REPORT FROM THE COMMISSION Belgium Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union
Date: 2019-06-05
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Belgium, budget deficit, budget policy, budgetary control, budgetary expenditure, gross domestic product, macroeconomics, public debt, stability pact, structural adjustment

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 5.6.2019  COM(2019) 531 final  REPORT FROM THE COMMISSION Belgium  Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of the European Union  
 
 
REPORT FROM THE COMMISSION 

Belgium 

Report prepared in accordance with Article 126(3) of the Treaty on the Functioning of 
the European Union 

1. 

INTRODUCTION  

Article  126  of  the  Treaty  on  the  Functioning  of  the  European  Union  (TFEU  or  the  Treaty) 
lays  down  the  excessive  deficit  procedure  (EDP).  That  procedure  is  further  set  out  in 
Regulation  (EC)  No  1467/97  on  speeding  up  and  clarifying  the  implementation  of  the 
excessive deficit procedure1, which is part of the Stability and Growth Pact (SGP). Specific 
provisions  for  euro-area  Member  States  under  EDP  are  laid  down  in  Regulation  (EU)  No 
473/20132. 

According  to  Article  126(2)  TFEU,  the  Commission  has  to  monitor  compliance  with 
budgetary discipline on the basis of two criteria, namely: (a) whether the ratio of the planned 
or actual government deficit to gross domestic product (GDP) exceeds the reference value of 
3 %;  and  (b) whether  the  ratio  of  government  debt  to  GDP  exceeds  the  reference  value  of 
60 %,  unless  it  is  sufficiently  diminishing  and  approaching  the  reference  value  at  a 
satisfactory pace. 

Article 126(3) TFEU provides that, if a Member State does not fulfil the requirements under 
one or both of those criteria, the Commission has to prepare a report. That report must also 
“take  into  account  whether  the  government  deficit  exceeds  government  investment 
expenditure  and  take  into  account  all  other  relevant  factors,  including  the  medium-term 
economic and budgetary position of the Member State”. 

This report, which represents the first step in the EDP, analyses Belgium's compliance with 
the deficit and debt criterion of the Treaty, with due regard to the economic background and 
other relevant factors.  

Data  notified  by  the  Belgian  authorities  on  29  March  20193  and  subsequently  validated  by 
Eurostat4 show that the general government deficit in Belgium reached 0.7% of GDP in 2018, 
while debt stood at 102.0% of GDP, above the 60% of GDP reference value. For 2019, the 
Draft Budgetary Plan (DBP) planned a deficit of 1.0% of GDP and a debt ratio of 100.2% of 

1  OJ L 209, 2.8.1997, p. 6. The report also takes into account the “Specifications on the implementation of the 
Stability  and  Growth  Pact  and  guidelines  on  the  format  and  content  of  stability  and  convergence 
programmes”, adopted by the Economic and Financial Committee on 5 July 2016, available at:  
http://ec.europa.eu/economy_finance/economic_governance/sgp/legal_texts/index_en.htm . 

2  Regulation  (EU)  No  473/2013  of  the  European  Parliament  and  of  the  Council  on  common  provisions  for 
monitoring  and  assessing  draft  budgetary  plans  and  ensuring  the  correction  of  excessive  deficit  of  the 
Member States in the euro area (OJ L 140, 27.5.2013, p. 11). 

3  According to Regulation (EC) No 479/2009, Member States have to report to the Commission, twice a year, 
their planned and actual government deficit and debt levels. The most recent notification of Belgium can be 
found 
at  http://ec.europa.eu/eurostat/web/government-finance-statistics/excessive-deficit-procedure/edp-
notification-tables. 

4  Eurostat  news  release  No  67/2019,  https://ec.europa.eu/eurostat/documents/2995521/9731224/2-23042019-

AP-EN/bb78015c-c547-4b7d-b2f7-4fffe7bcdfad 

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GDP;  while Belgium’s 2019 Stability Programme (SP), received by the  Commission  on 26 
April 2019, plans a deficit of 0.8% of GDP and a debt ratio of 100.6% of GDP. 

The notified data show that Belgium did not comply with the debt reduction benchmark5 in 
2018  (see  Table  1),  as  the  gap  to  the  benchmark  is  1.1  percentage  points  (pps.)  of  GDP. 
Moreover, in 2019 and 2020, Belgium is also forecast not to comply with the debt reduction 
benchmark,  as  its  debt-to-GDP  ratio  is  expected  to  remain  1.7  pps.  of  GDP  above  the 
backward-looking debt reduction benchmark in 2019 and 1.9 pps. of GDP above the forward-
looking debt reduction bechmark in 2020, according to the Commission 2019 spring forecast. 
On the basis of the scenario included in the 2019 Stability Programme, compliance with the 
debt  criterion  is  planned  as  of  2019,  with  an  overachievement  of  the  forward-looking  debt 
reduction benchmark by 0.2 pps. in 2019 and 0.6 pps. in 2020. 

Belgium's non-compliance with the debt reduction benchmark in 2018 provides evidence of a 
prima facie existence of an excessive deficit for the purposes of the Stability and Growth Pact 
before, however, considering all factors as set out below.  

The Commission has therefore prepared this report to comprehensively assess the departure 
from  the  debt  reduction  benchmark  and  excess  over  the  Treaty  reference  value  in  order  to 
examine whether the launch of an excessive deficit procedure is warranted after all relevant 
factors have been considered. Section 2 of the report examines the deficit criterion. Section 3 
examines the debt criterion. Section 4 deals with public investment and other relevant factors, 
including  the  assessment  of  compliance  with  the  required  adjustment  path  towards  the 
Medium Term Objective (MTO). The report takes into account the Commission 2019 spring 
forecast,  released  on  7  May  2019,  and  the  Commission’s  evaluation  of  subsequent 
macroeconomic and fiscal developments. 

Table 1. General government deficit and debt (% of GDP) 

2. 

DEFICIT CRITERION 

Belgium’s general government deficit narrowed from 0.8% of GDP in 2017 to 0.7% in 2018. 
According to the Commission 2019 spring forecast, the deficit will widen to 1.3% in 2019, 

5    Compliance with the debt benchmark is assessed on the basis of three different configurations: the backward-

looking, the forward-looking and the debt reduction benchmark adjusted for the impact of the cycle. 

2 

COMSPCOMSPDeficit criterionGeneral government balance-2.4-2.4-0.8-0.7-1.3-0.8-1.5-0.2General government gross debt106.4106.1103.4102.0101.3100.6100.798.5Gap to the debt reduction benchmarkn.r.n.r.1.31.11.7-0.21.9-0.6Change in structural balance0.20.10.80.00.00.5-0.30.6Required MLSA1.42.2n.r.n.r.n.r.n.r.n.r.n.r.201520162017201820192020Debt criterionSource: 2019 Stability Programme (SP) and Commission 2019 spring forecast (COM) 
 
  
                                                           
still  respecting  the  3%  of  GDP  Treaty  reference  value.  In  2020,  the  Commission  forecast 
projects the deficit to rise further to 1.5% of GDP under a no-policy-change assumption. 

