kom (2018) 0120 - Ingen titel

Europaudvalget 2018
KOM (2018) 0120
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EUROPEAN

COMMISSION

Brussels, 7.3.2018

SWD(2018) 200 final

COMMISSION STAFF WORKING DOCUMENT

Country Report Belgium 2018

Accompanying the document

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN

PARLIAMENT, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE

EUROGROUP

2018 European Semester: Assessment of progress on structural reforms, prevention and

correction of macroeconomic imbalances, and results of in-depth reviews under

Regulation (EU) No 1176/2011

{COM(2018) 120 final}

kom (2018) 0120 - Ingen titel

CONTENTS

Executive summary

1. Economic situation and outlook

2. Progress with country-specific recommendations

3. Reform priorities

3.1. Public finances and taxation

3.2. Financial sector

3.3. Labour market, education and social policies

3.4. Investment and Competitiveness

3.5. Sectoral policies

Annex A: Overview Table

Annex B: Macroeconomic Imbalance Procedure Scoreboard

Annex C: Standard Tables

References

LIST OF TABLES

Table 1.1:

Table 2.1:

Table 3.2.1:

Table B.1:

Table C.1:

Table C.2:

Table C.3:

Table C.4:

Table C.5:

Table C.6:

Key economic and financial indicators – Belgium

CSRs progress

Financial soundness indicators, all banks in Belgium

The MIP scoreboard for Belgium (AMR 2018)

Financial market indicators

Headline Social Scoreboard indicator

Labour market and education indicators

Social inclusion and health indicators

Product market performance and policy indicators

Green growth

LIST OF GRAPHS

Graph 1.1:

Graph 1.2:

Breakdown of GDP growth

GDP - comparison across countries, index 2009=100

kom (2018) 0120 - Ingen titel

Graph 1.3:

Graph 1.4:

Graph 1.5:

Graph 1.6:

Graph 1.7:

Graph 1.8:

Graph 1.9:

Graph 2.1:

Graph 3.1.1:

Graph 3.1.2:

Graph 3.1.3:

Graph 3.2.1:

Potential growth across time and countries

Breakdown of households disposable income growth

Harmonised consumer price inflation

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

Breakdown of the current account balance

NFC debt and benchmarks

Valuation levels and latest housing price growth

Overall multiannual implementation of 2011-2017 CSRs to date

Government primary expenditure in 2016, % of GDP

Public debt medium-term projection and scenarios ( % of GDP)

Tax burden on labour for a single person at the average wage (2016)

Overvaluation gap with respect to price/income, price/rent and fundamental model

valuation gaps

Graph 3.2.2:

Graph 3.3.1:

Graph 3.3.2:

Graph 3.3.3:

Graph 3.3.4:

Graph 3.3.5:

Graph 3.3.6:

Graph 3.3.7:

Graph 3.3.8:

Gap to the fundamental-based and prudential benchmarks

Key labour market indicators

Relative dispersion of employment rates by education level, 2005 and 2016

Change in average take-home pay after the tax-shift

Characteristics of the employed, unemployed and inactive (20-64), 2014

Pay gap between older (50+) and younger (30-39) workers , 2014

Likelihood of employment by origin, gender and educational attainment

Share of the population (25-54) living in very low work intensity households, 2005-2016

Between schools variation in performance explained by schools' and students' social-

economic status (PISA 2015- Science)

Graph 3.4.1:

Graph 3.4.2:

Graph 3.4.3:

Developments in labour productivity growth (Gross value added per hours worked)

Distribution of labour productivity growth, Belgium, (average 2011-2013)

Federal fiscal measures in support of R&D (left scale in billion EUR) and business R&D

(right scale in billion EUR), 2008-2015

Graph 3.4.4:

Graph 3.4.5:

Determinants of changes in unit labour cost

Contribution of the main product groups to the inflation differential with the EA

LIST OF BOXES

Box 2.1: Tangible results delivered through EU support to structural change in Belgium

Box 3.3. 1: Monitoring performance in light of the European Pillar of Social Rights

Box 3.3.2: Policy highlight: Reform of early childhood and compulsory education in the French

Community (Pact for Excellence in Teaching, 2015-2030)

Box 3.4.1: Investment challenges and reforms in Belgium

kom (2018) 0120 - Ingen titel

EXECUTIVE SUMMARY

The favourable economic environment provides

a window of opportunity to boost the reform

momentum tackling long-term challenges in the

area of public finances, labour market

participation

and

investment(

Recent

structural reforms have borne fruit in terms of an

improved competitiveness and a job-rich recovery.

Potential growth is trending upward since it

bottomed out in 2013. Nevertheless, it remains

below its pre-crisis estimates as remaining barriers

to competition in market services and a narrow

innovation base weigh on productivity growth.

While recent government measures have spurred

employment growth, a high inactivity rate

combined with a high vacancy rate is suggesting a

high level of skills mismatches. The quality of the

transport network is low and reflects the low level

of public investment.

Economic growth is expected to have

accelerated to 1.7 % in 2017 underpinned by

robust domestic demand for both private

consumption

and

investment

purposes.

Household consumption is expected to gain

momentum in 2017-2019 in line with the projected

increase in disposable income. Business

investment is expected to continue expanding over

the forecast period, supported by sizeable liquidity

reserves and favourable financing conditions with

persistently low interest rates. The contribution of

net exports is estimated to have improved after

being a drag on growth in the previous year.

Recent developments suggest that the inflation

differential with the euro area is decreasing

Between 2018 and 2019 Belgium's economic

growth is projected to accelerate, progressing to an

average annual pace of 1.8 %. This compares with

an average growth of 1.4 % between 2014 and

2016.

Though falling public debt is still high.

Since

peaking in 2014 at 106.8 % of GDP, public debt

has been falling very gradually. The general

government deficit is expected to have dropped

(

) This report assesses Belgium’s economy in the light of the

European Commission’s Annual Growth Survey, published

on 22 November 2017. In the survey, the Commission calls

on EU Member States to implement reforms to make the

European economy more productive, resilient and

inclusive. In so doing, Member States should focus their

efforts on the three elements of the virtuous triangle of

economic policy — boosting investment, pursuing

structural reforms and ensuring responsible fiscal policies.

significantly in 2017. In 2018, only a moderate

progress is expected unless additional budget

measures are taken. There remains a wide gap

between the estimated structural deficit in 2017

and the country’s medium-term objective of a

balanced budget in structural terms.

Belgium has made limited progress in

addressing

the

2017

country-specific

recommendations.

There has been limited

progress with distributing fiscal targets among the

various levels of government in a way that can be

enforced and with improving the composition of

public expenditure. Some progress has been made

with eliminating tax breaks that causes distortions.

There are no plans at federal level to introduce a

systematic review of public spending as a

permanent feature of budget planning. However,

the National Plan for Strategic Investment provides

for an increase in infrastructure investment. Some

progress has been made as regards equal

opportunities to participate in quality education

and vocational training, as Communities are

phasing in major school reforms, but progress on

equal access to the labour market remains limited.

There has been some progress with encouraging

investment in knowledge-based capital, even if

measures vary in scope at the regional, community

and federal levels. Progress on sectoral regulation

has been overall limited. For certain professional

services regulatory restrictions impact competition.

Limited progress has been made in improving the

functioning of the retail sector for the benefit of

businesses and consumers and in improving

market mechanisms in network industries.

Regarding Belgium's progress towards its national

targets under the Europe 2020 strategy, the

employment rate target of 73.2 % is still out of

reach, despite substantial job creation. It is at risk

of failing to meet the targets for greenhouse gas

emissions, renewable energy, energy efficiency

and reducing the risk of poverty. By contrast,

Belgium reached its early school leaving target in

2016 and is broadly on track to reach the targets

for R&D intensity and increasing tertiary

educational attainment.

Belgium performs globally well on the

indicators of the Social Scoreboard supporting

the European Pillar of Social Rights, whilst

challenges remain.

Participation in adult learning

is relatively low and educational outcomes show

kom (2018) 0120 - Ingen titel

Executive summary

considerable variations linked to socio-economic

status and migrant background. Some population

groups including people with a migration

background could be better integrated in the labour

market. Belgium has one of the largest gaps

between the risk of poverty or social exclusion for

persons with disabilities and those without.

Belgium has good outcomes in terms of gender

equality and childcare.

Key structural issues analysed in this report, which

point to particular challenges for Belgium's

economy, are the following:



Sustainability of public finances remains a

challenge.

The pension reforms enacted in

2015 were a first significant step to address

risks related to the long-term cost of ageing.

Nevertheless, recent projections point to a large

increase in long-term expenditure for both

pensions

and

long-term

care.

Fully

implementing the different steps envisaged by

the reform would help reduce these risks. In

particular, plans to introduce a credit based

public pension system may improve long-term

fiscal sustainability, by providing for automatic

adjustment mechanisms in response to

structural demographic or economic changes.

Risks of fiscal stress appear to be contained in

the short term. Furthermore, contributions to

the Belgian Deposit Guarantee Scheme are not

invested in a separate portfolio of low-risk

assets.



There is scope to give spending restraint a

larger role in fiscal consolidation.

Total

public expenditure as a percentage of GDP is

above the euro area average. At present, no

level of government in Belgium is bound by

domestic expenditure rules, with the exception

of a ceiling for healthcare spending. This

prevents spending-based fiscal consolidation.



Low productivity growth remains a

challenge, for future economic prosperity.

Investment in research and innovation and

other ‘intangibles’ assets, which have the most

potential for innovation output, is high but

rather narrowly focused.Innovation must be

better diffused and the innovation base must be

broadened. There is a wide and increasing

productivity gap between the most productive

firms and the rest. The share of firms directly

connected to foreign markets, which appear to

have higher productivity, is small. Public

support for R&D has grown much faster than

business R&D spending. This raises questions

about the efficacy of the schemes, in the

absence of in-depth evaluations.



Mobility in Belgium suffers from insufficient

public

investment

infrastructure,

distortive tax incentives, lack of competition

in transport services, causing major

congestion and hindering productivity

growth.

