Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Belgium and delivering a Council opinion on the 2017 Stability Programme of Belgium
Date: 2017-05-22
Institutions: European Commission, Secretariat-General
Subjects: Belgium, budget deficit, economic policy, economic reform, education policy, labour market, retail trade, stability programme, tax system, transport infrastructure

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   EUROPEAN COMMISSION  Brussels, 22.5.2017  COM(2017) 501 final   Recommendation for a COUNCIL RECOMMENDATION on the 2017 National Reform Programme of Belgium  and delivering a Council opinion on the 2017 Stability Programme of Belgium  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2017 National Reform Programme of Belgium 

and delivering a Council opinion on the 2017 Stability Programme of Belgium 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies,1 and in particular Article 5(2) thereof, 
Having regard to the recommendation of the European Commission,2 
Having regard to the resolutions of the European Parliament,3 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

On  16 November  2016,  the  Commission  adopted  the  Annual  Growth  Survey,4 
marking  the  start  of  the  2017  European  Semester  of  economic  policy  coordination. 
The priorities of the Annual Growth Survey were endorsed by the European Council 
on  9-10 March  2017.  On  16 November  2016,  on  the  basis  of  Regulation  (EU) 
No 1176/2011,  the  Commission  adopted  the  Alert  Mechanism  Report,5  in  which  it 
did not identify Belgium as one of the Member States for which an in-depth review 
would  be  carried  out.  On  the  same  day,  the  Commission  also  adopted  a 
recommendation for a Council Recommendation on the economic policy of the euro 
area.  That  Recommendation  was  endorsed  by  the  European  Council  on  9-
10 March 2017 and adopted by the Council on 21 March 2017.6  

(2) 

As a Member State whose currency is the euro and in view of the close interlinkages 
between the economies in the economic and monetary union, Belgium should ensure 

1 
2 
3 
4 
5 
6 

OJ L 209, 2.8.1997, p. 1. 
COM(2017) 501 final. 
P8_ TA(2017)0038, P8_ TA(2017)0039, and P8_ TA(2017)0040. 
COM(2016) 725 final. 
COM(2016) 728 final. 
OJ C92/01, 24.3.2017, p. 1. 

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the full and timely implementation of the Recommendation of the euro area which is 
reflected in recommendations 1 to 2 below. 
The  2017  country  report  for  Belgium7  was  published  on  22 February  2017.  It 
assessed  Belgium’s  progress  in  addressing  the  country-specific  recommendations 
adopted by the Council on 12 July 2016, the follow-up given to the recommendations 
adopted in previous years and Belgium’s progress towards its national Europe 2020 
targets.  

On 28 April 2017, Belgium submitted its 2017 National Reform Programme and its 
2017 Stability  Programme.  To  take  account  of  their  interlinkages,  the  two 
programmes have been assessed at the same time. 

The relevant country-specific recommendations have been taken into account in the 
Member States’ programmes for the European Structural and Investment Funds (ESI 
Funds) covering the 2014-2020 period. As foreseen in the legislation governing the 
ESI Funds,8 where it is necessary to support the implementation of relevant country-
specific  recommendations,  the  Commission  may  request  a  Member  State  to  review 
and  amend  its  relevant  ESI  Funds  programmes.  The  Commission  has  provided 
further guidelines on the application of those rules.9  

Belgium  is  currently  in  the  preventive  arm  of  the  Stability  and  Growth  Pact  and 
subject  to  the  debt  rule.  In  its  2017  Stability  Programme,  the  government  plans  a 
gradual improvement of the headline balance from a deficit of 2.6% of GDP in 2016 
to -0.1% of GDP in 2020. The medium-term budgetary objective, set at a balanced 
budgetary position in structural terms, is  planned  to  be reached  by 2019. However, 
the  recalculated10  structural  balance  still  points  to  a  deficit  of  0.3%  in  2019.  After 
having  peaked  at  almost  107%  of  GDP  in  2014 and  decreasing  to  around  106%  of 
GDP  in  2015  and  2016,  the  general  government  debt-to-GDP  ratio  is  expected  to 
decline to 99% by 2020 according to the Stability Programme. The macroeconomic 
scenario underpinning these budgetary projections is plausible. At the same time, the 
measures needed to support the planned deficit targets from 2018 onwards have not 
been  specified,  which  contributes  to  the  projected  deterioration  of  the  structural 
balance in 2018 at unchanged policy according to the Commission forecast. 