The  multiannual  trajectory  included  in  the  2019  Stability  Programme  puts  forward  a 
stabilisation of the deficit at 0.8% in 2019 and a reduction to 0.2% in 2020. On 18 December 
2018 the Belgian Prime Minister tendered his resignation. Since then, a caretaker government 
has  adopted  budgets  prepared  under  a  no-policy  change  assumption.  As  a  result,  the 
government did not enjoy full budgetary powers pursuant to the national constitutional rules 
and/or  conventions  at  the  time  of  submitting  the  Stability  Programme.  In  its  absence,  the 
Stability  Programme  presents  a  budgetary  trajectory  that  is  not  backed  by  adopted  or 
sufficiently detailed measures to achieve the MTO of a balanced budget in structural terms in 
2021. For 2019 the difference between the Commission forecast and the Stability Programme 
stems  from  a  number  of  measures  that  have  not  been  included  in  the  Commission  forecast 
because  they  are  not  adopted  or  sufficiently  specified  or  because  they  are  considered 
temporary  (ending  in  2018  and  no  longer  present  in  2019)6.  For  2020  the  difference  relies 
mostly  on  a  reduction  in  expenditure  (-0.6  pps.  of  GDP),  and  an  increase  in  revenue  (+0.2 
pps. of GDP) that are not supported by specified additional measures. 

Belgium thus  complies with  the deficit criterion as defined in  the Treaty and in  Regulation 
(EC) No 1467/97. 

3. 

DEBT CRITERION  

Government debt peaked at 107.5% of GDP in 2014 and fell to 103.4% in 2017. In 2018 debt 
fell  further  to  102.0%  of  GDP  mostly  due  to  the  primary  surplus  and  a  decreasing 
contribution  from  of  the  negative  snowball  effect  (lower  interest  payments  combined  with 
higher nominal  GDP  growth), only partly offset  by an upward stock-flow adjustment. Debt 
dynamics are discussed in more detail in Section 4.2. 

The  Commission  forecast  expects  a  mild  debt  reduction  in  the  coming  years,  to  101.3%  of 
GDP  in  2019  and  100.7%  in  2020.  The  annual  downward  impact  of  1.3  pp.  of  GDP  on 
average  rendered  by  primary  surpluses  and  the  snowball  effect  is  projected  to  be  partially 
offset by upward stock-flow adjustments in 2019-2020. Those projections do not account for 
the impact of potential financial sector asset sales. 

According to Belgium's 2019 Stability Programme the debt ratio would decline to 100.6% of 
GDP at the end of 2019 and to 98.5% of GDP in 2020. The difference from the Commission's 
projection  at  unchanged  policy  mainly  stems  from  a  lower  planned  headline  deficit  in  the 
Stability  Programme  with  broadly  similar  nominal  growth  assumptions,  and  slightly  lower 
stock-flow adjustments. 

Following  the  abrogation  of  the  excessive  deficit  procedure  in  June  2014,  Belgium  was 
subject to a three-year transition period to comply with the debt reduction benchmark. That 
transition period started in 2014 and ended in 2016. Since 2017, after the end of the transition 
period, the standard debt reduction benchmark is applicable. 

The notified data show that Belgium did not  comply with  the debt  reduction benchmark in 
2018 (see Table 1), as the gap to the benchmark is 1.1 % of GDP. Belgium is forecast not to 
comply  with  the  debt  reduction  benchmark  in  2019  and  2020  as  its  debt-to-GDP  ratio  is 

6 See the Assessment of the 2019 Stability Programme for Belgium. 

3 

 
 
                                                           
expected to remain 1.7% and 1.9% of GDP above the debt reduction benchmark in 2019 and 
2020, according to the Commission 2019 spring forecast.  

On the basis of the scenario included in the 2019 Stability Programme, compliance with the 
debt criterion would be ensured as of 2019 as Belgium would over-achieve the debt reduction 
benchmark  (in  its  forward-looking  configuration)  by  0.7%  of  GDP  in  2019  and  strictly 
comply by 0.0% in 2020. The 2018 Stability Programme planned compliance with the debt 
criterion as of 2018. The difference with the Commission forecast is due to a deficit reduction 
that is 0.5% higher in 2019 and 1.3%. higher in 2020 given that the Commission forecast is 
based on a no-policy change assumption, whereas the Stability Programme reflects a planned 
effort  to  achieve  Belgium’s  MTO  (a  structural  balance  of  0.0%  of  GDP)  in  2021  which is, 
however, not underpinned by sufficiently detailed measures. Part of the difference also stems 
from  a  higher  expected  stock  flow  adjustment  in  2019,  not  counter-balanced  by  the  lower 
adjustment in 2020. 

The  analysis  thus  suggests  that  prima  facie  the  debt  criterion  for  the  purpose  of  the  Treaty 
and  Regulation  (EC)  No  1467/1997  is  not  fulfilled  based  on  the  2018  outturn  data  and  the 
Commission 2019 spring forecast as well as the 2019 Stability Programme before, however, 
consideration is given to all relevant factors set out below. 

Table 2: Debt dynamics 

4. 

RELEVANT FACTORS 

Article  126(3)  TFEU  provides  that  the  Commission  report  “shall  also  take  into  account 
whether  the  government  deficit  exceeds  government  investment  expenditure  and  take  into 
account  all  other  relevant  factors,  including  the  medium-term  economic  and  budgetary 
position  of  the  Member  State”.  Those  factors  are  further  clarified  in  Article  2(3)  of 
Regulation  (EC)  No  1467/97,  which  also  provides  that  “any  other  factors  which,  in  the 

4 

2015201620172018COMCOMCOMCOMCOMSPCOMSPGovernment gross debt ratio a106.4106.1103.4102.0101.3100.6100.798.5Change in debt ratio b (1 = 2+3+4)-1.2-0.3-2.7-1.4-0.7-1.4-0.5-2.1Contributions:• Primary balance (2)-0.6-0.4-1.6-1.6-0.8-1.3-0.5-1.8• 'Snowball' effect (3)0.2-0.6-1.0-0.4-0.6-0.9-0.7-0.9of which:     Interest expenditure3.02.82.52.32.12.12.01.9Real GDP growth-1.7-1.5-1.7-1.4-1.2-1.3-1.2-1.4Inflation (GDP deflator)-1.0-1.8-1.7-1.2-1.5-1.8-1.6-1.5• Stock-flow adjustment (4)-0.70.70.00.50.70.90.70.6Notes:20202019where t is a time subscript; D, PD, Y and SF are the stock of government debt, the primary deficit, nominal GDP and the stock-flow adjustment respectively, and i and y represent the average cost of debt and nominal GDP growth. The term in parentheses represents the “snow-ball” effect, measuring the combined effect of interest expenditure and economic growth on the debt ratio.Source: 2018 Stability Programme (SP) and Commission 2018 spring forecast a In percent of GDP.b The change in the gross debt ratio can be decomposed as follows:tttttttttttttYSFyyiYDYPDYDYD1*1111 
 
 
opinion  of  the  Member  State  concerned,  are  relevant  in  order  to  comprehensively  assess 
compliance with the deficit and debt criteria and which the Member State has put forward to 
the Council and to the Commission” need to be given due consideration. 

In  case  of  apparent  breach  of  the  debt  criterion,  the  analysis  of  the  relevant  factors  is 
particularly warranted  given that debt  dynamics  are to  a larger extent influenced by  factors 
outside  the  control  of  the  government  than  is  the  case  for  the  deficit.  This  is  recognised  in 
Article 2(4) of Regulation (EC) No 1467/97, which provides that the relevant factors shall be 
taken into account when assessing compliance on the basis of the debt criterion irrespective 
of the size of the breach. In that respect, at least the following three main aspects need to be 
considered (and have been considered in the past) when assessing compliance with the debt 
criterion given their impact on the debt dynamics and sustainability: 

1.  Adherence  to  the  MTO  or  the  adjustment  path  towards  it,  which,  is  supposed  to 
ensure  sustainability  or  rapid  progress 
towards  sustainability  under  normal 
macroeconomic  circumstances.  As  by  construction  the  country-specific  MTOs  take 
into  account  the  debt  level  and  implicit  liabilities,  compliance  with  the  MTO  or  the 
adjustment  path  towards  it  should  ensure  convergence  of  the  debt  ratios  towards 
prudent levels at least in the medium term; 

2.  Structural reforms, already implemented or detailed in a structural reform plan, which 
are  expected  to  enhance  sustainability  in  the  medium  term  through  their  impact  on 
growth,  thereby  contributing  to  bring  the  debt-to-GDP  ratio  on  a  satisfactory 
downward  path.  Overall,  adherence  to  the  MTO  (or  the  adjustment  path  towards  it) 
alongside  with  the  implementation  of  structural  reforms  (in  the  context  of  the 
European  Semester)  is  expected  under  normal  economic  conditions  to  bring  debt 
dynamics on a sustainable path through the combined impact on the debt level itself 
(through  the  achievement  of  a  sound  budgetary  position  at  the  MTO)  and  on 
economic growth (through the reforms). 