Shortfalls in infrastructure investment,

especially in the road, waterways and rail

networks, reflect the persistently low level of

public investment. Combined with perverse tax

incentives (for company cars), this contributes

to aggravating Belgium’s traffic congestion,

which is already Europe’s heaviest. The

environmental gains of the planned change in

the system of company cars may be very

limited. Belgium remains Europe’s most

congested country in terms of hours wasted in

traffic and delays, in particular around Antwerp

and Brussels. This is unlikely to change in the

short run, partly because of long delays in

several major public infrastructure projects.

Several transport services markets are also not

open to competition.



Belgium ranks among the poorest

performers in the EU on entrepreneurship.

A still heavy administrative burden weighs on

businesses and digitisation of public services,

including courts. Although several policy

measures have been adopted in recent years to

foster entrepreneurship, there is evidence that

start-ups or businesses without a mature

balance sheet have difficulty accessing

traditional bank financing.



High restrictions in some professional

services and the construction sector hold

back competition, and the retail sector still

faces challenges.

Belgium's productivity

would benefit from tackling barriers in

services. Low competitive pressures in services

markets are also harming manufacturing

industries, which increasingly depend on

services inputs. Retail prices remain relatively

high despite recent measures to improve the

kom (2018) 0120 - Ingen titel

Executive summary

functioning of the retail sector. Recent

legislatives changes, such as the regulation of

night work, are welcome, but more flexibility is

needed to fully exploit their potential.



Employment growth has recently been

sound, but labour market participation

remains low.

Unemployment has declined to

pre-crisis levels. Nevertheless, the employment

rate remains low and a relatively large

proportion of the labour force is inactive.

Disincentives to work remain high in spite of

efforts to reduce the labour tax wedge (the

difference between the total employer’s labour

cost and the worker’s take-home pay). At the

same time, the vacancy rate is among the

highest in the EU. This suggests major skills

mismatches related to, among other factors,

historical high labour costs and taxation, low

mobility and inadequate language skills. There

are also persistent strong regional disparities in

labour market performance. Inactivity and

unemployment are largely concentrated among

low-skilled, young, people with a migrant

background, older workers and people with

disabilities. There is evidence that activation

measures are not equally effective for all

population groups. Some specific groups, such

as persons in quasi jobless households with

children, show higher poverty rates than the

EU average.



Belgium combines good overall education

performance

with

high

educational

inequalities.

Children with a disadvantaged

background including those with a migrant

background do not have equal opportunities to

access quality education. The proportion of

graduates in science, technology and

mathematics is one of the lowest in the EU.

Top performance is declining, particularly in

mathematics. There are wide performance gaps

between schools and major differences between

the Communities. Growth in the school

population is one of the highest in the EU. The

share of disadvantaged groups will increase,

making challenges in education more difficult

to address. Both the Flemish and the French

Communities have embarked on major reforms

their

education

systems.

Their

implementation is planned over the next decade

and beyond.



In spite of recent reforms, the Belgian tax

system remains complex.

The reform of the

corporate income tax will lower statutory rates

and help simplify the system. Nevertheless,

many exemptions and distortionary incentives

remain, as the rising trend in the total amount

of tax breaks shows. The opportunity to shift

taxes to more growth-friendly bases could be

further used. Revenues from environment

related taxes are still among the lowest in the

EU. Finally, some features of the Belgian

taxation system, in particular the lack of

specific anti-abuse rules for the notional

interest deduction regime may facilitate

aggressive tax planning via ‘cascading’.



The distribution of debt and assets across

households reveals some pockets of

vulnerability,

despite

their

overall

favourable wealth position.

A prolonged

period of house prices increasing faster than

households' disposable income has made the

financial situation of households more fragile

through an almost mechanical increase in their

debt. Although measures have been announced,

the complex national macro-prudential

decision-making process may leave financial

stability risks unaddressed. House prices

appear currently to be slightly overvalued.



Belgium’s environment and climate policies,

although performing well in some areas, are

still not doing enough to reduce local air

pollution and greenhouse gas emissions.

Belgium is not fully exploiting its potential to

become a low-carbon innovation leader. Plans

to decarbonise the economy while guaranteeing

the security of supply will require significant

investment in the energy system and in

innovation. The EU’s investment instruments

could be deployed to support these efforts.

kom (2018) 0120 - Ingen titel

ECONOMIC SITUATION AND OUTLOOK

Graph 1.1:

3.0

pps.

Economic growth

Breakdown of GDP growth

Economic growth is expected to have

accelerated to 1.7 % in 2017, underpinned by

robust domestic demand, both in terms of

consumption and investment.

The contribution

of net exports is expected to become flat after

being a drag on growth in 2016. In the absence of a

positive contribution from net exports, growth in

economic activity is projected to remain

comparable in 2018 at 1.8 % and 2019 at 1.7 %

(see Graph 1.1). Between 2017 and 2019 economic

growth in Belgium is projected to accelerate,

progressing at an average annual pace of 1¾ %.

This compares with an average growth of 1�½ %

over the previous three years.

The Belgian economy proved fairly resilient in

the wake of the global economic recession in

2009.

GDP quickly regained pre-crisis levels,

thanks to strong economic growth in 2010 and

2011. That recovery period was followed by near

stagnation, in 2012 and 2013. Economic activity

rebounded over the next two years, with growth

reaching 1.4 % both in 2014 and 2015. In 2016

GDP grew by 1.5 %, despite the drag from the

March terrorist attacks and their aftermath, which

is nevertheless assessed as limited and transient.

Economic growth is expected to rise to 1.7 % in

2017 and 1.8 % in 2018.

As in the recent years,

domestic demand is expected to be the main driver

of growth. Households' purchasing power is

projected to pick up as a new collective wage

agreement comes into effect and the job market

continues to develop favourably. Investment by

both business and households is also expected to

contribute significantly to growth. The local

investment cycle, the start of major infrastructure

works and defence investments are expected to

drive public investment growth in 2018. Public

investment is projected to slightly edge up to 2.3 %

of GDP in 2018. The contribution of net exports to

growth is expected to remain broadly neutral, as

stronger domestic demand will raise the demand

for imports, with exporters making only modest

market share gains.

2.0

1.0

0.0

-1.0

-2.0

-3.0

17e 18f

19f

net exports

investment

private consumption

changes in inventories

government consumption

GDP growth (%)

Source:

European Commission

Belgium has done better on average than the

euro area as a whole, even though it has lagged

behind Germany, since the global economic

recession broke

(see Graph 1.2). Nevertheless,

Belgium's economic performance, though robust,

has recently underperformed compared to the euro

area where growth has averaged 2 % between 2015

and 2017 (compared to 1.5 % in Belgium). In this

regard, it is important to recall that the euro area

aggregate includes countries, which have

experienced large swings in their economic

performance during and after the recent economic

crisis. By contrast Belgium's growth has been

much more resilient with a fairly stable pace of

growth in recent year. This is a sign of an economy

with broadly based fundamentals. Moreover, the

recent consolidation measures imposed by the

government (see the section on public finances)

are likely to have depressed domestic demand to

some extent, at least in the short term.

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

Graph 1.2:

GDP - comparison across countries, index

2009=100

120

118

116

114

112

potential growth. This means that potential growth

is rather unlikely to return to the pre-crisis level

(see section 3.4.1).

Graph 1.3:

2.5

Potential growth across time and countries

110

108

106

104

102

100

2.0

1.5

1.0

17e

EA-19

0.5

Source:

European Commission

0.0

EA-19

Actual economic output already exceeds

potential growth, estimated at around 1.5 %

over 2017-2019.

Potential growth bottomed out at

around 0.8 % in 2013 and has since been trending

upward. Nevertheless it remains below the pre-

2009 estimates for potential growth. This is a

feature Belgium shares with several member states

and, in general, the euro area as whole. The major

exception is Germany, where potential growth is

predicted to accelerate in the near future (see

Graph 1.3).

The decline in Belgium's potential growth

compared to the pre-2009 period is broad-based

across its determinants

(see European

Commission, 2017a). The low potential growth is

mainly driven by declining long-term trend in

gains in total factor productivity, which are

estimated to have stabilised at a low level in recent

years. The contribution of labour has also fallen as

result of slower growth in the working-age

population, without any change in the average

hours worked. Finally, capital accumulation has

been somewhat lower than in the pre-crisis period.

As for the post-crisis period between 2015 and

2019, potential growth is projected to make a

subdued recovery, mainly because total factor

productivity (TFP) growth remains relatively low

compared with the pre-crisis period. Demographic

ageing (see section 3.1), which is projected to

affect Belgium and almost all European countries,

will increasingly depress labour's contribution to

2000-2008

2009-2014

2015-2019

Source:

European Commission

Since 2014 domestic demand has been the main

driver of growth, with the contribution of net

export going from negative to neutral.

Within

domestic demand, the contribution of public

consumption has declined over time, in line with

the authorities' recent consolidation efforts. Real

current public consumption growth (deflated by

GDP deflator) slowed from an average of 2.4 %

over 2000-2013 to an average of 0.4 % between

2014 and 2017. By contrast, private consumption

growth has proved fairly resilient even during the

recession years, and it has picked up recently.

Household consumption is expected to gain

momentum in 2017-2019 in line with the

projected increase in disposable income.

Following the financial crisis, the purchasing

power of Belgian households abated, growing by

an average of 1.4 % between 2010 and 2014

(compared with 3.7 % between 2000 and 2009).

This trend mostly reflects a sustained effort by

successive governments to moderate wage growth

in order to correct for past losses in cost

competitiveness. In response to the erosion of their

purchasing power, households cut their spending,

but not enough to keep pace with the fall in their

disposable income resulting in a gradual reduction

in the savings ratio. Income growth has picked up

since 2016. Following a real wage freeze and a

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

temporary suspension of nominal wage indexation

schemes, wages are again being adjusted for the

cost of living. Some real wage increases are again

being allowed, while income tax reductions have

also been introduced since 2016 as part of a

multiannual tax reform (see Section 3.1). A

relatively strong labour market performance is also

contributing to growth in households’ purchasing

power. By contrast, the recent sharp downturn in

nominal interest rates has substantially reduced net

household interest income (see the section on

household indebtedness). Overall, household

consumption is estimated to have grown by 1.8 %

in 2017 and to rise to 1.9 % in 2018 and 1.8 % in

2019.