On 22 May 2017, the Commission issued a report under Article 126(3) of the TFEU, 
as  Belgium  did  not  make  sufficient  progress  towards  compliance  with  the  debt 
reduction benchmark in 2016. The report concluded, following an assessment of all 
the  relevant  factors,  that  the  debt  criterion  should  be  considered  as  currently 
complied with. At the same time, additional fiscal measures are to be taken in 2017 
to ensure broad compliance with the adjustment path towards the MTO in 2016 and 
2017 together. 

SWD(2017) 67 final. 
Article  23  of  Regulation  (EU)  No  1303/2013  of  the  European  Parliament  and  of  the  Council  of  17 
December  2013  laying  down  common  provisions  on  the  European  Regional  Development  Fund,  the 
European Social Fund, the Cohesion Fund, the European Agricultural Fund for Rural Development and 
the  European  Maritime  and  Fisheries  Fund  and  laying  down  general  provisions  on  the  European 
Regional Development Fund, the European Social Fund, the Cohesion Fund and the European Maritime 
and  Fisheries  Fund  and  repealing  Council  Regulation  (EC)  No  1083/2006,  OJ  L  347,  20.12.2013,  p. 
320. 
COM(2014) 494 final. 
Cyclically-adjusted  balance  net  of  one-off  and  temporary  measures,  recalculated  by  the  Commission 
using the commonly agreed methodology. 

(3) 

(4) 

(5) 

(6) 

(7) 

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10 

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(8) 

(9) 

(10) 

The 2017 Stability Programme indicates that the budgetary impact of the exceptional 
inflow of refugees and security-related measures in 2016 and 2017 is significant, and 
provides  adequate  evidence  of  the  scope  and  nature  of  these  additional  budgetary 
costs.  According  to  the  Commission,  the  eligible  additional  expenditure  in  2016 
amounted to 0.08% of GDP for the exceptional inflow of refugees and to 0.05% of 
GDP for security-related measures. In 2017, the additional impact compared to 2016 
of  the  security-related  measures  is  currently  estimated  at  0.01%  of  GDP.  The 
provisions  set  out  in  Article  5(1)  and  Article  6(3)  of  Regulation  (EC)  No  1466/97 
cater  for  this  additional  expenditure,  in  that  the  inflow  of  refugees  as  well  as  the 
severity  of  the  terrorist  threat  are  unusual  events,  their  impact  on  Belgium's  public 
finances is significant and sustainability would not be compromised by allowing for 
a temporary deviation from the adjustment path towards the medium-term budgetary 
objective.  Therefore,  the  required  adjustment  towards  the  medium-term  budgetary 
objective  for  2016  has been  reduced  to  take into  account  additional refugee-related 
and  security-related  costs.  Regarding  2017,  a  final  assessment,  including  on  the 
eligible  amounts,  will  be  made  in  spring  2018  on  the  basis  of  observed  data  as 
provided by the Belgian authorities. 

On  12  July  2016,  the  Council  recommended  Belgium  to  achieve  an  annual  fiscal 
adjustment of at least 0.6% of GDP towards the medium-term budgetary objective in 
2017.  Based  on  the  Commission  2017  spring  forecast,  there  is  a  risk  of  some 
deviation from that requirement in 2017. However, there is still a risk of a significant 
deviation from the recommended adjustment path towards the MTO over 2016 and 
2017 taken together. This conclusion would not change in case the budgetary impact 
of the exceptional inflow of refugees and of security measures were deducted from 
the requirement.  