3.  Unfavourable  macroeconomic  conditions,  and  in  particular  low  inflation,  which  can 
hamper  the  reduction  of  the  debt-to-GDP  ratio  and  make  compliance  with  the  SGP 
provisions  particularly  demanding.  A  low-inflation  environment  makes  it  more 
demanding for a Member State to comply with the debt reduction benchmark. Under 
such  conditions,  adherence  to  the  MTO  or  the  adjustment  path  towards  it  is  a  key 
relevant factor in assessing compliance with the debt criterion. 

In view of those provisions, the following subsections consider in turn (1) the medium-term 
budgetary  position,  including  an  assessment  of  compliance  with  the  required  adjustment 
towards  the  MTO  and  the  development  of  public  investment;  (2)  the  developments  in  the 
medium-term government debt position, its dynamics and sustainability; (3) the medium-term 
economic  position,  including  the  state  of  play  in  terms  of  implementation  of  structural 
reforms; (4) other factors considered relevant  by the Commission; and (5) other factors put 
forward by the Member State. 

4.1.  Medium-term budgetary position 

The ex-post assessment  of Belgium’s compliance with the preventive arm  finds that there is 
no  sufficiently  robust  evidence  to  conclude  on  the  existence  of  a  significant  deviation  from 
Belgium’s adjustment path towards the MTO in 2018 and over 2017 and 2018 taken together. 

5 

 
 
For  2019  and  2018  and  2019  taken  together,  the  fiscal  adjustment  presents  a  risk  of  a 
significant deviation from the preventive arm requirements of Belgium. 

Headline, structural balance and adjustment towards the MTO  

Headline balance 

Belgium's headline deficit fell from 0.8% of GDP in 2017 to 0.7% in 2018. Both the revenue 
and expenditure-to-GDP ratios increased,  by 0.4 pp. and 0.2 pp. of GDP respectively. 

MTO and structural balance 

In  their  2019  Stability  Programme,  the  Belgian  authorities  confirmed  their  MTO  of  a 
balanced budget in structural terms. The MTO appears sufficiently stringent under what can 
be considered as normal economic conditions to ensure debt rule compliance in the medium 
and  long  term.  In  the  2019  Stability  Programme,  Belgium  postponed  the  planned 
achievement from 2020 to 2021. According to the Stability Programme, achievement of the 
MTO  would  require  an  effort  of  0.9%  of  GDP.  According  to  the  Commission  2019  spring 
forecast, a higher effort (1.4% of GDP) would be required due to a different (higher) estimate 
of  the  2018  structural  deficit.  In  addition,  the  Commission  forecast  expects  the  structural 
balance to remain stable in 2019 and to deteriorate by 0.3 pp. of GDP at unchanged policy in 
2020, the last year of the Commission projections. According to the High Council of Finance, 
an additional deterioration of 0.4% of GDP will take place in 2021 at unchanged policy7. As a 
result, achieving the MTO in 2021 will require substantial additional measures from the next 
government after the May 2019 elections. 

Compliance with the recommended adjustment towards the MTO 

On 11 July 2017, the Council recommended Belgium to pursue a  substantial fiscal effort in 
2018  in  line  with  the  requirements  of  the  preventive  arm  of  the  Stability  and  Growth  Pact, 
taking  into  account  the  need  to  strengthen  the  ongoing  recovery  and  to  ensure  the 
sustainability  of  Belgium’s  public  finances.  According  to  the  commonly  agreed  adjustment 
matrix under the Stability and Growth Pact, that adjustment translated into a requirement of a 
nominal growth rate of net primary government expenditure which would not exceed 1.6 % 
in 2018. It would correspond to a structural adjustment of at least 0.6 % of GDP. At the same 
time, the Council stated that the assessment of the 2018 Draft Budgetary Plan and subsequent 
assessment of 2018 budget outcomes would need to take due account of the goal of achieving 
a fiscal stance that contributes to both strengthening the ongoing recovery and ensuring the 
sustainability of public finances. Following the  Commission's assessment of the strength  of 
the  recovery  in  Belgium  while  giving  due  consideration  to  its  sustainability  challenges, 
carried out in the context of its opinion on Belgium's 2018 Draft Budgetary Plan, the Council 
on  13  July  2018  noted  that  no  additional  elements  in  that  regard  needed  to  be  taken  into 
account. 

In  2018,  and  based  on  outturn  data  and  the  Commission  forecast,  the  growth  of  primary 
government  expenditure,  net  of  discretionary  revenue  measures  and  one-offs,  exceeded  the 
expenditure benchmark, leading to a gap of 0.7% of GDP, pointing to a significant deviation. 

7 High Council of Finance (2019), Avis 'Trajectoire budgétaire en préparation du Programme de Stabilité 2019-

2022'. Based on data provided by the Federal Planning Bureau. 

6 

 
 
 
                                                           
The structural balance is estimated to have remained flat in 2018, leading to a gap of 0.6% of 
GDP with respect to the recommended effort, also pointing to a significant deviation. 

However,  although  on  a  diminishing  trend,  there  still  remain  uncertainties  regarding  the 
treatment of the substantial increase in advanced corporate income tax payments collected in 
2017 and 2018 (about ½ % of GDP in each year). This revenue increase stems notably from 
the  introduction,  in  two  steps,  2017  and  2018,  of  significantly  higher  surcharges  for  non-
payment  of  advanced  tax  payments.  This  measure  introduces  a  permanent  change  in  the 
timing  of  recurrent  revenue,  by  shifting  -at  least  in  part-  tax  collection  from  expost  tax 
settlement  to  advance  tax  payments,  and  therefore  it  creates  an  exceptional  and  temporary 
peak in tax revenue in 2017 and 2018. In the baseline scenario of the 2019 spring forecast and 
following  the  same  methodology  as  last  year,  the  Commission  considered  that  any  tax 
collection in excess of the trend was to be considered as a one-off, temporary revenue, which 
would eventually be offset by lower tax settlement revenue, starting in 2019.  Other analyses, 
such  as  that  of  the  National  Bank  of  Belgium,  consider  a  higher  share  of  the  CIT  revenue 
increase in 2017 and 2018 as temporary, whereas the government assess a higher proportion 
as structural. However, even after taking into account those uncertainties and considering the 
entire increase as structural both in 2017 and 2018, there appears to be a significant deviation 
over  2017  and  2018  taken  together.  At  the  same  time,  the  excess  over  the  0.25%  of  GDP 
threshold  for  a  significant  deviation  appears  to  be  very  small  once  those  uncertainties  are 
taken  into  account.  Given  the  uncertainty  surrounding  these  figures,  the  Commission 
acknowledges that both upside and downside risks should not be discarded, and that a stable 
estimate of the permanent impact will only be measurable after some time, while the outturn 
corporate income tax data for 2019 will provide the first clear indication of the magnitude of 
the impact. 