Business investment is shored up by favourable

financing conditions, and more specifically by

the sizeable liquidity reserves and the

persistently low interest rates.

Recent

government measures to rein in wage growth are

expected

have

improved

the

cost

competitiveness of Belgian companies, resulting in

a steady increase in profit margins. Given the

projected favourable international environment,

business investment is expected to continue

expanding in the forecast horizon.

Graph 1.4:

Breakdown of households disposable income

growth

alternative investment assets are attracting

mounting investment flows. At the same time, the

local government investment cycle in the run-up to

local elections in 2018 and the start of large

infrastructure works are forecast to drive public

investment in 2017-2019. However, the public

investment-to-GDP ratio of around 2.4 % is

nevertheless expected to remain among the lowest

in the EU (see section 3.4).

Inflation

After peaking in February 2017 at 3.3 % y-o-y,

headline inflation growth slowed in the rest of

the year.

Headline inflation rose to 2.2% in 2017,

up from 1.8% in 2016, mainly due to higher

energy prices. The inflation gap between Belgium

and the euro area narrowed to 0.7 pps. in 2017 (see

Graph 1.5). Comparatively high headline and core

inflation has been a recurrent feature of the

Belgian economy in the recent past. However, as

the impact of the specific government measures

contributing to the gap is fading out, the difference

with the euro area inflation is expected to further

narrow over the forecast period. The headline

inflation gap with the euro area is discussed in

Section 3.4.

Graph 1.5:

1.5

0.5

-0.5

Harmonised consumer price inflation

2.5

pps.

-1

-2

-1

-2

-3

-1

-1.5

Jul-17

Jan-17

Jul-16

Jan-16

Jul-15

Jan-15

Jul-14

Jan-14

Jul-13

Jan-13

Jul-12

Jan-12

Jul-11

Jan-11

Jul-10

Jan-10

Jul-09

Jan-09

Jul-08

Jan-08

Jul-07

Jan-07

Jul-06

Jan-06

Jul-05

Jan-05

Other incomes

Property income

Gross disposable income

Current transfers

Labour income

17e

HICP: BE vs. EA (rhs)

HICP BE

HICP EA

Source:

European Commission

Source:

European Commission

Investment in construction has also been

buoyant thanks to housing and public

infrastructure projects. Historically low

mortgage interest rates

and low yields on

Labour market and social developments

Employment growth has recently been sound.

In 2016, robust economic growth, supported by

competitiveness gains, resulted in sound

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

employment growth (1.3 % in 2016) and a drop in

the unemployment rate (7.2 % in 2017Q3), which

is now close to the pre-crisis level (7.0 % in 2008).

The employment is rate well below the EU average

(68.5 % vs. 72.6 % in the EU in 2017Q3).

High inactivity and low employment rates in

some population groups pose risk to the

sustainability of public finances in the context

of an ageing population.

Belgium combines a low

employment rate with a high inactivity rate

(26.7 % in Belgium vs 22.5 % in the EU). The

average working life in Belgium is one of the

shortest in the EU: 32.6 years, versus 35.6 years in

the EU28 in 2016. The labour market remains

highly fragmented across the regions and

population groups. Older and low-skilled workers

and people with a migrant background are

particularly affected by poor labour market

outcomes. The number of people living in

households with very low work intensity is among

the highest in the EU (see section 3.3).

Graph 1.6:

Employment growth (y/y % change); self-

employed and employees)

average for the euro area countries (

). However,

the variation in 2015 PISA science score by

parental background remained much higher than in

other EU countries, indicating a lack of equal

opportunities to quality education and specific

concerns for children with a migrant background

(see Section 3.3 on Skills and Education). This

inequality is compounded by the high and rising

poverty risk facing the children of low-skilled

parents (58.3 % in 2016, as compared with an EU

average of 52.4 %).

External position

In 2016 the current account balance moved to a

small surplus position after 5 years of deficit.

The deficit gradually shrank from -1.1 % of GDP

in 2011 to -0.1 % of GDP in 2015, and in 2016 it

moved to a surplus of 0.1 % of GDP, (see Graph

1.7). The main component of the improving trend

has been the trade balance. By contrast, while the

services and the investment income balance went

through a gradual but steady decline, the surplus of

the labour income has increased over time.

Graph 1.7:

6.0

4.0

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

Breakdown of the current account balance

6.0

4.0

2.0

0.0

-2.0

-4.0

-6.0

good exports, net

services exports, net

secondary income

current account

2.0

0.0

-2.0

-4.0

-6.0

Source:

European Commission

labour income

investment income

Though income and wealth inequality remain

stable and below the EU average, children from

disadvantaged backgrounds suffer from

inequality of opportunity.

The combination of a

highly progressive personal income tax and

generous cash benefits reduces inequality of

household income to below the EU average, while

the Gini coefficient for net wealth is below the

Source:

European Commission

After seven years of deficit, the goods balance

returned to surplus in 2015 and this surplus

remained broadly stable in 2016.

Changes in the

(

) As measured by the headline indicator of the Social

Scoreboard, the S80/S20, which for Belgium was 3.8 in

2016, below the EU average of 5.2. Data on net wealth is

calculated based on the households financing and consumer

survey (HFCS) of the ECB (2015).

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

oil price go a long way in explaining developments

in the goods balance. Nevertheless there was also a

marked volume effect in recent years. Following a

steady decline in global export market shares by

volumes since 2002 — only interrupted in 2003,

2007 and 2013 — significant gains have been

measured in 2016 (mostly linked to the

reorganisation of the commercial activity of one

large enterprise).

Belgium's net international investment position

(NIIP) maintains a solid net creditor position in

relation to the rest of the world.

The balance

between external financial assets and liabilities is

about 50 % of GDP, one of the highest figures in

the EU. This surplus has its origin in the private

sector, more in particular Belgian households, who

own gross assets — foreign and domestic —

representing about 240 % of GDP.

Private indebtedness

equity within corporate income taxation.

Nevertheless, the recent changes introduced by the

government in the notional interest scheme are

likely to make it less interesting for corporations.

Graph 1.8:

140

120

100

NFC debt and benchmarks

% of GDP

Private debt was relatively high at 190.1 % of

GDP in 2016.

The bulk of it is constituted by

corporate debt. At 131 % of GDP in 2016 is much

higher than fundamental drivers would suggest. It

is also above the level generally associated with

higher risks of a banking crisis. A closer analysis

shows that most of the increase since 2007 is

actually linked to cross-border intra-group lending,

which is included in the consolidated figures in

national accounts. The increase in liabilities as a

result of intra-group lending (estimated at around

100 % of GDP) pushes up the debt-to-GDP ratio,

though these liabilities are matched by an almost

equivalent amount of assets and thus bear a lesser

degree of risk (National Bank of Belgium, 2017a).

Excluding debt from other companies, be they

domestic or foreign, the debt of Belgian non-

financial corporations is actually much closer or

below the various benchmarks suggesting that

deleveraging needs are actually modest (Graph

1.8) (

). The practice of cross-border intra-group

lending has been stimulated by the notional

interest deduction, an allowance for corporate

(

) Fundamental-based benchmarks are derived from

regressions capturing the main determinants of credit

growth and taking into account a given initial stock of debt.

Prudential thresholds represent the debt threshold beyond

which the probability of a banking crisis is high,

minimising the probability of missed crisis and that of false

alerts. See also European Commission (2017),

"Benchmarks for the assessment of private debt", Note for

the Economic Policy Committee.

Source:

National Bank of Belgium, European Commission

Household debt stood at 60 % of GDP in 2016.

This represents an increase of about 20 percentage

points of GDP since 2000, when it stood at 40 %

of GDP. One of the main reasons for the rise is the

rapid increase in lending for housing purchases.

This lending is underpinned by the recent sharp

drop in interest rates, although mortgage interest

tax deductions have been made less beneficial.

House prices rose sharply in real terms before

2008,

and there are now indications of price

overvaluation in the Belgian real estate market

(cfr. Section 3.2). They increased by around 70 %

in 1997-2008 or 5 % on average annually (see

Graph 1.9). They have been broadly flat since,

increasing by an average of 0.5 % annually. A

prolonged period of housing prices increasing at a

quicker pace than households' disposable income

has made the financial situation of households

more fragile and contributed to their indebtedness.

Massive refinancing of mortgage loans and the

closing of new loans at lower rates have brought

down interest payments from around 3 % of

disposable income in 2007-2008 to below 1 % in

recent years. While supportive financing

conditions thus appear to have prevented a house

price correction, this also suggests how rising

interest rates might put pressure on house prices.

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

NFC Cross-border intercompany loans

NFC loans (excl. Cross-border intercomp.)

Fundamental-based benchmark

Prudential threshold

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

Graph 1.9:

Valuation levels and latest housing price

growth

in recent years appears to have halted. The

financial sector is covered in Section 3.2 of the

report.

Public finances

Deflated house price y-o-y growth, latest (%)

-2

-4

-30

-20

-10

Estimated valuation gap, 2016 (%)

Source:

European Commission

As a result of the rapid increase in household

indebtedness and price developments, the

European Systemic Risk Board (ESRB) has

warned of medium-term vulnerabilities in the

Belgian residential real estate sector

(

Although household debt amounts to only around

20 % of total assets held by Belgian households

(up from 14 % in 2000), there are sizeable pockets

of vulnerability. Specific groups of highly indebted

households (i) hold large mortgage loans in

relation to the value of their real estate property,

(ii) spend a large proportion of income on debt

service, or (iii) have a low level of net financial

wealth compared to their indebtedness (ESRB,

2016). Risk concentrations could materialise in the

event of an economic downturn with knock-on

effects on income. Such a scenario might lead to

credit losses to banks, especially if accompanied

by a decline in house prices, following the

depreciation of the collateral held by the banks.

The National Bank of Belgium proposed a new

macro-prudential measure in November 2017,

consisting of a flat 5 percentage points add-on

(prolongation of the original measure) and a

multiplier of 1.33 on mortgage risk weights.

However, the ESRB has pointed out that no

measures have been taken to directly address

vulnerabilities due to highly indebted households,,

and that the tightening of credit standards applied

(

) The ESRB has issued warnings for eight Member States,

see:

https://www.esrb.europa.eu/pub/pdf/reports/161128_vulner

abilities_eu_residential_real_estate_sector.en.pdf.