In  2018,  in  light  of  its  fiscal  situation  and  notably  of  its  debt  level,  Belgium  is 
expected to further adjust towards its medium-term budgetary objective of a balanced 
budgetary  position  in  structural  terms.  According  to  the  commonly  agreed 
adjustment  matrix  under  the  Stability  and  Growth  Pact,  that  adjustment  translates 
into a requirement of a nominal growth rate of net primary government expenditure11  
which  does  not  exceed  1.6%  in  2018.  It  would  correspond  to  an  annual  structural 
adjustment of at least 0.6% % of GDP. Under unchanged policies, there is a risk of a 
significant  deviation  from  that  requirement  in  2018.  Belgium  is  prima  facie  not 
forecast to comply with the debt rule in 2017 and 2018. Overall, the Council is of the 
opinion  that  further  measures  will  be  needed  as  of  2017  to  comply  with  the 
provisions  of  the  Stability  and  Growth  Pact.  However,  as  foreseen  in  Regulation 
(EC) No 1466/97, the assessment of the budgetary plans and outcomes should take 
account of the Member State’s budgetary balance in light of the cyclical conditions. 
As recalled in the Commission Communication accompanying these country-specific 
recommendations, the assessment of the 2018 Draft Budgetary Plan and subsequent 
assessment  of  2018  budget  outcomes  will  need  to  take  due  account  of  the  goal  to 
achieve a fiscal stance that contributes to both strengthening  the ongoing recovery 
and  ensuring  the  sustainability  of  Belgium’s  public  finances.  In  that  context,  the 

11 

Net  government  expenditure  is  comprised  of  total  government  expenditure  excluding  interest 
expenditure,  expenditure  on  Union  programmes  fully  matched  by  Union  funds  revenue  and  non-
discretionary  changes  in  unemployment  benefit  expenditure.  Nationally  financed  gross  fixed  capital 
formation  is  smoothed  over  a  4-year  period.  Discretionary  revenue  measures  or  revenue  increases 
mandated by law are factored in. One-off measures on both the revenue and expenditure sides are netted 
out. 

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(11) 

(12) 

(13) 

(14) 

Commission intends to make use of the applicable margin of appreciation in light of 
the cyclical situation of Belgium. 

Effective  budget  coordination  is  essential  in  a  federal  Member  State  like  Belgium, 
where  a  large  part  of  the  spending  power  has  been  devolved  to  sub-national 
governments.  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,  with  the  aim  to  define  overall  and 
individual multiannual fiscal paths, to be monitored by the High Council of Finance. 
However,  this  process  has  not  succeeded  in  reaching  a  formal  agreement  on  fiscal 
trajectories, nor has it established sufficient safeguards regarding the monitoring role 
of  the  High  Council  of  Finance.  This  lack  of  coordination  on  the  sharing  of  effort 
undermines the viability of the country’s overall trajectory towards its medium-term 
objective as laid down in the Stability Programme. 

Despite  its  potential  to  stimulate  growth  in  the  long  run,  public  investment  is  very 
low by European standards, particularly in relation to total public spending. Not only 
is  the  public  capital  stock  low,  the  quality  of  public  infrastructure  has  also  been 
eroded.  Given  the  very  tight  budgetary  constraints  for  all  levels  of  government, 
preserving  enough  room  for  investment  hinges  on  restructuring  the  composition  of 
overall  public  spending  by  improving  the efficiency  of  public  services  and  policies 
and curbing the rapid increase for certain expenditure items. 

