house purchase (year-on-year % change)-1.96.010.119.512.18.9Loan to deposit ratio60.156.658.259.562.365.2Central Bank liquidity as % of liabilities6.95.42.51.61.01.8Private debt (% of GDP)174.1186.7163.8163.5166.3-Gross external debt (% of GDP)1) - public50.155.056.667.765.570.3    - private103.6103.3103.8102.4103.8112.4Long-term interest rate spread versus Bund (basis points)*162.5150.584.055.034.438.8Credit default swap spreads for sovereign securities (5-year)*173.2124.836.331.030.028.8 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.2: 

Labour market and social indicators 

1 Unemployed persons are all those who were not employed but had actively sought work and were ready to begin working 
immediately or within 2 weeks.       
2 Long-term unemployed are peoples who have been unemployed for at least 12 months.       
3 Not in education employment or training.       
4 Average of first three quarters of 2016. Data for total unemployment and youth unemployment rates are seasonally 
adjusted.       
Source: European Commission (EU Labour Force Survey).  

61 

Table II. Labour market and social indicators201120122013201420152016 4Employment rate(% of population aged 20-64)67.367.267.267.367.267.2Employment growth (% change from previous year)1.40.4-0.30.40.91.2Employment rate of women(% of female population aged 20-64)61.561.762.162.963.062.5Employment rate of men (% of male population aged 20-64)73.072.772.371.671.372.0Employment rate of older workers (% of population aged 55-64)38.739.541.742.744.045.1Part-time employment (% of total employment, aged 15-64)24.724.724.323.724.324.6Fixed-term employment (% of employees with a fixed term contract, aged 15-64)8.98.18.18.69.09.0Transitions from temporary to permanent employment32.543.238.233.435.2:Unemployment rate1 (% active population, age group 15-74)7.27.68.48.58.58.1Long-term unemployment rate2 (% of labour force)3.53.43.94.34.44.2Youth unemployment rate (% active population aged 15-24)18.719.823.723.222.120.6Youth NEET3 rate (% of population aged 15-24)11.812.312.712.012.2:Early leavers from education and training (% of pop. aged 18-24 with at most lower sec. educ. and not in further education or training)12.312.011.09.810.1:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)42.643.942.743.842.7:Formal childcare (30 hours or over; % of population aged less than 3 years)20.027.025.026.0:: 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.3: 

Labour market and social indicators (continued) 

1 People at risk of poverty or social exclusion : individuals who are at risk of poverty and/or suffering from severe material 
deprivation and/or living in households with zero or very low work intensity.       
2 At-risk-of-poverty rate : proportion of people with an equivalised disposable income below 60 % of the national equivalised 
median income.        
3 Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone.       
4 People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.       
5 For EE, CY, MT, SI and SK, thresholds in nominal values in euros; harmonised index of consumer prices = 100 in 2006 (2007 
survey refers to 2006 incomes) 
Source: For expenditure for social protection benefits ESSPROS; for social inclusion EU-SILC.  

62 

Expenditure on social protection benefits (% of GDP)201020112012201320142015Sickness/healthcare8,08,18,28,38,4:Disability2,12,12,22,42,4:Old age and survivors11,011,311,311,711,7:Family/children2,22,22,12,22,2:Unemployment3,73,63,43,43,4:Housing0,20,20,20,20,2:Social exclusion n.e.c.0,80,80,70,70,7:Total27,928,428,328,929,0:of which: means-tested benefits1,41,41,51,51,5:Social inclusion indicators201020112012201320142015People at risk of poverty or social exclusion1 (% of total population)20,821,021,620,821,221,1Children at risk of poverty or social exclusion  (% of people aged 0-17)23,223,322,821,923,223,3At-risk-of-poverty  rate2 (% of total population)14,615,315,315,115,514,9Severe material deprivation rate3  (% of total population)5,95,76,35,15,95,8Proportion of people living in low work intensity households4 (% of people aged 0-59)12,713,813,914,014,614,9In-work at-risk-of-poverty rate (% of persons employed)4,54,24,54,44,84,6Impact of social transfers (excluding pensions) on reducing poverty45,345,044,842,643,644,2Poverty thresholds, expressed in national currency at constant prices5109791102910815111641114011061Gross disposable income (households; growth %)0,72,01,90,91,01,0Inequality of income distribution (S80/S20 income quintile share ratio)3,93,94,03,83,83,8GINI coefficient before taxes and transfers48,149,049,348,749,5:GINI coefficient after taxes and transfers26,026,326,525,925,9: 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.4: 