According to the Commission's 2017 Autumn

forecast, the general government deficit is

expected to have dropped to 1.5 % of GDP in

2017 (

), continuing the process of consolidation

of Belgium’s public finances which started in

2009, when the fiscal deficit was recorded at

5.4 % of GDP.

This process halted in 2016 when

the deficit stalled at 2.5 % of GDP, and the

terrorist attacks temporarily affected the economic

environment, with generally disappointing tax

collection and revenue measures that fell short of

expectations. Conversely, additional spending to

improve security and cope with the influx of

asylum-seekers hampered the government

consolidation strategy. Higher than-initially-

anticipated inflation led, due to the indexation

mechanism, to higher spending for public wages

and social benefits. The authorities have postponed

their originally planned objective of achieving a

balanced budget for general government until

2019.

Public debt peaked at 106.8 % of GDP in 2014,

falling to 105.7 % in 2016 and 103.8% in 2017

The Commission 2017 autumn forecast predicts a

continuation of this trend, with the debt-to-GDP

ratio falling to 102.5 % and 101.2 % of GDP in

2018 and 2019, respectively. The authorities

organised a partial sale of the Belgian state's share

in BNP Paribas in May 2017, a transaction

representing 0.45 % of GDP. The most recent

budget made no mention of future divestments in

the financial sector. Public finances are discussed

in Section 3.1.

(

) Recent figures point to a lower general government deficit

of around 1 % of GDP.

(

) Recent figures point to a lower public debt of 103% of GDP

in 2017

kom (2018) 0120 - Ingen titel

1. Economic situation and outlook

Table 1.1:

Key economic and financial indicators – Belgium

forecast

2004-07 2008-12 2013-14 2015 2016 2017 2018 2019

2,9

0,6

0,8

1,4

1,5

1,7

1,8

1,7

1,9

1,3

0,8

1,2

1,4

1,5

1,3

5,9

5,6

5,7

1,2

1,5

-0,3

1,7

2,1

0,7

0,5

2,2

3,0

3,2

0,9

0,5

2,7

3,3

1,7

0,5

3,6

7,5

8,4

Real GDP (y-o-y)

Potential growth (y-o-y)

Private consumption (y-o-y)

Public consumption (y-o-y)

Gross fixed capital formation (y-o-y)

Exports of goods and services (y-o-y)

Imports of goods and services (y-o-y)

Contribution to GDP growth:

Domestic demand (y-o-y)

Inventories (y-o-y)

Net exports (y-o-y)

Contribution to potential GDP growth:

Total Labour (hours) (y-o-y)

Capital accumulation (y-o-y)

Total factor productivity (y-o-y)

Output gap

Unemployment rate

GDP deflator (y-o-y)

Harmonised index of consumer prices (HICP, y-o-y)

Nominal compensation per employee (y-o-y)

Labour productivity (real, person employed, y-o-y)

Unit labour costs (ULC, whole economy, y-o-y)

Real unit labour costs (y-o-y)

Real effective exchange rate (ULC, y-o-y)

Real effective exchange rate (HICP, y-o-y)

Savings rate of households (net saving as percentage of net

disposable income)

Private credit flow, consolidated (% of GDP)

Private sector debt, consolidated (% of GDP)

of which household debt, consolidated (% of GDP)

of which non-financial corporate debt, consolidated (% of GDP)

Gross non-performing debt (% of total debt instruments and total

loans and advances) (2)

Corporations, net lending (+) or net borrowing (-) (% of GDP)

Corporations, gross operating surplus (% of GDP)

Households, net lending (+) or net borrowing (-) (% of GDP)

Deflated house price index (y-o-y)

Residential investment (% of GDP)

Current account balance (% of GDP), balance of payments

Trade balance (% of GDP), balance of payments

Terms of trade of goods and services (y-o-y)

Capital account balance (% of GDP)

Net international investment position (% of GDP)

Net marketable external debt (% of GDP) (1)

Gross marketable external debt (% of GDP) (1)

Export performance vs. advanced countries (% change over 5 years)

Export market share, goods and services (y-o-y)

Net FDI flows (% of GDP)

General government balance (% of GDP)

Structural budget balance (% of GDP)

General government gross debt (% of GDP)

Tax-to-GDP ratio (%)

Tax rate for a single person earning the average wage (%)

Tax rate for a single person earning 50% of the average wage (%)

2,3

0,5

0,1

0,9

0,0

-0,2

1,0

0,0

-0,2

1,2

0,2

0,0

1,8

0,3

-0,6

0,5

0,6

0,8

1,4

8,2

2,1

2,7

1,6

1,1

-1,0

0,3

0,5

0,4

-0,1

7,6

1,7

2,5

-0,2

2,6

0,9

0,3

-0,2

0,1

0,4

0,3

-1,0

8,5

0,9

1,7

0,7

1,0

0,1

1,3

0,9

0,3

0,5

0,3

-0,6

8,5

1,1

0,6

0,0

0,5

-0,5

-1,6

-4,2

-2,9

0,5

0,6

0,3

-0,5

7,8

1,6

1,8

0,1

0,2

-0,1

-1,7

-0,4

2,8

0,4

0,6

0,4

-0,3

7,3

1,8

2,2

1,3

0,7

-1,1

0,9

1,2

0,4

0,7

0,4

0,1

7,0

1,6

1,5

1,9

1,0

-0,6

1,2

1,5

0,3

0,7

0,4

0,3

6,8

1,7

1,6

2,2

1,2

-0,5

9,0

9,3

124,6

43,9

80,7

2,6

1,9

24,8

2,5

6,7

5,9

2,3

2,5

-0,5

-0,2

35,5

0,4

-2,5

-2,0

-0,7

92,3

45,3

42,0

25,8

8,3

12,8

171,7

52,7

119,0

4,2

2,5

24,7

2,8

0,7

6,1

-0,3

-0,1

-0,5

-0,1

57,4

63,8

232,4

-2,2

-3,2

-3,5

-3,8

99,7

45,7

42,3

26,6

5,0

2,7

165,7

56,8

108,9

4,3

2,3

24,5

1,1

-0,5

5,8

-0,6

0,0

0,2

-0,2

48,5

57,1

190,6

-6,8

0,9

1,2

-3,1

-3,0

106,1

47,8

42,4

26,0

4,4

12,2

178,9

58,8

120,2

3,0

1,6

25,7

0,5

1,4

5,8

-0,1

1,7

0,9

0,0

47,2

52,9

199,8

-10,6

-5,4

3,5

-2,5

-2,2

106,0

47,3

42,0

25,0

3,7

12,4

189,2

59,2

130,1

2,6

2,5

26,4

0,2

1,0

5,9

0,1

1,3

0,7

0,1

51,2

48,6

206,0

-5,0

7,9

-1,7

-2,5

-2,1

105,7

46,5

40,8

21,6

1,4

27,2

-0,7

-1,0

0,0

-1,5

103,8

46,6

1,4

27,6

-0,9

-1,1

0,1

-1,4

-1,5

102,5

46,2

1,6

28,0

-0,9

0,1

-1,5

-1,7

101,2

45,9

(1) NIIP excluding direct investment and portfolio equity shares

(2) domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU

foreign-controlled branches

Source:

European Commission for forecast figures (Winter forecast 2018 for real GDP and HICP, Autumn forecast 2017

otherwise)

kom (2018) 0120 - Ingen titel

PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS

contributions, with more than proportional

reductions for lower salaries. The targeting of low

wages favours the young and the low-skilled, who

tend to have lower wages, but also the lowest

employment rates, and thus supports activation for

some of the most vulnerable groups. Overall,

estimates by the Federal Planning Bureau and the

National Bank of Belgium suggest an additional

job creation of 45,000–65,000 jobs by 2021.

Additional positive effects are expected from

reductions targeting SMEs and self-employed.

The recently adopted reform of the corporate

income tax system, once enacted, would further

reinforce the cost-competitiveness of the

Belgian economy.

The move towards a system

with lower statutory rates and fewer tax deductions

and exemptions will also help simplify an overall

complex tax system and increase the attractiveness

of the Belgian economy for doing business. The

extension of the tax shelter scheme to SMEs lifts

one of constrains to the development of dynamic

fast growing firms, providing easier access to

financing.

Graph 2.1:

Overall multiannual implementation of 2011-

2017 CSRs to date

Progress with the implementation of the

recommendations addressed to Belgium in 2017

has to be seen as part of a process which started

with the introduction of the European Semester

in 2011(

Looking at the multi-annual assessment

of the implementation of the CSRs since these

were first adopted, 64 % of all the CSRs addressed

to Belgium have recorded at least 'some progress'.

In particular, substantial progress has been made in

safeguarding the country competitiveness by

ensureing that wages evolve in line with

productivity. First steps to ensure the long-term

sustainability of the public finances have also been

adopted. Nevertheless, 36 % of these CSRs

recorded 'limited' or 'no progress' (see Graph 2.1).

The general government deficit has declined

from 4.1 % to 1.5 % of GDP between 2011 and

the end of 2017.

However, the achievement of the

target of a structurally balanced budget has been

postponed to 2019, with only limited progress

projected in 2018. The public debt-to-GDP ratio

has entered a declining trend since it peaked at

106.8 % of GDP in 2014 and contributes to soften

long-term sustainability concerns related to

expected rise in population ageing costs. In this

regard, the full implementation of the different

steps of the reform of the pension system decided

in 2014 will be a significant step towards

addressing the long-term cost of ageing.

Legislation already passed has tightened up the

minimum age and career requirements for early

retirement and raise the legal pension age for the

years to come. The more favourable pension

scheme for civil servants underwent a reform as of

2016.

Measures have taken to reverse previous losses

in competitiveness.

Between 2013 and 2017,

various wage moderation policies have been

implemented to improve the gradually eroding

cost-competitiveness, including a real wage freeze,

parametric changes to the indexation calculation

mechanism and a temporary suspension of wage

indexation agreements. In addition, in the

framework of the on-going tax reform measures

have been taken to reduce the tax wedge on labour

through gradual decreases in personal income

taxation

and

employers'

social

security

(

) For the assessment of other reforms implemented in the

past, see in particular section 3.