to 

reduce  non-wage 

Belgium  has  made  substantial  progress  in  reforming  its  wage-setting  system.  The 
revision  of  the  1996  law  regulating  wage  bargaining  aims  at  safeguarding  the  cost 
competitiveness gains realised as a result of the recent wage moderation efforts. The 
more  conservative  baseline  projections  and  the  built-in  prior  adjustments  in  the 
calculation  of  the  wage  norm  mean  the  reformed  framework  goes  a  long  way  in 
improving Belgium’s cost competitiveness relative to key trading partners within the 
euro  area.  In  addition,  the  reform  provides  more  guarantees  that  government 
measures 
labour  costs  will  effectively  benefit  cost 
competitiveness,  and  expands  the  role  of  the  government  in  preventing  detrimental 
cost  competitiveness  trends  as  a  result  of  excessive  inflation.  The  collective 
bargaining framework provides for close monitoring of wage and productivity trends 
and  other  cost  and  non-cost  competitiveness  determinants  by  the  social  partner 
organisations represented in the Central Council for the Economy. As the practice of 
linking wage developments to inflation is still widespread in many sectors, and in the 
context of the widening inflation gap between Belgium and its neighbours, changes 
in  unit  labour  costs  will  continue  to  be  closely  monitored  under  the  European 
Semester. 

Some  progress  has  been  made  on  the  functioning  of  the  labour  market.  A  higher 
retirement age and further limits on pre-retirement encourage older people to stay in 
or  return  to  work.  Gradual  decreases  in  the  tax  wedge  have  helped  to  boost 
employment  rates.  Job  creation  has  been  robust,  fuelled  by  economic  growth  and 
improved  cost  competitiveness.  This  also  reflects  labour  tax  cuts  and  wage 
moderation  that  have  improved  the  labour  cost  competitiveness  of  Belgian 
companies.  Nevertheless,  a  number  of  structural  shortcomings  remain.  Transition 
rates  from  unemployment  or  inactivity  to  employment  are  low,  and  the  overall 
employment rate is still weighed down by the poor performance of specific groups. 
These  include  the  low-skilled,  the  young,  older  workers  and  people  with  a  migrant 
background such as non-EU born workers but also second generation migrants. The 

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employment  outcomes  for  people  with  a  migrant  background,  even  adjusting  for 
other  individual  characteristics,  are  among  the  worst  in  the  EU.  In  particular,  the 
employment gap for the non-EU born is the highest in the EU: their employment rate 
for  the  age  group  20-64  was  49.1 %  in  2016,  compared  to  70.2 %  for  native-born 
people, and was even lower for non-EU born women (39.1 %). In 2015, the risk of 
poverty  and  social  exclusion  was  50.7 %  for  non-EU  born  residents,  compared  to 
17 % for the native-born. These sizeable employment differentials between specific 
population  groups  continue  to  result  in  a  chronic  under-utilisation  of  labour. 
Although  ongoing  regional  reforms  of  employment  incentive  schemes  aim  to 
rationalise  and  tailor  the  system,  the  cost-effectiveness  of  the  policy  choices  made 
should  be  monitored  on  a  regular  basis.  Some  design  features  of  the  target  group 
policies  may  have  windfall  and  displacement  effects.  Coordination  and 
communication  between  and  within  the  different  policy  levels  is  also  key  for  the 
effectiveness  of  targeted  policies.  Taxes,  including  social  contributions  on  lower 
wages  and  the  withdrawal  of  social  benefits  upon  entering  the  labour  market  or 
increasing hours worked, may create inactivity and low wage traps.  

Some progress has been made in educational and training reforms aiming to improve 
equity,  key  competences  and  the  quality  of  education.  However,  despite  good 
average performance by international comparison, the share of top performers among 
the 15-year-old students declined while the percentage of low achievers increased. In 
addition, educational inequalities linked to socioeconomic background are above the 
EU  and  OECD  averages.  The  gap  in  performance  based  on  migrant  background  is 
also large and the second generation performs only slightly better than the first, even 
taking  socioeconomic  background  into  account.  Addressing  educational  inequality 
will thus require a broad policy response going beyond the educational system. The 
strong  growth  of  the  school  population,  in  particular  among  pupils  with  a  migrant 
background  (their  proportion  rose  from  15.1 %  in  2012  to  17.7 %  in  2015),  will 
exacerbate  the  equity  challenge.  Moreover,  Belgium  faces  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  of  starting  teachers;  and  the 
unavailability of a proportion of teachers for teaching. Also, at 3 years currently, the 
course length for initial teacher training is relatively short in Belgium. Education and 
training reforms are key to improving the labour market participation of low-skilled 
young people and to supporting the transition to a knowledge-intensive economy. 