When  2017  and  2018  are  taken  together,  there  is  a  difference  in  the  readings  between  the 
expenditure  benchmark  and  the  structural  balance  driven  by  the  different  indications  for 
2017.  Regarding  the  expenditure  benchmark,  there  is  a  gap  of  0.6%  of  GDP,  pointing  to  a 
significant deviation. Regarding the effort in the structural balance, there is a gap of 0.1% of 
GDP,  pointing  to  some  deviation.  The  conclusion  of  considering  2017  and  2018  together 
relies on the individual readings for 2018 and 2017. The former was already discussed above. 
In  2017,  the  growth  of  primary  government  expenditure  in  Belgium,  net  of  discretionary 
revenue measures and one-offs, exceeded the expenditure benchmark by approximately 0.5% 
of  GDP.  On  the  other  hand,  Belgium’s  structural  balance  improved  by  more  than  0.8%  of 
GDP, exceeding the structural adjustment – corrected for the impact of unusual events – of at 
least  0.58%  of  GDP  recommended  by  the  Council  for  that  year.  Based  on  the  structural 
balance pillar, there was therefore a positive deviation of approximately 0.3% of GDP. The 
ensuing difference of approximately 0.7% of GDP between both pillars of the preventive arm 
in 2017 calls for an overall assessment, in which the following factors are to be considered: 

  The  positive  impact  of  lower  interest  expenditure  change  on  the  structural  balance 
(0.3 pps. of GDP), improving the reading of the fiscal  effort  based on the structural 
balance but  which does  not  affect  compliance with  the expenditure benchmark. The 
latter is considered to reflect more appropriately the underlying fiscal effort. 

  The negative impact of higher inflation (GDP deflator of 1.9%) compared to expected 
inflation (1.5% GDP deflator forecast) on the expenditure benchmark compared to the 
structural  balance  (0.1  pps  of  GDP).  Social  benefits  and  public  sector  wages  are 
indexed to realised, not expected, inflation. However, higher inflation also positively 

7 

 
 
impacts  tax  revenues.  The  expenditure  benchmark  only  captures  the  former  impact, 
and therefore under-estimates the overall fiscal position. 

  Revenue windfalls, that benefit the structural balance but not the expenditure pillar. In 
that regard, 2017 represented the peak of the business cycle in Belgium. As a result, 
there were revenue windfalls (representing approximately 0.1% of GDP) mainly due 
to growth in the revenue of direct and indirect taxes exceeding standard elasticities. 

  Finally, the remaining uncertainties regarding the treatment of the substantial increase 
in corporate income tax payments collected in 2017 and 2018 (approximately 0.5% in 
2017 and 0.7% of GDP in 2018). Higher surcharges for non-payment of advanced tax 
payments were introduced in 2017. They introduce a permanent change in the timing 
of  recurrent  revenue,  by  shifting  -  at  least  in  part  -  tax  collection  from  ex-post  tax 
settlement to advance tax payments, therefore creating an exceptional and temporary 
peak in tax revenue. In that regard, the Commission expressed a reservation in its May 
2018 Article 126(3) report regarding the nature of the observed increase in corporate 
income taxes. In its 2019 spring forecast, the Commission considers that in 2017 and 
2018 there is a 0.5% of GDP one-off increase in revenue, to be eventually offset by 
lower tax settlement revenue in the following years. Starting from 2018, an additional  
structural increase in tax collection of 0.2% of GDP has taken place. 

In  this  regard,  the  2019  Stability  Programme  considers  a  higher  share  of  the  CIT 
revenue  increase  as  structural.  The  Commission  acknowledges  this  is  still  a 
possibility. An ex post upward revision of the permanent effect of the measure would 
improve  the  assessment  of  the  underlying  budgetary  position.  As  a  result,  the 
relatively  conservative  stance  of  the  Commission  2019  spring  forecast  represents  a 
relevant factor to be considered in the overall assessment, given the magnitude of the 
extra revenues (around 0.5% of GDP in 2017 and 0.7% of GDP in 2018), as well as 
their high level of uncertainty. 

Amid such uncertainty, and in line with last year’s analysis, in the context of this report, such 
a relevant factor for the overall assessment, given both the magnitude of the extra revenues as 
well as the high level of uncertainty as regards the extent of their temporary nature, results in 
a difficulty to conclude on the significance of the deviation from the adjustment path towards 
the MTO in 2018 and over 2017 and 2018 taken together. 

Belgium’s Draft  Budgetary Plan for 2019 was  accompanied by  a formal request  to  avail of 
the flexibility available under the preventive arm pursuant to the "Commonly agreed position 
on  Flexibility  within  the  Stability  and  Growth  Pact"  endorsed  by  the  ECOFIN  Council  in 
February 2016. Belgium requested a temporary deviation from the adjustment path towards 
the MTO in view of the implementation of major structural reforms with a positive impact on 
the  long-term  sustainability  of  public  finances.  All  the  relevant  parts  have  been  already 
legislated  and  the  2019  Stability  Programme  details  a  credible  timeline  of  implementation. 
The  request  for  flexibility  for  structural  reforms  refers  to  a  pension  reform,  a  “tax  shift”,  a 
reform of corporate income taxation, a labour market reform as well as a reform of the public 
administration.  As  the  request  for  the  temporary  deviation  should  be  submitted  in  the  year 
ahead  of  the  application  of  the  clause,  the  Commission  assessed  the  fulfilment  of  the 
eligibility criteria for the structural reform clause as of 2019. The Commission 2019 spring 
forecast  indicates  that  Belgium  will  continue  to  respect  the  minimum  benchmark  in  2019 

8 

 
 
 
which provides a safety margin towards the 3% of GDP deficit threshold. On that basis, the 
Commission considers that Belgium qualifies for the requested temporary deviation of 0.5% 
of  GDP  in  2019  for  structural  reforms.  Taking  into  account  that  flexibility,  Belgium  is 
therefore  expected  to  pursue  an  annual  structural  adjustment  towards  the  MTO  of  0.1%  of 
GDP  in  2019,  which  corresponds  to  a  nominal  growth  rate  of  net  primary  government 
expenditure which does not exceed 2.8%.  

For 2019, the Commission Spring forecast projects a growth rate of expenditure that exceeds 
the benchmark by 0.4% of GDP pointing to some deviation. In turn, the structural balance is 
projected  to  remain  stable,  pointing  to  some  deviation  (-0.1%  of  GDP)  from  the 
recommended  structural  adjustment.  Over  2018  and  2019  taken  together,  the  expenditure 
benchmark  points  to  a  risk  of  significant  deviation,  with  an  average  deviation  of  0.6%  of 
GDP.  The  projected  average  deviation  for  the  structural  balance  over  the  same  period 
amounts  to  -0.3%  of  GDP  according  to  the  Commission  forecast,  also  indicating  a  risk  of 
significant deviation. Thus, the overall assessment confirms the risk of significant deviation 
over 2018-2019 taken together. 

In  2020,  Belgium  is  required  to  pursue  an  annual  structural  adjustment  towards  the  MTO 
translating into a nominal growth rate of net primary government expenditure which does not 
exceed 1.6% which would correspond to a structural adjustment of 0.6% of GDP. According 
to  the  Commission  2019  Spring  forecast,  the  growth  of  nominal  primary  government 
expenditure  in  2020,  net  of  discretionary  revenue  measures  and  one-offs,  is  expected  to 
exceed  the  applicable  expenditure  benchmark  by  1.3%  of  GDP,  pointing  to  a  risk  of  a 
significant  deviation.  The  structural  balance  is  expected  to  deteriorate  by  0.3  percentage 
points of GDP in 2020, thus also pointing to a risk of a significant deviation by 0.9% of GDP.  