No Progress

28%

44%

Limited Progress

Some Progress

Substantial Progress

Full Implementation

16%

* The overall assessment of the country-specific

recommendations related to fiscal policy excludes

compliance with the Stability and Growth Pact.

** 2011-2012: Different CSR assessment categories.

*** The multiannual CSR assessment looks at the

implementation since the CSRs were first adopted until the

2018 Country Report.

Source:

European Commission

Investment is also crucial within a longer-term

perspective.

Although overall investment did not

experience the steep decline observed in other

countries in the wake of the financial crisis, the

situation is far less rosy when it comes to public

investment. This has been structurally low for

several decades, as a result of policy choices

within a context of prolonged fiscal consolidation.

kom (2018) 0120 - Ingen titel

2. Progress with country-specific recommendations

Sustained cutbacks in investment budgets have

resulted in net public investment, averaging zero

since the 1990s, eroding the quality of public

infrastructure (cf. section 3.4). The political

agreement for a national pact for strategic

investments, the announcement of an inter-federal

energy pact in 2017 and calls for agreeing an inter-

federal mobility strategy could provide renewed

impetus for investment, including in energy and

transport infrastructure, but details of each still

need to be announced.

Belgium has made limited progress in

addressing

the

2017

country-specific

recommendations.

There has been no progress on

distributing fiscal targets among various levels of

government in a way that can be enforced. The

federal government has announced steps to

reinforce the autonomy of the High Council and

the independence of its members. Some progress

has been made with regard to the removal of

distortive tax expenditure. Limited progress has

been made on improving the composition of public

expenditure. There are no plans at federal level to

introduce a systematic review of public spending

as a permanent feature of the budget planning.

Nevertheless, through the National Plan for

Strategic Investment, an increase in infrastructure

investment is projected. There is also some

progress on vocational training, quality of

education reforms and labour market with regard

to disadvantaged groups, as communities are

phasing in major school reforms (e.g. French-

speaking community's Pacte d'Excellence). Some

progress has been recorded to foster investment in

knowledge based capital, even if measures vary in

scope at regional, community and federal level.

Progress on sector regulation has been overall

limited. For certain professional services

regulatory restrictions continue to hamper

competition. Also, limited progress has been made

in improving the functioning of the retail sector for

the benefit of businesses and consumers. Finally,

limited progress has been made in enhancing

market mechanisms in network industries.

kom (2018) 0120 - Ingen titel

2. Progress with country-specific recommendations

Table 2.1:

CSRs progress

Belgium

Overall assessment of progress with 2017 CSRs:

Limited progress

CSR 1:

Pursue a substantial fiscal effort in 2018 in

Belgium has made

limited progress

in addressing the

line with the requirements of the preventive arm of the

fiscal-structural part of CSR1

(1):

Stability and Growth Pact, taking into account the

need to strengthen the ongoing recovery and to ensure



Limited progress

in agreeing on an enforceable

the sustainability of Belgium's public finances. Use

distribution of fiscal targets.

windfall gains, such as proceeds from asset sales, to

accelerate the reduction of the general government



Some progress

in removing distortive tax

debt ratio. Agree on an enforceable distribution of

expenditure.

fiscal targets among government levels and ensure

independent fiscal monitoring. Remove distortive tax



Limited progress

in improving the composition of

expenditures. Improve the composition of public

public spending.

spending in order to create room for infrastructure

investment, including on transport infrastructure.

CSR 2:

Ensure that the most disadvantaged groups,

Belgium has made

some progress

in addressing CSR2

including people with a migrant background, have

equal opportunities to participate in quality education,



Some progress

in ensuring that most

vocational training, and the labour market.

disadvantaged groups, including people with a

migrant background, have equal opportunities to

education and vocational training.



Limited progress

in ensuring that most

disadvantaged groups, including people with a

migrant background, have equal opportunities to

labour market.

CSR 3:

Foster investment in knowledge-based capital,

Belgium has made

limited progress

in addressing

notably with measures to increase digital technologies

CSR3

adoption, and innovation diffusion. Increase

competition in professional services markets and



Some progress

in fostering investment in

retail. Enhance market mechanisms in network

knowledge-based capital

industries.



Limited progress

in increasing competition in

professional services market and retail



Limited progress

in enhancing

mechanisms in network industries

market

(1) This does not include an assessment of compliance with the Stability and Growth Pact.

Source:

European Commission

ESI Funds are important in addressing key

challenges to inclusive growth and convergence

in Belgium, notably by investing in research,

development and innovation, redressing

educational inequality, fighting early school

leaving and boosting the employment rate of the

young.

The funds are instrumental in fighting

poverty and social exclusion as well as helping the

country to reach its Europe 2020 targets for

greenhouse gas emissions.

kom (2018) 0120 - Ingen titel

2. Progress with country-specific recommendations

Box 2.1:

Tangible results delivered through EU support to structural change in Belgium

Belgium is a beneficiary of the European Structural and Investment Funds (ESI Funds) support and

can receive up to EUR 2.7 billion until 2020.

This represents around 3 % of annual public investment (

)

over the period 2014-2018. By 31 December 2017, an estimated EUR 1.9 billion (

) (69 % of the total) was

allocated to projects on the ground. This has paved the way for 15 669 enterprises to receive support with an

increase of about additional 8 000 full time job equivalents created.

ESI Funds help address structural policy challenges and implement country-specific

recommendations.

In this way, the Funds contribute to reaching the 2020 targets for reducing greenhouse

gas emissions from non-ETS activities especially as regards buildings and urban transport. About 38 % of

the ESI Funds are devoted to supporting actions in the field of employment, social inclusion and education,

helping Belgium to reach its Europe 2020 targets (reduction of poverty, reduction of early school leaving

and reaching an employment rate of 73.2 % by 2020). In this context, specific attention is devoted to young

people, in particular with the implementation of the Youth Employment Initiative in Wallonia and in

Brussels.

Various reforms were undertaken already as precondition for ESI Funds support

(

). ESI Funds helped

implement a number of structural reforms in 2015 and 2016 via ex-ante conditionalities and targeted

investment. These included establishing regional Smart Specialisation Strategies.

Belgium is advancing the take up of the European Fund for Strategic Investments (EFSI).

As of

December 2017, overall financing volume of operations approved under the EFSI amounted to EUR 1.9

billion, which is expected to trigger total private and public investment of EUR 5.8 billion. More

specifically, 16 projects have been approved so far under the Infrastructure and Innovation Window

(including 10 multi-country projects), amounting to EUR 1 billion in EIB financing under the EFSI. This is

expected to trigger nearly EUR 4.6 billion in investments. Under the SME Window, 8 agreements with

financial intermediaries have been approved so far. European Investment Fund financing enabled by the

EFSI amounts to EUR 256 million, which is expected to mobilise more than EUR 1.1 billion in total

investment. Over 4 400 smaller companies or start-ups will benefit from this support. Energy ranks first in

terms of operations and volume approved, followed by RDI, SMEs and Digital.

Funding under Horizon 2020, the Connecting Europe Facility and other directly managed EU funds is

additional to the ESI Funds.

By the end of 2017, Belgium has signed agreements for EUR 482 million for

projects under the Connecting Europe Facility. Belgium also benefitted from EUR 341 million from Horizon

2020 project grants signed in 2017.

https://cohesiondata.ec.europa.eu/countries/BE

(

) Public investment is defined as gross fixed capital formation + investment grants + national expenditure on agriculture

and fisheries.

(

) Update financial figures are available at beginning February 2018 and will be included in the final version by 9

February.

(

) Before programmes are adopted, Member States are required to comply with a number of so-called ex-ante

conditionalities, which aim at improving conditions for the majority of public investments areas.

kom (2018) 0120 - Ingen titel

REFORM PRIORITIES

3.1. PUBLIC FINANCES AND TAXATION

3.1.1. FISCAL POLICIES

After stalling in 2016, the Belgian general

government deficit is expected to have dropped

significantly in 2017 thanks to favourable

cyclical conditions one-off factors as well as a

structural adjustment.

According to the

Commission 2017 autumn forecast, the deficit is

estimated to have decreased from 2.5 % of GDP in

2016 to 1.5 % in 2017. Both revenue (+0.2 pps of

GDP) and expenditure (-0.8 pps) are expected to

have contributed to this improvement. In 2018, the

headline deficit is forecast to decline only

moderately, to 1.4 % of GDP. The revenue-to-

GDP ratio is projected to decline by 0.6 pps. The

drop mostly reflects the implementation of

additional reductions in personal income taxation

and social security contributions in the context of

the tax reform to lower the tax pressure on labour.

This decline is counterbalanced by a comparable

reduction in expenditure. The latter stems from

lower expenditure on social benefits, interest

payments, public sector wages and subsidies.

In structural terms, the budget consolidation is

expected to halt in 2018, with the structural

balance remaining broadly unchanged.

Since

2011, when it peaked at 4.0 % of GDP, the

structural balance improved by 2.5 % of GDP (up

to 2017), whereas the primary (

) structural

balance over the same period improved by only

1.5 % of GDP. It means that almost half of the

structural improvement is due to interest windfalls.

Belgium thus appears to have partly missed the

opportunity to use the accommodative monetary

policy for a more ambitious and timely budget

consolidation.

Total public expenditure remains well above

the EA average; this is also true for the primary

expenditure

(see Graph 3.1.1). While in the early

2000s, primary government expenditure in

Belgium stood at a level fairly similar to the EA

average, since then a gap has opened up. For

instance, primary expenditure increased from

42.4 % of GDP in 2000 to 50.3 % in 2016. This

rise of 7.9 pps of GDP compares to a more modest

(

) Total expenditure net of interest expenditure.

average increase in the EA of around 4 pps of

GDP. Capital expenditure, commonly considered

key in boosting the economy's long-term growth

potential, was one of the few declining spending

categories in the considered period (National Bank

of Belgium, 2014).

Graph 3.1.1:

Government primary expenditure in 2016, % of

GDP

Source:

European Commission

The high level of public expenditures offers

scope for larger spending restraint in fiscal

consolidation.