The  non-cost  dimension  of  competitiveness  still  requires  improvements.  Higher 
productivity  gains  and  broader  investment  in  knowledge-based  capital,  notably  for 
adopting  digital  technologies,  are  essential  in  this  respect.  Although  the  public 
research system is of high quality, stronger performance in innovation would require 
more  knowledge  diffusion  across  less  productive  sectors.  All  federated  entities 
acknowledge  this  need,  and  in  recent  years  have  adopted  different  strategies  and 
measures to promote innovation. However, to foster such developments, more could 
be done to improve the framework conditions for innovation. Moreover, there seems 
to  be  scope  for  improving  the  efficiency  and  effectiveness  of  public  support  for 
research and innovation in Belgium, in particular in evaluating possible crowding-out 
effects and further simplifying the overall system. 

(15) 

(16) 

(17) 

Limited progress has been made to remove operational and establishment restrictions 
on  retail.  Following 
transferred  competences  on  retail 
establishment  to  the regions,  new  regional laws have  been  put  in  place  simplifying 
the administrative procedure for authorisation. However, there is a wide margin for 

the  reform,  which 

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(18) 

(19) 

(20) 

interpretation  of  certain  provisions,  which  risks  leading  to  unjustified  market  entry 
barriers. Consumer prices continue to be higher than in neighbouring Member States, 
beyond the level which could be explained by higher labour costs. A comprehensive 
strategy  to  tackle  these  issues  would  be  necessary  to  ensure  that  consumers  can 
benefit from a competitive market and lower prices. 

High  regulation  in  the  network  industries  and  some  professional  services  is 
restricting competition in Belgium, in particular for real estate agents, architects and 
accountants.  Barriers  include  shareholding  and  company  form  restrictions  for 
architects, in addition to the other requirements; the incompatibility rules prohibiting 
the simultaneous exercise of any other economic activity for all types of accountancy 
professions;  limitations  on  real  estate  agents’  access  to  the  profession;  and 
shareholding  and  voting  rights  restrictions.  Reducing  such  barriers  could  generate 
more intensive competition, resulting in more firms entering the market and benefits 
for  consumers  in  terms  of  lower  prices.  The  European  Commission  presented  a 
package  of  measures  to  tackle  barriers  in  services  markets  in  January  2017.12  This 
package  includes  various  reform  recommendations  addressed  to  Belgium  to  tackle 
these challenges.  

The transport network represents one of the most pressing investment gaps. There is 
a growing problem of peak-hour traffic congestion, which undermines the country’s 
attractiveness for foreign investors and has major economic and environmental costs. 
Belgium is also expected to fall short of its 2020 greenhouse gas emission reduction 
target  and  suffers  from  serious  air  pollution  problems.  The  most  urgent  challenges 
are  upgrading  basic  rail  and  road  transport  infrastructure  and  eliminating  missing 
links  between  the  main  economic  hubs.  At  the  same  time,  it  is  important  to  tackle 
peak-hour  congestion  by  improving  public  transport  services,  optimising  traffic 
management and eliminating market distortions and adverse tax incentives, such as 
favourable treatment for company cars. Another challenge relates to the adequacy of 
domestic power generation and the security of supply in general. Unplanned outages 
of  several  nuclear  installations  had  raised  concerns  about  the  way  to  balance 
electricity demand and supply, while the repeatedly revised timetable for phasing out 
the  nuclear  park  continues  to  create  a  climate  that  is  not  conducive  to  taking  long-
term  investment  decisions.  Although  short-term  supply  risks  have  been  abated, 
notably  by  the  increase  of  the  strategic  reserve,  and  some  progress  was  made  in 
increasing the interconnections, longer-term investment needs are still considerable. 
In addition to further increases in interconnections, smart grids are needed to develop 
demand-side  management.  Given  the  considerable  lead  time  for  projects  in  the 
energy sector and the high need for replacement capacity over the next decade, swift 
action  will be  required,  in  particular  in  the  form  of  a  suitable  legal  framework  that 
also  promotes  the  development  of  flexible  capacities  (i.e.  generation,  storage  and 
demand-side management). 