Following an overall assessment a significant deviation from the adjustment path towards the 
MTO  is  currently  expected  in  2019  and  2020,  putting  at  risk  the  compliance  with  the 
requirements of the preventive arm of the Pact. 

Box 1: flexibility under the preventive arm 

In  the  context  of  the  fiscal  surveillance  carried  out  by  the  Commission  over  recent  years, 
Belgium  has  benefitted  from  the  flexibility  clauses  and  allowances  foreseen  under  the 
Stability  and  Growth  Pact  (SGP).  Regulation  (EC)  No  1466/97  caters  for  additional 
expenditure  if  it  represents  an  unusual  event,  the  impact  on  public  finances  is  significant, 
and  sustainability  would  not  be  compromised  by  allowing  for  a  temporary  deviation  from 
the  adjustment  path  towards  the  MTO.  In  this  regard,  over  2015-2017  Belgium  benefitted 
from a cumulated allowance of around EUR 763 million, or 0.18% of GDP. The flexibility 
granted  to  Belgium  was  a  relevant  factor  to  ensure  its  (broad)  compliance  with  the 
preventive  arm  of  the  SGP  based  on  outturn  data,  in  particular  for  2015,  2016  and  2017. 
Compliance  with  the  preventive  arm  was  also  regarded  by  the  Commission  as  a  key 
mitigating  factor  not  to  trigger  an  excessive  deficit  procedure  despite  prima  facie  non-
compliance with the debt reduction benchmark.  

In 2015, Belgium was granted flexibility of 0.03% of GDP for additional expenditure related 
to the exceptional inflow of refugees. 

As regards 2016, flexibility  granted to  Belgium  amounted to  0.13% of GDP, with  eligible 
additional expenditure for the exceptional  inflow of refugees  amounting to  0.08% of GDP 
and 0.05% of GDP for security-related measures due to the severity of the terrorist threat. 

9 

 
 
As regards 2017, the flexibility granted to Belgium amounted to 0.02% of GDP for security-
related measures. 

As  regards  2019,  the  Commission  has  assessed  that  Belgium  is  eligible  for  a  temporary 
deviation from the adjustment path towards the MTO amounting to 0.5% of GDP, in view of 
the  implementation  of  major  structural  reforms  with  a  positive  impact  on  the  long-term 
sustainability of public finances (“structural reform clause”). 

Public investment 

Over the forecast  horizon, public investment  is  projected to  remain stable at  2.4% of GDP. 
From  2009  to  2016,  public  investment  was  lower  than  the  general  government  deficit.  In 
2017  the  general  government  deficit  below  the  investment  ratio  and  has  remained  below 
since. 

The  federal  government  has  been  pursuing  a  'National  Pact  for  Strategic  Investment’  that 
projects  a  significant  increase  in  infrastructure  investment.  It  aims  to  identify  obstacles  for 
private  investment  and  accelerate  it  in  key  areas  by  mobilising  private  (55%)  and  public 
(45%) means. Regions and Communities can join the initiative. 

4.2.  Medium-term government debt position 

Debt dynamics 

Between  1997  and  2007,  Belgium's  government  debt-to-GDP  ratio  decreased  by  36  pp., 
thanks to sizeable (although gradually declining) primary surpluses. That trend of sustained 
debt reduction was halted by the financial and economic crisis of 2008. At the end of 2007, 
Belgium's general government debt stood at 87% of GDP. It rose to 107% of GDP in 2014, 
an increase of 20 pp. It compares to an increase of 27 pp. in the euro area.  

The  main  drivers  behind  the  increase  between  2007  and  2014  were  the  upward  snowball 
effect (+10.5 pp.) and stock-flow adjustments (+9.4 pp.), with the previous primary surpluses 
gone  (see  Graph 1). The snowball effect  reflects  how interest  spending  generally surpassed 
nominal  growth  since  2008.  Yet,  at  1.4  pp.  on  average,  the  annual  upward  impact  of  that 
dynamic in 2008-2015 was similar to that in 1997-2007, as the denominator effect of lower 
nominal growth was offset by the nominator effect stemming from lower interest spending in 
terms  of  GDP.  The  latter  ratio  continued  to  decline  after  2007  as  continuously  declining 
interest rates compensated for an increasing debt ratio. A further decline in interest spending 
resulted in a slightly downward snowball effect in 2016 for the first time since 2011. 

10 

 
 
Graph 1. Drivers of "snowball effect" on government debt 

The substantial debt increase due to stock-flow adjustments occurred predominantly in 2008 
and 2011, when the Belgian State had to intervene in the financial system. In 2008 authorities 
provided support to Fortis, KBC, Dexia and Ethias. In 2011 the Belgian State acquired Dexia 
Belgium,  the  current  Belfius  bank.  The  recovering  of  part  of  the  financial  sector  bailout 
resulted  in  downward  stock-flow  adjustments  representing  3.9%  of  GDP  in  2012-2017. 
Remaining participations include a share of 7.8% in BNP Paribas, 100% of Belfius, 100% of 
insurer Ethias (including stakes of regional and local authorities), and 51.4% of Dexia bank. 
Dividends paid by financial institutions represented about 0.2% of GDP in 2018.  

Since 2017, the acceleration of positive primary surpluses has become the main driving force 
behind  the  decrease  of  the  debt  ratio.  This  highlights  how  the  return  to  substantial  primary 
surpluses  is  a  precondition  for  putting  debt  on  a  clear  downward  trajectory  and  complying 
with the debt reduction benchmark.  

In  2018,  the  debt-increasing  stock-flow  adjustment  of  0.5%  of  GDP  mainly  reflects  the 
difference between accrued and paid interest. 

According  to  the  Commission  2019  spring  forecast,  the  debt-to-GDP  ratio  would  fall  by 
0.7 pp.  in  2019  to  101.3%  of  GDP.  A  primary  surplus  of  0.8%  of  GDP  and  a  downward 
snowball effect of 0.6% of GDP as a result of an increase in the GDP deflator and decrease in 
interest  expenditures are partly offset  by upward stock-flow adjustments. A similar trend is 
expected in 2020 when debt would decrease to 100.7% of GDP at unchanged policy. 

Interest expenditure 

In line with the general trend in the euro area, interest rates on Belgian debt instruments are at 
historical lows. The ten-year bond yield averaged 0.57% during the first quarter of 2019. The 
spread  between  Belgian  and  German  bonds  has  been  broadly  stable  for  several  years.  It 
averaged    37,  41,  35  and  53  basis  points  in  2016,  2017,  2018  and the  first  quarter  of  2019 
respectively, compared to a maximum of 366 basis points at the end of November 2011. The 
implicit  interest  rate  on  the  outstanding  debt  stock  declined  steadily  in  recent  years,  from 
4.6% in 2007 to 2.4% in 2018. It is projected to decline further to 2.2% in 2020.  

11 

 
 
 
Debt sustainability 

Belgian  authorities  have  been  using  favourable  market  conditions  to  refinance  the 
outstanding  debt  against  much  lower  rates  at  considerably  longer  maturity.  The  average 
maturity of long-term issuance remained at a high level at 14.8 years in 2018 (15.0 years in 
2017 and 17.5  years in  2016) with  an  average  weighted  yield of 0.95% (0.9% in  2017 and 
0.8% in 2016). As a result, the average life to maturity of the total federal debt portfolio8 rose 
to 9.6 years at the end of 20189. It is the longest ever and compares to around 6 years until 
2009  and  8  years  at  the  end  of  201510.  The  12-month  and  60-month  refixing  risk11  of  the 
federal debt significantly declined in 2018 to 16.0 and 40.1%, respectively, from 20.3% and 
56.8%  at  the  end  of  201212.  Currently,  Belgium  does  not  appear  to  face  a  risk  of  financial 
stress  in  the  short  term.  If  interest  rates  were  to  start  rising,  the  high  debt  level  implies  a 
substantial  hike  in  interest  expenditure  over  time,  though  the  high  average  life  to  maturity 
means that that hike would materialise only gradually. 