In this regard, the introduction of

expenditure rules setting multi-year ceilings on

broad spending aggregates at each level of

government would support a spending-based

consolidation and medium-term expenditure

control (European Commission, 2015a). At

present, however, with the exception of a ceiling

for health care spending, no level of government in

Belgium is applying domestic expenditure rules.

At regional level, Flanders is planning to introduce

a spending review approach in its budgetary

process. This contrasts with the increasing

adoption of such rules across the EU.

Nevertheless, the largest portion of public

spending is not mandated by discretionary annual

budget decisions but by permanent legislation,

which limits legislatures’ ability to review and

change spending priorities in several ways.

EU-28

EA-19

kom (2018) 0120 - Ingen titel

3.1. Public finances and taxation

The general government debt peaked at

106.8 % of GDP in 2014, increasing from 87 %

of GDP in 2007.

This development followed from

the absence of primary budget surpluses,

unfavourable

interest-growth

differentials,

substantial support to the financial sector, loans to

Greece and contributions to the European Stability

Mechanism and its precursor. A gradual reduction

of the public debt level is ongoing, which should

allow for a debt-to-GDP ratio of 101.2 % in 2019

according to the Commission 2017 autumn

forecast.

The high level of public debt increases economic

vulnerabilities.

Combined with the lasting budget

deficit, it limits the authorities’ margin for

initiating new or countercyclical policies in case of

a downturn. Not tackling the projected increase in

age-related spending would amplify those risks

(see following section). Moreover, Belgium will

have to cope with important public investments in

defence and infrastructure in the years to come.

At the same time, short-term risks linked to

high public indebtedness appear to be

contained.

Belgian authorities have been using

favourable market conditions to refinance the

outstanding debt. The active management of the

debt stock has led to an extension of the average

maturity of the existing debt (9.3 at the end of

2017 compared to 8.7 at the end of 2016). Its cost

has also decreased with its average yields falling to

2.5% in 2017. As a result, Belgium is more

protected in case of a sudden hike in the interest

rates. For instance a linear increase by 100 basis

points would imply higher costs of EUR 0.5 billion

(0.1 % of GDP) in 2017, and of EUR 1.6 billion

(0.4 % of GDP) by 2020 (Stability programme

2017).

debt ratio of 60 % of GDP by 2032 would require

a fiscal adjustment of as much as 4.4 pps of GDP

between 2019 and 2024 relative to the baseline

scenario assuming no policy change. Adhering to

the existing fiscal rules (full compliance with the

requirements of the preventive arm of the SGP and

convergence to the Medium-Term Objective)

would bring about a significantly higher decrease

in gross public debt over GDP relative to the

baseline scenario at unchanged fiscal policy.

Indeed, in this case, public debt would reach

76.1 % of GDP in 2028, a level around 18.7

percentage points of GDP lower than what is

projected under the baseline scenario (Graph

3.1.2). Conversely, potential shocks in nominal

growth and interest rates would project public debt

at around 100.6 % of GDP.

Graph 3.1.2:

Public debt medium-term projection and

scenarios ( % of GDP)

110.0

105.0

100.6

100.0

100.2

95.0

94.8

90.0

85.0

80.0

76.1

75.0

13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

Baseline no-policy change scenario

Stability and Growth Pact (SGP) scenario

3.1.2. SUSTAINABILITY OF PUBLIC FINANCES

Standardized (permanent) positive shock (+1p.p.) to the

short- and long-term interest rates on newly issued and

rolled over debt

Standardized (permanent) negative shock (-0.5p.p.) on

GDP growth

In the medium term Belgium faces high fiscal

sustainability risks as measured by both the

debt sustainability analysis and the S1

indicator

(

). This is due to the high level of

public debt and to a lesser extent to the projected

increase in age-related expenditure. Reaching a

(

) The S1 indicator measures the required fiscal adjustment

needed between 2019 and 2024 to bring the public debt

ratio down to 60 % of GDP by 2032.

Source:

European Commission (Debt Sustainability Monitor

2018)

In the long term, sustainability risks are

assessed at medium level.

As indicated by the S2

indicator (

), an upfront fiscal adjustment of 4.5

(

) The S2 indicator shows the adjustment to the current

structural primary balance required to fulfil the infinite

horizon inter-temporal budget constraint, including paying

for any additional expenditure arising from an ageing

kom (2018) 0120 - Ingen titel

3.1. Public finances and taxation

pps of GDP would be needed to ensure the

sustainability of the public finances in the long

term. This is mainly driven by the projected impact

of the age-related costs (3.8 pps of GDP), with an

additional contribution from the initial budgetary

position (0.7 pps of GDP).

The

2018

Ageing

Report (European

Commission – EPC (AWG), 2018) projects

pension expenditure to increase by 2.9 pps of

GDP in 2070.

This compares with an increase of

1.3 pps of GDP in the previous update and a

decrease of 0.1 ppt of GDP on average for the EA

(2015 Fiscal Sustainability Report). The

substantial upward revision is mostly grounded on

the new demographic projections (European

Commission, 2017b). Compared to the previous

vintage, the increase in total population for

Belgium in 2060 has been revised downward (

with a significant and unfavourable impact on the

dependency ratio.

The pension reforms enacted in 2015 were a

significant first step towards addressing the

long-term cost of ageing.

Nevertheless, because

of the sustainability risks outlined above, various

still pending issues in the government's reform

roadmap require further action. This is the case, for

instance, for the introduction of a credit-based

pension system as of 2030, which would allow

automatic adjustments to changes in life

expectancy or the dependency ratio. The pension

reform also helped reducing the poverty risk for

pensioners according to the analysis carried out for

the forthcoming Pension Adequacy Report.

Expenditure projections for health and long-

term care contribute to the sustainability

challenge in the long term.

According to the

findings of 2018 Ageing Report, health and long-

term care expenditure would increase by 2070,

adding to the sustainability challenge. Notably,

according to the AWG Reference Scenario,

expenditure on long-term care is, as a proportion

of GDP, projected to increase by 1.7 pps during

the period from 2016 to 2070, above the EU

average increases of 1.2 pps. According to the Risk

Scenario this increase becomes more pronounced,

with 3.5 pps (above the EU average of 2.7 pps).

This would bring expenditure up to 5.8 % of GDP

by 2070 and pose an important challenge to the

future fiscal sustainability of Belgium (2018

Ageing Report, forthcoming).

3.1.3. FISCAL FRAMEWORK

Effective budget coordination is essential in a

federal country like Belgium.

A large part of

spending power has been devolved to sub-national

governments. In addition, the central government

— which is responsible for most of the debt and

faces the bulk of age-related costs — does not

have the legal authority to impose budget targets

on regions and communities. In an attempt to

improve internal coordination and to transpose the

Treaty on Stability, Coordination and Governance

in the EMU (the ‘Fiscal Compact’), the federal

government and the regional and community

governments concluded a cooperation agreement

in 2013. It requires the Public Sector Borrowing

Requirement Section of the High Council of

Finance to propose multiannual budget targets for

each government in preparation for the annual

Stability Programme. On the basis of this proposal,

the federal, regional and community governments

are expected to reach a binding agreement on

overall and individual multiannual fiscal paths.

The High Council of Finance is responsible for

monitoring compliance with the agreed targets and

if it signals a significant divergence, the

government concerned has to adopt corrective

measures; progress on the corrective measures is,

in turn, monitored.

Implementation of the 2013 cooperation

agreement has been poor.

In 2017 as in 2015 and

2016, the federal government, regions and

communities did not achieve an agreement to

formally commit to the fiscal trajectory proposed

by the High Council of Finance. This lack of

internal cooperation and burden sharing

undermines the viability of the country’s overall

trajectory towards its MTO as laid down in the

Stability Programme.

population. However, the adjustment implied by the S2

indicator could lead to debt stabilising at relatively high

levels. Consequently, the indicator has to be treated with

caution for high-debt countries in relation to the SGP

requirements.

(

) Total population in 2060 would increase to 13.6 million

compared to 15.4 million expected according to the

previous vintage.

kom (2018) 0120 - Ingen titel

3.1. Public finances and taxation

The federal government has announced steps to

reinforce the autonomy of the High Council of

Finance and the independence of its members.

The adoption of the necessary amendments

(including to the Royal Decree of 3 April 2006 on

the High Council of Finance) requires prior

consultation with the federated entities. The

calendar for consultation and adoption has

however not been communicated.

10th highest in 2016 (

). Despite labour tax wedge

reductions, average income earners in Belgium

remain one of the highest taxed in the EU (see

section 3.3).

Graph 3.1.3:

Tax burden on labour for a single person at the

average wage (2016)

3.1.4. TAXATION

In spite of the on-going efforts to reduce the tax

burden on labour, it is still comparatively high.

The tax reform initiated in 2014 is currently being

phased in. Taxes on labour, including social

contributions, are being reduced in several steps

between 2016 and 2020, while others, mainly

consumption taxes, have been increased, thus

partially compensating for the labour tax cuts

(European Commission, 2016a and 2017a).

Despite labour tax wedge reductions, average

income earners in Belgium remain the most taxed

in the EU and in the euro area (see Graph 3.1.3).

The 2016 country report detailed and assessed the

measures mainly from a budgetary and labour

market

perspective.

Positive

effects

competitiveness, employment and growth are also

expected to help funding the tax cuts, although the

overall budget-neutrality of the reform does not

seem assured (

). Additional positive effects are

expected from reductions targeting small and

medium-sized enterprises (SMEs) and self-

employed people.

In 2016, the tax wedge for low income earners

(67 % of the average wage) decreased by 1.9

percentage points compared to 2015,

although it

remains one of the highest in the EU. For very low

income earners (50 % of the average wage) a

larger reduction of 4.1 percentage points could be

seen. While it remains above the EU average, the

tax wedge at 50 % of the average wage has moved

from being the 3rd highest in the EU in 2014 to the

(

) Cumulated non financed balance 2015-2020 of 4786

million EUR

ex ante

and 627 million EUR

ex post

according to NBB, 2017 ("Incidence macroéconomique et

budgétaire du scénario de tax shift révisé par le cabinet du

ministre des Finances et comparaison avec l’exercice de

novembre 2015" – BNB 10/8/2017).

OECD

The average wage indicator is 100 % of the average wage.