Belgium  has  made  some  progress  in  reforming  the  tax  system,  in  particular  by 
shifting  taxes  from  labour  to  other  tax  bases,  which  will  gradually  reduce  the  tax 
wedge on labour. Taxes on labour, including social contributions, are being reduced 
in  several steps between 2016 and 2020. The effects of  the ongoing  tax reform are 
beginning  to  materialise.  Nevertheless,  the  tax  system  remains  complex,  with  tax 
bases  eroded  by  specific  exemptions,  deductions  and  reduced  rates.  Some  of  these 
involve revenue losses, economic distortions and a heavy administrative burden. The 

12 

COM(2016)  820  final,  COM(2016)  821  final,  COM(2016)  822  final,  COM(2016)  823  final, 
COM(2016) 824 final. 

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tax shift does not seem to be neutral from a budgetary point of view since labour tax 
cuts  have  only  been  partially  compensated  by  increases  in  other  taxes,  mainly 
consumption taxes. There is still considerable scope for improving the design of the 
tax  system  by  further  broadening  tax  bases,  allowing  for  both  lower  statutory  rates 
and  fewer  distortions.  There  is  also  considerable  potential  for  a  ‘green’  tax  shift 
stemming  from,  among  other  things,  the  favourable  tax  treatment  of  company  cars 
and  fuel  cards  which  impedes  further  progress  in  tackling  congestion,  air  pollution 
and  greenhouse  gas  emissions.  The  government  envisages  changes  to  the  company 
car system, but the environmental benefit of this reform is likely to be limited. 

In  the  context  of  the  European  Semester,  the  Commission  has  carried  out  a 
comprehensive analysis of Belgium’s economic policy and published it in the 2017 
country report. It has also assessed the Stability Programme and the National Reform 
Programme  and the follow-up given to  the recommendations  addressed to  Belgium 
in  previous years.  It has taken into account  not only  their relevance for sustainable 
fiscal and socioeconomic policy in Belgium, but also their compliance with EU rules 
and guidance, given the need to strengthen the EU’s overall economic governance by 
providing EU-level input into future national decisions.  

(21) 

(22) 

In  the  light  of  this  assessment,  the  Council  has  examined  the  Stability  Programme 
and its opinion13 is reflected in particular in recommendation 1 below, 

HEREBY RECOMMENDS that Belgium take action in 2017 and 2018 to: 

1. 

2. 

3. 

Pursue  its  fiscal  policy  in  line  with  the  requirements  of  the  preventive  arm  of  the 
Stability and Growth Pact, which translates into a substantial fiscal effort for 2018. 
When taking policy action, consideration should be given to achieving a fiscal stance 
that  contributes  to  both  strengthening  the  ongoing  recovery  and  ensuring  the 
sustainability of Belgium’s public finances. Agree on an enforceable distribution of 
fiscal  targets  among  government  levels  and  ensure  independent  fiscal  monitoring. 
Remove distortive tax expenditures. Improve the composition of public spending in 
order 
transport 
infrastructure.  

to  create  room  for 

including  on 

infrastructure 

investment, 

Ensure  that  the  most  disadvantaged  groups,  including  people  with  migrant 
background,  have  equal  access  to  quality  education,  vocational  training,  and  the 
labour market. 

Foster  investment  in  knowledge-based  capital,  notably  with  measures  to  increase 
digital  technologies  adoption,  and  innovation  diffusion.  Increase  competition  in 
professional services markets and retail, and enhance market mechanisms in network 
industries. 

Done at Brussels, 

For the Council 
The President 

13 

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

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