Product market performance and policy indicators 

1 The methodologies, including the assumptions, for this indicator are shown in detail at: 
http://www.doingbusiness.org/methodology.        
2 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over 
the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received 
most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is 
still pending or if the outcome is not known.       
3 Percentage population aged 15-64 having completed tertiary education.       
4 Percentage population aged 20-24 having attained at least upper secondary education.       
5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail at: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
6 Aggregate OECD indicators of regulation in energy, transport and communications. 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans).  

63 

Performance indicators201020112012201320142015Labour productivity (real, per person employed, year-on-year % change)Labour productivity in industry6.86-0.32-0.062.566.005.07Labour productivity in construction0.47-1.691.480.250.024.08Labour productivity in market services1.740.22-1.31-0.220.920.37Unit labour costs (ULC) (whole economy, year-on-year % change)ULC in industry-5.562.823.860.28-3.59-5.24ULC in construction-0.141.361.400.87-0.49-4.90ULC in market services-0.621.463.712.030.060.08Business environment201020112012201320142015Time needed to enforce contracts1 (days)505.0505.0505.0505.0505.0505.0Time needed to start a business1 (days)4.04.04.04.04.04.0Outcome of applications by SMEs for bank loans20.450.480.680.540.360.46Research and innovation201020112012201320142015R&D intensity2.052.162.362.442.462.45Total public expenditure on education as % of GDP, for all levels of education combined6.586.556.596.67nanaNumber of science & technology people employed as % of total employment505050505251Population having completed tertiary education3313031323333Young people with upper secondary education4838283838484Trade balance of high technology products as % of GDP0.370.220.140.330.520.50Product and service markets and competition200320082013OECD product market regulation (PMR)5, overallna1.521.39OECD PMR5, retail4.684.564.06OECD PMR5, professional services2.522.472.47OECD PMR5, network industries62.842.081.84 
 
 
 
 
 
 
 
 
 
 
 
C. Standard Tables 

Table C.5:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2005 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP   
Weighting of energy in HICP: the proportion of "energy" items in the consumption basket used for the construction of the HICP 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change) 
Real unit energy cost: real energy costs as a percentage of total value added for the economy  
Environmental taxes over labour taxes and GDP: from European Commission's database, ‘Taxation trends in the European 
Union’ 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2005 EUR) 
Real unit energy costs for manufacturing industry excluding refining : real costs as a percentage of value added for  
manufacturing sectors 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures 
excl. VAT.   
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP Proportion of 
greenhouse gas (GHG) emissions covered by EU Emissions Trading System (ETS) (excluding aviation): based on greenhouse 
gas emissions (excl. land use, land use change and forestry) as reported by Member States to the European Environment 
Agency  
Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value 
added (in 2005 EUR)   
Transport carbon intensity: greenhouse gas emissions in transport activity divided by gross value added of the transport sector 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels 
Aggregated supplier concentration index:  covers oil, gas and coal. Smaller values indicate larger diversification and hence 
lower risk.   
Diversification of the energy mix: Herfindahl index over natural gas, total petrol products, nuclear heat, renewable energies 
and solid fuels 
* European Commission and European Environment Agency 
Source: European Commission (Eurostat) unless indicated otherwise  

64 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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