No recent data is available for Cyprus. The line in the graphs

represents the GDP-weighted EU average (benchmark used

in the Eurogroup).

Source:

European Commission Tax and Benefit Indicator

Database based on OECD data

The Belgian tax system remains complex, with

tax bases eroded by numerous exemptions,

deductions and reduced rates.

These may entail

revenue losses, economic distortions and

additional administrative burden. The latest figures

for the federal government show that the total

amount of tax expenditures is sizeable, and that the

rising trend as a percentage of GDP continues (

Belgian revenues from environmentally related

taxes remain among the lowest in the EU.

Environmental taxes accounted for 2.2 % of GDP

in 2016 against an EU28 average of 2.4 %, and

energy taxes to 1.4 % of GDP against an EU

average of 1.9 %. In the same year environmental

tax revenues accounted to 5.0 % of total revenues

from taxes and social security contributions against

(

) Tax wedge at 67 % was 47.47 compared to 49.39 (2015)

and 49.87 (2014). Tax wedge at 50 % was 36.17 compared

to 40.31 (2015) and 41.14 (2014).

(

) Chambre des représentants, 24 octobre 2017. Inventaire

2015 des exonérations, abattements et réductions qui

influencent les recettes de l’Etat, annexe au projet de loi

contenant le budget 2018.

kom (2018) 0120 - Ingen titel

3.1. Public finances and taxation

an EU28 average of 6.3 %, excluding imputed

social contributions (

). Fossil fuel subsidies

showed no decrease in the past decade, with even

some increasing trend in the last year (

Belgium has adopted at the end of 2017

(

)

reform of its corporate income tax system.

The

current corporate income tax system is

characterised by a high statutory rate of 33.99 %,

including the 3 % crisis surcharge (with lower

rates for SMEs), with numerous exemptions and

deductions. .It provides for a move towards a

system with lower statutory rates and fewer

exemptions. The statutory tax rate should be

reduced to 29.58 % in 2018 and to 25 % in 2020

(for SMEs: 20 % on the first 100.000€ as from

2018).

The reform introduces a de facto minimum tax

with the limitation to a deductible basket of the

new incremental notional interest deduction and of

the carry forward of the following items: deduction

of the notional interest, innovation income, losses

and deduction of dividends received. However the

Conseil d'Etat/Raad van State expressed doubts on

the compatibility with EU law of the limitation of

RDT deduction.

Belgium has taken measures to amend some

aspects of its tax system that facilitated

aggressive tax planning

(ATP) (

). The Code of

Conduct on Business Taxation Group has

approved the replacement of the Belgium patent

box by an innovation box. The old patent box is

(

) Source

ESTAT:

http://ec.europa.eu/eurostat/web/environment/environment

al-taxes/database.

(

) OECD Inventory of Support Measures for Fossil Fuels

2015:

http://stats.oecd.org/Index.aspx?DataSetCode=FFS_BEL.

(

) "Projet de loi portant sur le réforme de l'impôt des

sociétés".

(

) Aggressive tax planning consists in taking advantage of the

technicalities of a tax system or of mismatches between

two or more tax systems for the purpose of reducing tax

liability. (source: Commission Recommendation of 6

December

2012

aggressive

tax

planning

(2012/772/EU)). For an overview of the most common

structures of aggressive tax planning and the provisions (or

lack thereof) necessary for these structures to work, see

Ramboll Management Consulting and Corit Advisory

(2016), Study on Structures of Aggressive Tax Planning

and Indicators, European Commission Taxation Paper

n°61. It should be noted that country-specific information

provided in the study gives the state of play by May/June

2015.

subject to a grandfathering clause which last until

June 2021. The new "nexus" regime requires a

stronger link between the intellectual property (IP)

that can benefit from the regime, and the R&D that

created this IP. While the economic evidence on

the effectiveness of patent/innovation boxes as a

means to encourage R&D remains limited, it may

be used as a tax competition tool (cf. 3.4.1). The

excess profit rulings scheme, which had the

potential to facilitate aggressive tax planning, was

put on hold by Belgium since 2015 and effectively

abolished in 2017. Finally, Belgium will have to

transpose the provisions of the Anti-Tax

Avoidance Directive (ATAD) into national law by

the end of 2018 and 2019. This is covered by the

project that provides for new anti-abuse rules

including an alignment of the thin cap rule

(limitation based on the highest of 30 % of the

EBITDA and EUR 3 million) on the recent ATAD

Directive. An assessment of the extent to which

the new measures, in conjunction with the effect of

the transposition of the EU ATAD, limit the scope

for aggressive tax planning in Belgium would be

warranted.

The former Notional Interest Deduction (NID)

regime that was based on the stock of equity has

been replaced by an incremental system.

The

new NID, which shares an incremental baseline

with the Allowance for Growth and Investment

(AGI) proposed in the common corporate tax base

(CCTB) will be limited to incremental equity

capital calculated on the basis of a 5-year average.

This change is meant to contribute to the budget-

neutrality of the corporate tax reform while

addressing the potential use of the regime in ATP

and still alleviating

the debt/equity bias issue. It

has to be noted that the absence of some specific

anti-abuse rules to address the cascading of

deductions and notably targeting transactions

between related parties are features of the tax

system which may facilitate aggressive tax

planning by multinational groups that locate

financial companies in Belgium. At the current

stage of the reform, the anti-abuse framework

seems to remain unchanged under the new system.

(

) Contrary to the AGI, the new Belgian NID cannot be

negative and therefore does not incentivise corporations to

sustain their equity

kom (2018) 0120 - Ingen titel

3.2. FINANCIAL SECTOR

The financial sector appears relatively stable,

but low interest rates, digitalisation, clients'

evolving preferences and intense competition

remain a challenge for the traditional business

model.

Banks are moderately profitable, with a

return on equity close to 9 % in 2016. Their

solvency is good, with a capital adequacy ratio

stable at 18.5 % in June 2017 (see Table 3.2.1).

Credit quality is at a high, with low non-

performing loans (NPL) ratios for both non-

financial corporations and households. Because of

the persistent low interest rate environment, credit

growth remains substantial. State ownership

remains significant, and still represents a sizeable

risk for the public finances and the financial sector,

although the expected progressive privatisation of

Belfius would partly address the issue. Banks'

challenges remain the same as last year: a high

cost-to-income ratio, a relatively high banking tax

only partially compensated by the exoneration of

savings accounts, the obligation to pay a minimum

interest rate (0.11 %) on regulated savings

accounts which puts net interest margins under

pressure in the current low interest rate

environment, digitalisation, compliance costs,

clients' evolving preferences and intense

competition. Dexia still constitutes a sizeable, but

relatively stable contingent liability of EUR 35

billion (8.2 % of GDP) for the Belgian state.

The contributions to the Belgian Deposit

Guarantee Scheme (DGS) are not invested into

a segregated and diversified portfolio of low-

risk assets.

The contributions to the Belgian DGS

(around EUR 3.4 billion in December 2017)

directly enter the budget of the state as tax

revenues and contribute to reduce the deficit. As a

consequence, they cannot be invested in a

segregated and diversified portfolio of low-risk

assets. If the DGS needs to intervene and

compensate depositors, the Belgian state will have

to finance the entire cost of the intervention from

its budget. It will not be able to rely, like other

Member States, on the accumulated contributions

paid by the banks into a safe ring-fenced fund. It

should be noted that the issue is of a temporary

nature. Under the Commission´s proposal on a

European Deposit Insurance Scheme (EDIS) all

banks in the Banking Union are (gradually)

contributing to a single European fund. Depending

on the level of financial means a national DGS has

already raised, it may compensate its member

banks by reimbursing

contributions.

previously

received

Traditional life business is suffering, mostly due

to the 2 % tax on life-insurance premiums and

the low interest rate environment.

Many insurers

have decided to stop, or at least significantly

reduce, the underwriting of traditional life

contracts. In parallel, they are taking various

measures to increase their profitability and

strengthen their capital position. Faced with the

legacy of old contracts with a high guaranteed

interest rate, some insurers have carried out quite

successful buy-back operations, sometimes

facilitated by the uncertainty surrounding the state

guarantee on life insurance contracts (up to EUR

100,000, like for banking deposits) after the sale of

an insurance portfolio to a foreign entity.

Many insurers benefit to some extent from the

volatility adjustment (

) of the long-term

guarantee package.

For one insurer, the volatility

adjustment raises the Solvency II ratio from 97 %

to 165 %. On average, the value adjustment allows

Belgian insurers to improve their Solvency II ratio

by 20 percentage points. The 2 % tax on life

insurance premiums is also a handicap to

efficiently compete with accumulating investment

funds ("SICAV de capitalisation") that are only

(

) The volatility adjustment is part of the so-called Long-

Term Guarantee (LTG) package. It aims at dealing with so-

called "artificial" credit spread fluctuations not related to an

increased probability of default of the counterparty. It

consists in a (upward) correction that can be applied to the

risk-free curve under certain conditions. It allows to lower

the value of technical provisions and, consequently, to

increase the value of own funds but, even more, to reduce

the Solvency Capital Requirement. These two effects

increase the solvency ratio and may underestimate the

"true" risks. According to article 77d of the Solvency II

directive 2009/138/EC, "Member States may require prior

approval by supervisory authorities for insurance and

reinsurance undertakings to apply a volatility adjustment to

the relevant risk-free interest rate term structure to

calculate the best estimate referred to in Article 77(2). For

each relevant currency, the volatility adjustment to the

relevant risk-free interest rate term structure shall be based

on the spread between the interest rate that could be earned

from assets included in a reference portfolio for that

currency and the rates of the relevant basic risk-free

interest rate term structure for that currency. The reference

portfolio for a currency shall be representative for the

assets which are denominated in that currency and which

insurance and reinsurance undertakings are invested in to

cover the best estimate for insurance and reinsurance

obligations denominated in that currency". Note that in

Belgium insurers can apply the volatility adjustment

without prior approval by the NBB.

kom (2018) 0120 - Ingen titel

3.2. Financial sector

Table 3.2.1:

Financial soundness indicators, all banks in Belgium

(%)

Non-performing debt

Non-performing loans

Non-performing loans NFC

Non-performing loans HH

Coverage ratio

Loan to deposit ratio*

Tier 1 ratio

Capital adequacy ratio

Return on equity**

Return on assets**

2010

3.9

29.3

62.4

15.5

19.3

10.5

0.5

2011

4.2

31.6

60.1

15.1

18.5

1.4

0.1

2012

5.1

28.1

56.6

15.9

18.2

3.3

0.2

2013

5.3

29.3

58.2

16.4

18.7

6.2

0.4

2014

3.3

4.3

6.5

4.5

40.5

59.5

15.3

17.6

7.8

0.5

2015

3.0

3.8

5.8

3.9

42.2

62.3

16.0

18.7

10.3

0.7

2016

2.6

3.2

4.8

3.7

43.7

66.2

16.2

18.8

8.9

0.6

2017Q2

2.4

2.8

4.8

3.4

44.3

66.1

16.1

18.5

*ECB aggregated balance sheet: loans excl to gov and MFI / deposits excl from gov and MFI

**For comparability only annual values are presented

Source:

ECB CBD

subject to a stock exchange transaction tax of

(typically) 0.12% at the purchase and the sale of

the shares in the fund.