Graph 2 : Debt projections in successive stability programmes (% GDP) 

The  sensitivity  to  potential  shocks  in  nominal  growth  and  interest  rates  as  well  as  the 
unfavourable  starting  point  result  in  high  sustainability  risks  in  the  medium  term.  At 
unchanged  policy,  the  debt  level  is  projected  to  increase  and  peak  at  103.4%  of  GDP  in 
202913, thus remaining well above the 60% of GDP Treaty threshold. The full implementation 

8  The federal debt represents 84.6% of the general government debt. 
9   Belgian Debt Agency, 2018-2019 Review outlook. 
10  Belgian Debt Agency, 2018-2019 Review outlook. 
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. 
12  Belgian Debt Agency, 2018-2019 Review outlook. 
13  Fiscal  Sustainability  Report  2018,  Volume  2  –  Country  Analysis.  Projections  start  from  the  European 
Commission 2019 winter forecast, with the no-policy change assumption translated into a structural primary 
balance  kept  constant  (excluding  ageing  costs)  at  the  level  of  the  last  year  of  the  forecast  (2020).  The 

12 

 
 
 
                                                           
 
of the Stability Programme would put debt on a decreasing path by 2029, although remaining 
above  the  60%  of  GDP  reference  value  in  2029.  However,  the  fiscal  effort  required  for 
reaching the MTO is substantial, considering that the structural deficit is estimated at 1.4% of 
GDP in 2019 at unchanged policy. 

Lastly, the sustainability of public debt is also determined by the economy's growth potential. 
As  described  above,  the  gradual  decline  of  total  factor  productivity  growth  since  the 
beginning  of  the  1990s  has  lowered  potential  growth.  It  underscores  the  importance  of 
implementing structural  reforms  in  order to  boost  potential growth.  Progress  with  regard to 
reforms is discussed in Section 4.3. 

4.3.  Medium-term economic position 

Despite  a  recent  slowdown  in  growth,  macroeconomic  conditions  remain  favorable;  and 
cannot be considered a major mitigating factor to explain Belgium’s gaps to comply with the 
debt  reduction  benchmark.  In  fact,  nominal  economic  growth  is  expected  to  remain  steady 
throughout  the  forecast  horizon.  Belgium  made  limited  progress  in  addressing  the  2018 
CSRs,  but  from  a  multiannual  perspective  undertook  important  structural  reforms  in  past 
years  to  increase  the  sustainability  of  the  pension  system  and  to  reform  taxation  and  the 
labour market, including wage indexation, so as to support competitiveness. 

Cyclical conditions, potential growth and inflation 

The Belgian economy proved to be rather resilient following the global economic recession 
in 2009. GDP quickly regained pre-crisis levels. However, the 2010 and 2011 recovery was 
followed  by  stagnation,  with  flat  GDP  growth  in  2012  and  2013.  The  strong  rebound 
observed in 2014 and 2015, with growth reaching 1.4% and 1.7% respectively, was followed 
by the slight dip to 1.5% in 2016 due to the weaker external environment and the negative, 
though  transitory,  impact  of  the  security  situation  linked  to  the  terrorist  attacks  of  March 
2016. As a result, growth resumed and reached  1.7% in  2017. However, it receded back to 
1.4% in 2018 and is expected to further decrease to 1.2% in 2019 and 2020 on the back of 
strong domestic demand, countering the falling and negative contribution from net exports in 
2019 and 2020, respectively. 

Potential growth estimates for Belgium are 1.3% on average over 2016-2019. The slowdown 
compared  to  the  pre-2009  situation  is  broad-based  as  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), a decline in the contribution of labour to potential growth (due 
to a slower growth of the working age population) and somewhat lower capital accumulation. 
The negative output gap is estimated to have closed in 2017 compared to a trough of -1.6% in 
2013. It is expected to remain positive and stable at 0.2% of GDP throughout 2019-2020. 

The relatively low nominal GDP growth until 2015 had an important impact on the evolution 
of  the  debt-to-GDP  ratio  in  those  years,  increasing  the  structural  adjustment  required  to 
assure that the debt ratio stayed on a firm downward path as required by the debt benchmark. 

baseline  scenario is based on the following  macroeconomic  assumptions  for the long term: potential GDP 
growth remains around 1.2%; inflation and the change  in the GDP deflator stabilise at  2% in  the  medium 
term; long-term interest rates on new and rolled-over debt converge to 3% in real terms by 2027 and short-
term  rates  to  a  value  consistent  with  the  long-term  interest  rate  and  historical  (pre-crisis)  euro  area  yield 
curve (see also European Commission, 2012). Projected ageing costs are based on the 2018 Ageing Report.  

13 

 
 
                                                                                                                                                                                     
Moreover,  the  primary  balance  was  also  impacted  by  those  cyclical  conditions,  which  fed 
through in public debt. 

Table 3: Macroeconomic and budgetary developmentsa 

However,  the  improvement  in  macroeconomic  conditions  that  has  taken  place  since  2016 
means that they can no longer be regarded as a major mitigating factor in explaining the gap 
to  the  debt  benchmark  (1.1%  of  GDP  in  2018  according  to  the  backward-looking 
configuration).  After a protracted period of low  domestic price  growth until  2015, inflation 
accelerated in Belgium to 2.2% in 2017 and 2.3% in 2018. The GDP deflator is expected to 
accelerate  from  1.2%  in  2018  reaching  1.5%  growth  in  2019  and  1.6%  in  2020,  below  the 
levels  observed  in  2016  and  2017  (1.8%  and  1.7%,  respectively).  Nominal  GDP  growth  is 
expected to mildly increase from 2.6% in 2018 to 2.8% in 2019 and 2020, remaining below 
the rates observed in 2016 (3.1%) and 2017 (3.4%). 

Declining  interest  rates  have  created  a  supportive  context  for  budgetary  consolidation.  The 
implicit nominal interest rate on Belgian public debt has fallen continuously over the past two 
decades  and  that  trend  has  accelerated  in  recent  years.  As  a  consequence,  total  interest 
expenditure  by  the  general  government  has  continued  to  decrease  as  a  share  of  GDP. 
Between  2008  and  2018  interest  expenditures  fell  by  approximately  1.6  pp.  of  GDP, 
amounting to a decrease in interest expenditure of 0.4 pp. of GDP in 2017 and 0.1 pp. of GDP 
in 2018. Against that background of falling interest expenditure, the stable structural balance 
in 2018-2019 is accompanied by a deterioration in the structural primary balance in 2018 and 
2019  (-0.1  pp.  and  -0.2  pp.  respectively).  The  sensitivity  analysis  in  the  2019  Stability 
Programme highlights how a linear increase of the yield curve by 100bp would imply 0.03% 
of GDP higher costs in 2019, rising to 0.25% of GDP in 202214, though relative to a baseline 
of falling interest payments. It underscores the risks inherent to a consolidation strategy that 
leans significantly on windfall gains stemming from lower interest expenditures. 

