Belgium's hidden debts: experts are alarmed - Economic Policy

Belgium’s hidden debts: experts are alarmed – Economic Policy



Ageing, employment, climate, defence…: our country is hiding major issues under the budgetary carpet, for lack of essential reforms, while debt is once again becoming a concern.

The reports follow one another to call on Belgium to undertake major reforms, in a deteriorating socio-economic context. National Bank, Planning Bureau, group of seven experts mandated by the government for purchasing power, European Commission, OECD and employers’ organizations: warnings and proposals are multiplying to limit the impact of geopolitical upheavals on the power of purchasing and competitiveness.

The reports follow one another to call on Belgium to undertake major reforms, in a deteriorating socio-economic context. National Bank, Planning Bureau, group of seven experts mandated by the government for purchasing power, European Commission, OECD and employers’ organizations: warnings and proposals are multiplying to limit the impact of geopolitical upheavals on the power of purchasing and competitiveness. The federal government of Alexander De Croo (Open Vld) is hard at work, but it is divided and its structural ambitions risk being reduced: the labor market reform has a limited scope, that of pensions continues to grow. be re-discussed, while taxation will wait for the next legislature. According to experts interviewed by Trends-Tendances, our country responds too little, too late, to the “hidden debts” that are accumulating. Nuanced analysis, starting from a few strong sentences stated in recent weeks. In its latest report, the National Bank confirms that the budget deficit is expected to stabilize, but at too high a level, around 5%. A concern, since Belgium’s indebtedness has returned to peaks after the covid crisis and the era of “free money” is over. For Governor Pierre Wunsch, the time has come for the return of caution and for a reorganization cure in order to be able to face the shocks of the future. “This is the point of view of the National Bank, tempers Giuseppe Pagano, professor of public finance at UMons. It is more or less neutral, certainly competent, but with a rigorous point of view. This is its role. But we must qualify. In the figures of the National Bank, there is good news and bad news. A good thing is that our level of debt in relation to GDP has decreased since the peak of the covid crisis, of 112% to 107%.On the other hand, it’s true, a deficit of 5% of GDP is too much compared to the European standard of 3%, or even compared to the need to return to equilibrium given of our high indebtedness.” This will require a cure and a budgetary exercise… “as has been the case for 40 years that I have been following the budget”, smiles Giuseppe Pagano. Is it worrying? “Very frankly, the answer is no, continues the public finance specialist from Mons. When I hear that Belgium is close to Greece’s situation, it makes no sense! The risk of bankruptcy is minimal. The proof , is that we can borrow today at a rate of 2.4% with 8% inflation. In other words, a largely negative real rate. That being said, of course, we cannot increase debt forever There is no limit per se – Japan is at 230% of its GDP – but one must always be careful of the risk that the markets will wake up. of positive real interest from 2023 is very likely.” Where there is reason to be vigilant, however, adds Giuseppe Pagano, it is indeed in view of new crises – “who says that we will not experience one quickly, as we have accumulated in recent years with banks, covid or Ukraine?” – without forgetting the expected shocks that we are already facing. “Both the aging of the population and the climate challenge or the need to increase our military spending with the return of war in Europe will require colossal resources”, underlines the specialist. So many “hidden debts”. “In this context, I do not think that we will be able to significantly reduce public spending, he believes. Except by touching on social security, but it seems to me unlikely that the population will accept a 15% reduction in pensions or family allowances. Read also | Wallonia among many “stagnant” regions of EuropeJean Hindriks, president of the Economics School of Louvain and a leading specialist in pensions, is particularly alarmist about our management of the aging of the population. “For the moment, among the measures proposed on the political level, none makes it possible to reduce expenditure, he worries. We are even acting in the opposite direction, with the increase in the minimum pension or the bonus pension However, in recent years, expenditure on pensions has no longer been covered by revenue from contributions.This has to be made up with ‘subsidies’, in particular VAT, and the situation is not favorable for consumption. “The payment of pensions is a squaring of the circle which is becoming more and more complicated, continues Jean Hindriks. Especially since the automatic indexation of wages will also affect pensions. The additional cost, over one year, will be more than 5 billion euros. The automatic nature of this indexing for all could be reviewed, believes the expert. “The adjustment value is the debt, he says. However, the rise in rates makes this more complicated. The only answer to finance pensions is to sharply increase the employment rate.” Increasing the employment rate: this is a priority for the De Croo government, which is aiming for 80% by 2030 but is itself only in charge until the 2024 elections… To achieve this, measures (relatively timid) have been taken in terms of work flexibility and productive agreements put in place to exchange needs between the Regions. But “the” big issue remains the end of careers for 55-60 year olds, insists Jean Hindriks. However, the recommendations made on this subject in… 2015 by the group of experts in which the professor had participated remain largely a dead letter. Read also | Towards a new debt crisis in Europe? Among the people to put back on the path to employment, there are the long-term sick, whose number has now exceeded that of the unemployed. Another “hidden debt”. “We have actually moved the problem, without attacking the roots of the evil”, underlines Jean Hindriks. Support measures for the unemployed, but also the lack of flexibility for career ends or life course management, have caused many people to “slide” from one category to another. “We have an end-of-career scheme that dates back to the time when baby boomers entered the job market, sums up the president of the Economics School of Louvain. Now it’s the opposite: baby boomers are going away and we are faced with problems of shortages. We must therefore reverse the inflections, and replace end-of-career measures with positive incentives, flexibility, salary adjustments…” Belgium, insists Jean Hindriks, is losing this “war” of talent with neighboring countries, including the Netherlands and France, which have become more aware of the issue and are taking action. General mobilization also involves lifting a “taboo”: the need to substantially increase the employment of foreigners outside the European Union and to combat the discrimination that remains too great. Finally, we’re talking about it. This was the whole point of the National Employment Conference, which brought together politicians and social partners on June 14 and 15. “It’s the other facet of the same problem, underlines Jean Hindriks. There too, we lost time.” Read also | Employment, pensions, taxation…: to your reforms, comrades! Problematic debt, stranded reforms…: these “hidden debts” inevitably weigh on the tax reform to come and the showdown between left and right on taxation capital or tax cuts. “The problem is that no one defends the state anymore, gets carried away by Edoardo Traversa, professor of tax law at UCLouvain. The liberals lower taxes but they never compensate. And the left constantly considers that the “we can spend more. On both sides, we use the public authorities like Mister Cash!” The question is not so much whether to reduce the tax burden, underlines this tax specialist, but to ensure the transparency of the system, confidence in the State, while attacking the too many tax loopholes that have emerged over the years. Following the example of the Nordic countries. “Let’s not forget that having credible institutions and viable financing is the only way to put a stop to chaos”, warns Edoardo Traversa. The UCLouvain professor still insists on reporting of State budget expenditure, a posteriori control, an evaluation of actions. In short, management worthy of a healthy business. “Similarly, when drawing up a budget, it is essential to integrate hidden debts such as ageing, the cost of climate transition or geopolitical risks, concludes Edoardo Traversa. So that we know precisely where we are going to develop a credible tax system.” As we can see, it now remains to be reformed. And by “stopping the brols”, to use the words of Georges-Louis Bouchez in reaction to the proposals of government experts…


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