14 Stability Programme Belgium 2019-2022, p. 21. 

14 

 2015201620172018COMCOMCOMCOMCOMSPCOMSPReal GDP (% change)b1.71.51.71.41.21.31.21.4GDP deflator (% change)1.01.81.71.21.51.71.61.6Potential GDP (% change) 1.21.31.31.41.31.31.31.3Output gap (% of potential GDP)-0.3-0.10.30.20.20.20.10.2General government gross debt106.4106.1103.4102.0101.3100.6100.798.5General government balance-2.4-2.4-0.8-0.7-1.3-0.8-1.5-0.2Primary balance0.60.41.61.60.81.30.51.8One-off and other temporary measures0.10.00.50.60.00.00.10.0Government gross fixed capital 2.32.22.22.42.42.42.52.4Cyclically-adjusted balance-2.2-2.3-1.0-0.8-1.4-0.9-1.6-0.3Cyclically-adjusted primary balance0.80.51.51.40.71.20.41.6Structural balancec-2.3-2.3-1.4-1.4-1.4-0.9-1.8-0.3Structural primary balance0.70.61.00.90.71.20.31.6Source: 2019 Stability Programme (SP) and Commission 2019 spring forecast 20202019c Cyclically-adjusted balance excluding one-off and other temporary measures.b Calendar-adjusted only in the SP.a In percent of GDP unless specified otherwise.Notes: 
 
 
 
                                                           
Structural reforms 

In  its  Communication  of  13  January  2015,  the  Commission  strengthened  the  link  between 
effective  implementation  of  structural  reforms,  investment,  and  fiscal  responsibility  in 
support of jobs and growth, within the existing rules of the SGP. 

The 2019 Country report for Belgium concluded that the country had made limited progress 
in  addressing the 2018  country-specific recommendations.  Limited progress  has been made 
on  distributing  fiscal  targets  among  the  various  levels  of  government  in  a  way  that  can  be 
enforced  and  on  improving  the  composition  of  public  expenditure.  In  contrast  with  2018, 
when an agreement was reached between all levels of government regarding the achievement 
of  the  MTO  by  2020,  this  year  the  Concertation  Committee15  only  took  note  of  the  overall 
trajectory  of  the  Stability  Programme  towards  achieving  the  MTO  by  2021  (i.e.  it  did  not 
formally  approve  it).  In  addition,  and  as  done  in  the  past,  there  was  also  no  formal 
commitment on the annual fiscal targets among the different sub-entities within each entity. 
Moreover, given that the Belgian government does not enjoy full budgetary powers according 
to national constitutional rules and/or conventions since December 2018, the Committee took 
the decision to label the fiscal targets in the Stability Programme as “indicative”. Regarding 
spending  reviews,  the  Flemish  region  is  running  a  pilot  programme  to  introduce  them  as  a 
structural  element  of  its  budgetary  framework.  The  federal  government  is  working  on  a 
strategic  plan  to  integrate  spending  reviews  in  its  budgetary  process.  However,  so  far,  no 
spending  review  has  been  undertaken  at  the  federal  level,  despite  the  high  needs  for 
expenditure  reprioritisation.  Meanwhile,  the  National  Pact  for  Strategic  Investment  projects 
an  increase  in  infrastructure  investment  of  EUR  150  billion  until  2030,  out  of  which  EUR 
82.5  billion  would  be  spent  by  the  private  sector.  Although  Communities  are  phasing  in 
major  education  reforms  (e.g.  covering  several  sectors  in  the  Flemish  Community  and  the 
French  Community's  Pacte  d'Excellence),  limited  progress  has  been  made  as  regards 
vocational  training  and  supporting  equity.  Limited  progress  has  been  achieved  in  fostering 
investment  in  knowledge-based  capital,  even  if  measures  vary  in  scope  at  the  regional, 
community  and  federal  levels.  Progress  on  sectoral  regulation  has  been  limited  overall, 
including in improving the functioning of the retail sector. For certain professional services 
regulatory restrictions continue to hamper competition. 

The Country report also highlights measures supporting the recent job-rich economic growth, 
via improved competititiveness, including a “tax shift”; a related labour market reform that, 
among others, supports wage moderation policies; as well as a corporate income tax reform. 
Gradual decreases in personal income taxation and employers' social security contributions, 
with more than proportional reductions for lower salaries, have been legislated. Targeting low 
wages  favours  the  young  and  the  low-skilled,  who  tend  to  have  lower  wages,  but  also  the 
lowest employment rates; thus it supports activation for some of the most vulnerable groups. 
However, labour remains highly taxed as a factor of production in Belgium. Although the tax 
shift  reduced the labour  tax wedge (income tax plus  employer and  employee contributions) 
for very low wage earners (fifty percent of the average wage), it remains the highest in the 
EU for average wage earners. With respect to the high income tax burden on labour, this is 
due to narrow personal income tax brackets, even if the “tax shift” has broadened the base of 

15  The  Concertation  Committee  (Comité  de  concertation/Overlegcomité)  brings  together  all  Belgian 
governments to reach a common position in the case of shared competences or to solve conflicts between 
governments. 

15 

 
 
                                                           
the  40%  tax  bracket,  as  even  average  income  earners  are  subject  to  the  highest  income  tax 
rate.  Broadening  the  tax  base  by  reducing  tax  expenditures  could  generate  the  necessary 
revenues  to  broaden  tax  brackets,  as  the  extensive  use  of  tax  expenditures  reduces  the 
efficiency of the Belgian tax system. In that regard, the recent reform of the corporate income 
tax to move towards a system with lower statutory rates and fewer tax exemptions will help 
simplify the tax system and increase the attractiveness of the Belgian economy. 

Belgium  has  modernised  its  public  pension  system  in  recent  years.  A  first  set  of  pension 
reforms was legislated in 2015. They reduced early exit possibilities, by further tightening the 
standard  eligibility  requirements  for  both  early  and  pre-retirement,  and  increased  the  legal 
retirement age from  65 to  66 in  2025 and to  67 by 2030. As a result of those reforms,  and 
taking  into  account  the  new  2018  demographic  projections  for  Belgium  of  the  Ageing 
Working Group, public expenditure on pensions is now expected to increase by 2.9 pps. of 
GDP by 2070, mostly during the next two decades, compared to the 3.3 pps. expected prior to 
their adoption (with an horizon 2013-2060). However, life expectancy is projected to increase 
faster than the effective retirement age. In particular, introducing a link between, on the one 
hand,  early  and  statutory  retirement  ages  and,  on  the  other  hand,  gains  in  life  expectancy, 
would help  contain ageing  costs beyond 2030.  Furthermore, early retirement conditions  for 
several  large  groups  of  civil  servants  remain  more  favourable  than  the  standard  conditions. 
Public spending on long-term care is projected to increase by 1.7 percentage points of GDP 
by 2070, an above average increase starting from what is already one of the highest levels in 
the EU. 

 Nevertheless, after the publication of the 2019 Country report Parliament adopted a number 
of  additional  measures.  They  include  the  “Jobs  deal”,  a  package  of  28  labour  market 
measures divided into two pillars: fiscal and social. They include new incentives to support 
job  creation  and  employment,  promote  job  training  and  skill  upgrading,  increase  the 
participation of older workers, and offer further options  for mobility to workers beyond the 
“cash  for  car”  possibility  already  in  place.  Finally,  a  reform  of  the  public  administration  is 
ongoing, but the Programme does not provide a quantitative detail of its impact. 

4.4. 

Other factors considered relevant by the Commission 

Among the other factors considered relevant by the Commission, particular consideration is 
given to financial contributions to fostering international solidarity and achieving the policy 
goals of the Union, the debt incurred in the form of bilateral and multilateral support between 
Member  States  in  the  context  of  safeguarding  financial  stability,  and  the  debt  related  to 
financial  stabilisation  operations  during  major  financial  disturbances  (Article  2(3)  of 
Regulation (EC) No 1467/97).  

Rescue  operations  in  the  financial  sector  explain  part  of  the  debt  increase  since  2007  as 
discussed  in  section  4.2.  The  direct  cumulative  debt  impact  of  those  operations  reached 
almost 7% of GDP in 2011 but declined to around 3% of GDP as of 2018 due to the sale of 
some  of  the  acquired  assets  as  well  as  the  reimbursement  of  loans.  Contingent  liabilities 
related  to  guarantees  granted  to  the  financial  sector  all  relate  to  Dexia.  Awaiting  full 
resolution,  the  Belgian  State  guarantees  51.4%  of  Dexia's  liabilities.  Those  guarantees 
reached 7.4% of GDP as of April 2019, down from 8.7% at the end of 2016.  

Article  12(1)  of  Regulation  (EU)  No  473/2013  requires  that  this  report  considers  also  "the 
extent  to  which  the  Member  State  concerned  has  taken  into  account  the  Commission's 
Opinion  on  the  country's  Draft  Budgetary  Plan,  as  referred  in  Article  7(1)"  of  the  same 

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Regulation. The Commission Opinion on Belgium's draft budgetary plan for 2019 pointed to 
a  risk  of  non-compliance  with  the  provisions  of  the  SGP  in  2018-2019.  In  particular,  it 
projected a risk of significant  deviation  from  the required adjustment towards the MTO for 
and  a  risk  of  non-compliance  with  the  debt  reduction  benchmark  in  2018  and  2019.  The 
Commission invited the authorities to implement the necessary measures within the national 
budgetary process to ensure that the 2019 budget complies with the SGP and to use windfall 
gains  to  accelerate  the  reduction  of  the  government  debt-to-GDP  ratio.  However,  a  federal 
budget  for  2019  was  not  adopted  in  Parliament.  Upon  the  resignation  of  Belgium’s  Prime 
Minister on 18 December 2018, a caretaker government has been adopting “current affairs” 
budgets. Since March 2019 Parliament further concretized remaining measures of the “Jobs 
deal” (see section 4.3.). 

4.5. 

Other factors put forward by the Member State 

On 31 May 2019, the Belgian authorities transmitted documents concerning relevant factors 
in accordance with Article 2(3) of Regulation (EC) No 1467/97 (‘the Belgian observations’). 
The analysis presented in the other sections of this report already broadly covers the factors 
put forward by the authorities. 

The Belgian observations stress the impact of a “tax shift” and “Jobs deal” to strengthen job 
creation via both  labour  supply and demand.  In this  regard, the  former  reduces both  labour 
costs  and  the  burden  on  labour  income;  while  the  latter  promotes  further  labour  market 
participation, including for vacancies in professions facing labour shortages. The authorities’ 
observations also refer to the corporate income tax reform that has implemented a significant 
fall  in  the  tax  rate  for  businesses,  with  particular  incidence  on  small  and  medium  sized 
enterprises (SMEs). They point out a strategic public investment plan (the “National Pact for 
Strategic  Investments”)  that  has  already  identified  six thematic  and  four  cross-cutting  areas 
where the new incoming governments will have to further specify investments. Finally, they 
emphasize the continous reform of the pension system, with measures already implemented 
in the previous legislature, to increase the age and career conditions for early retirement; and 
new  measures  to  increase  the  age  for  early  retirement,  harmonisation  of  regimes,  address 
certain forms of abuse and incentive developing the second pillar pension. 

Other relevant factors put forward by the Belgian authorities include the general consensus in 
Belgium  to  reduce  public  debt  and  deficits,  as  evidenced  by  the  system  of  strict  budgetary 
discipline  introduced  by  the  caretaker  government  since  december  2018.  The  Belgian 
observations  also  include an  assessment of the evolution  of advanced corporate income tax 
payments.  In  particular,  they  decompose  the  evolution  in  a  structural  and  a  one-off 
component.  The  former  is  due  to,  among  other  things,  the  reformed  and  reduced  notional 
interest  deduction  rate  and  increase  in  gross  operating  surplus  of  companies.  The  latter  is 
related  to  the  shift  from  tax  assessments  to  advanced  payments  as  a  result  of  the  increased 
penalty  for  companies  that  do  not  make  advanced  payments  as  from  1  January  2017.  The 
authorities estimate an equal (50%) decomposition between these two components. 

 5. 

CONCLUSIONS 

General government gross debt stood at 102.0% of GDP at the end of 2018, well above the 
60% of GDP reference value. Belgium did not comply with the debt reduction benchmark in 
2018. Moreover, the Commission forecast does not expect Belgium to comply with the debt 

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reduction  benchmark  either  in  2019  or  in  2020,  based  on  a  no-policy-change  assumption. 
This  suggests  that  before  consideration  is  given  to  all  relevant  factors,  the  debt  criterion  as 
defined in the Treaty does not appear to have been fulfilled prima facie in 2018. In line with 
the Treaty, this report also examined the relevant factors.  

An  overall  assessment  of  compliance  with  the  preventive  arm  points  to  large  uncertainties 
related to key factors of fiscal performance in 2017 and 2018, notably regarding the extent to 
which the recent improvement in the headline balance is of a structural nature. It cannot be 
excluded  that  there  is  a  significant  deviation  over  2017  and  2018  taken  together  even  after 
taking into account  those uncertainties. At the same time, in  any  event,  the excess  over the 
0.25%  of  GDP  threshold  for  a  significant  deviation  appears  to  be  very  small  once  those 
uncertainties are taken into  account.  Therefore,  on that basis, there is  no sufficiently  robust 
evidence  to  conclude  on  the  existence  of  a  significant  deviation  from  the  adjustment  path 
towards the MTO in 2018 and over 2017 and 2018 taken together. Belgium is assessed to be 
at risk of some deviation in 2019, and at risk of a significant deviation over 2018 and 2019 
together and in 2020. Hence, the necessary measures should be taken as of 2019 to comply 
with the provisions of the Stability and Growth Pact. The use of any windfall gains to further 
reduce the general government debt ratio would be prudent. At the same time, Belgium's debt 
ratio has declined by 5.5 percentage points since 2014 and is projected to fall by another 1.3 
percentage points by 2020, despite sizeable debt-increasing stock-flow adjustments in recent 
and following years. 

Belgium  has  made  progress  in  implementing  the  structural  reforms  announced  since  the 
beginning of 2015, notably in the area of pensions, competitiveness and taxation. For several 
of  those  reforms,  progress  is  considered  substantial.  They  are  expected  to  contribute  to 
enhancing  the  economy's  growth  potential  and  reducing  the  risks  of  macroeconomic 
imbalances,  thereby  having  a  positive  impact  on  debt  sustainability  in  the  medium  to  long 
term.  The  non-budgetary  neutral  nature  of  the  tax  reform  undertaken  has  worsened  the 
budgetary position in 2017 and 2018, although. In a letter sent to the Commission on 31 May 
2019,  the  Belgian  authorities  highlighted  their  commitment  to  structural  reforms  and  a 
strategic public investment plan. 

The analysis presented in this report includes the assessment of all the relevant factors and 
notably:  (i)  the  macroeconomic  conditions,  which  are  no  longer  considered  a  factor  to 
explain  Belgium's  gap  to  the  debt  reduction  benchmark;  (ii)  the  implementation  of  growth-
enhancing structural reforms in past years, several of which are considered substantial and 
projected  to  help  improve  debt  sustainability,  even  if  they  have  a  temporary  non-neutral 
budgetary impact; (iii) the fact that there is no sufficiently robust evidence to conclude on the 
existence of a significant deviation from Belgium’s adjustment path towards the MTO in 2018 
and over 2017 and 2018 taken together. Overall, the current analysis is not fully conclusive 
as  to  whether  the  debt  criterion  as  defined  in  the  Treaty  and  in  Regulation  (EC)  No 
1467/1997 is or is not complied with. 

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