The taxation reform of financial investments

reduces some economic distortions but also

creates new ones, and generates more

complexity.

On the positive side, the reduction by

half of the exonerated amount of interests from

regulated savings accounts (from EUR 1 880 to

EUR 940) and the exoneration of the first EUR

627 of dividends reduces the taxation gap between

deposits and equity. The reduction of the nominal

corporate income tax rate also reduces the taxation

gap between debt instruments and equity. On the

negative side, the increase of the different stock

exchange transaction tax rates works in the

opposite direction, by penalising investment in

securities. Likewise, the exoneration of dividends

only benefit to individual shares, and not to funds,

which penalises diversification and encourages

concentration risk. Finally, the new tax of 0.15 %

on securities accounts exceeding EUR 500 000 is

based on solidarity principles. It likely creates

distortions given the number of products excluded

from its scope (life insurance, pension products,

nominal shares, term savings options, liquidity).

The efficiency and efficacy seem questionable,

given the small amounts concerned, the

possibilities to circumvent the tax and the

administrative burden it imposes on banks and

brokers. Moreover, it suffers from a cliff effect:

since the tax applies from the very first euro as

soon as the threshold of EUR 500 000 is reached,

net income decreases as the gross income increases

in the neighbourhood of the threshold.

Housing

House prices have continued to steadily increase

recently, showing some signs of overvaluation,

and currently they stand at a level, in nominal

terms, above to their peak before the financial

crisis.

It is difficult to measure overvaluation and

undervaluation in property markets, since the

results depend on the underlying assumptions.

Traditional indicators (price to income, i.e.

affordability and price-to-rent i.e. dividend), used

to assess over-valuation on the housing market,

suggest that Belgium's housing prices might be

around 20% above their long term average.

However, taking into account a broader set of

factors, a model-based approach actually finds that

house prices are currently in line with their

fundamental value, providing a more benign

assessment of recent price developments (Graph

3.2.1). Overall, house prices are assessed to be

slightly overvalued (Philiponnet and Turrini,

2017).

The prolonged increase in the price-to-income

ratio has made the financial situation of

households more fragile through an almost

mechanic increase in their debt.

Between 2001

and 2016 households' disposable income has

increased at annual average rate of 2.4 %, while

over the same period of time nominal house prices

have increased at an annual average rate of 4.6 %.

The mortgage related indebtedness of the Belgium

household is steadily increasing since 2002, and

stood at the start of 2016 at around 103 % of their

disposable income.

kom (2018) 0120 - Ingen titel

3.2. Financial sector

Graph 3.2.1:

Overvaluation gap with respect to

price/income, price/rent and fundamental

model valuation gaps

Graph 3.2.2:

Gap to the fundamental-based and prudential

benchmarks

-10

-20

-30

% of GDP

-5

-10

-40

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Model-based valuations gap

Price to income vs. hist. avg.

Price to rent vs. hist. avg.

Source:

European Commission

Source:

European Commission

Despite the favourable wealth position of

Belgian households, the distribution of debt and

assets reveal some pockets of vulnerability.

Belgium households hold on average more assets

than in EA and have positive net assets positions.

However, micro-level data shows that for around

one mortgage out of five, the service of debt

absorbs more than half of the households'

disposable income (National Bank of Belgium,

2017b). Figures from the National Bank of

Belgium (NBB) also show that the banks' lending

criteria have not tightened and that the share of

risky mortgages in overall banks assets has

stopped falling since 2015. Those risky credits are

characterised by a high loan-to-value ratio, or a

high debt service-to-income ratio, longer than

average maturity or a combination of the previous

risks factors. The time-to-maturity length of the

average mortgage debt is shorter than in the EA,

but it has recently started to lengthen.

The increase in households' debt since 2000 is

substantial although in line with fundamentals.

Households' debt is close to but below the level

suggested by the economic fundamentals.

Nevertheless its level is above the estimated

prudential threshold, which indicates that current

households' debt level could have amplifying

impact in the case of a financial crisis (Graph

3.2.2) (Bricongne, J.-C., L. Coutinho and N.

Philiponnet, 2018).

The

complex

national

macroprudential

decision-making process may leave financial

stability risks unaddressed.

A macroprudential

measure addressing financial stability risks

originating in the residential real estate (RRE) was

implemented in Belgium in 2014. The measure

was based on Article 458 of the CRR and

consisted of a general 5 percentage points add-on

on risk weights for mortgage exposures. In the

light of increasing RRE risks (see ESRB 2016), the

NBB proposed to replace that measure, following

its expiration in May 2017, by a more stringent

measure. The latter was not enacted by the Belgian

government, effectively resulting in the temporary

absence of a formal macroprudential measure to

address RRE risk. The NBB proposed a new

macroprudential measure in November 2017,

consisting of a flat 5 percentage points add-on

(prolongation of the original measure) and a

multiplier of 1.33 on mortgage risk weights. This

stricter measure has the support of the government

and is currently in the notification process with

European institutions.

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Prudential threshold - HH

Fundamental benchmark - HH

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3.3. LABOUR MARKET, EDUCATION AND SOCIAL POLICIES

3.3.1. LABOUR MARKET

Employment growth has recently been sound

but overall labour market participation

remains low.

In 2016, robust economic growth,

supported by competitiveness gains and wage

moderation (see page 29), has resulted in sound

employment growth (1.3 % in 2016). The

unemployment rate fell to 7.2 % in 2017Q3, which

is only slightly above the pre-crisis level (7.0 % in

2008). However, serious challenges persist. The

employment rate is well below the EU average

(68.5 % vs. 72.6 % in the EU in 2017Q3) (Graph

3.3.1) and disincentives to work remain relatively

high.

Graph 3.3.1:

Key labour market indicators

and matching efficiency (

) has dropped by a long

way (European Commission, 2017f). The gap

between the employment rates of low-, medium-,

and high-skilled workers was among the widest in

the EU in all three Regions, well above the level in

the neighbouring countries (Graph 3.3.2) (Kiss &

Vandeplas, 2015). Skills mismatches are, among

other factors, associated high labour costs and

taxation, including taxation on low wage

employment (see section 3.1), low mobility and

inadequate language knowledge (especially in

Brussels), as well as historical factors, such as

shifts in economic activity.

Graph 3.3.2:

Relative dispersion of employment rates by

education level, 2005 and 2016

0.35

0.30

69.0

68.0

67.0

66.0

65.0

0.25

0.20

0.15

0.10

0.05

0.00

64.0

63.0

Source:

Eurostat Labour Force Survey, European Commission

Employment rate 20-64 (rhs)

Unemployment rate 15-74 (lhs)

Long-term unemployment rate 15-74 (lhs)

Youth unemployment rate 15-24 (lhs)

NEET rate 15-24 (lhs)

Source:

European Commission

High inactivity coincides with a high vacancy

rate, suggesting a high level of skills

mismatches.

Belgium's inactivity rate, at 26.7 %

in 2016, is higher than that of its neighbours (FR:

22.5 %; DE: 18.0 % and NL: 18.4 % for

population aged 20-64 year olds). This is also

reflected in a large number of very-low-work-

intensity households concentrated among single

adult households (Vandenbroucke & Corluy,

2015). At the same time, the vacancy rate was

among the highest in the EU (3.6 % in 2017Q3),

Disincentives to work remain relatively high.

recent years, the targeted measures to reduce the

tax wedge on labour have significantly increased

the net income of employees especially those on

low wage (Graph 3.3.3). Despite these measures

the tax wedge for a single household earning the

average wage remained among the EU's highest in

2016 (54 %), although it has declined since 2015

(55.3 %) (see section 3.1). The unemployment trap

for low wage earners (67 % of the average wage

for a single household) is also one the EU's

highest. Belgium is also the only country where

unemployment benefits are not limited in time (

In addition, high tax disincentives for second

earners – mainly women – remain (see Box 3.3.1).

(

) Matching efficiency measures the relative efficiency of the

process of matching job-seekers with available jobs. Using

the Beveridge curve, which equalises flows into and out of

unemployment, allows for the computation.

(

) According to the benchmarking exercise in the area of

unemployment benefits and active labour market policies.

See the draft Joint Employment Report 2018 for details.

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

EU28

Flanders

Wallonia

Brussels

2016

2005

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3.3. Labour market, education and social policies

Box 3.3.1:

Monitoring performance in light of the European Pillar of Social Rights

The European Pillar of Social Rights, proclaimed on 17 November 2017 by the European Parliament, the

Council and the European Commission, sets out 20 principles and rights to benefit citizens in the EU. In light

of the legacy of the crisis and changes in our societies driven by population ageing, digitalisation and new

ways of working, the Pillar serves as a compass for a renewed process of convergence towards better working

and living conditions.

Belgium performs well on the indicators of the Social Scoreboard

supporting the European Pillar of

Social Rights.

This is notably the case for gender equality, active support to employment and social protection

and inclusion, in particular childcare.

BELGIUM

Early leavers from education

and training (% of population

aged 18-24)

On average

Equal

To watch

opportunities

Gender employment gap

and access to

Income quintile ratio (S80/S20)

Better than average

the labour

At risk of poverty or social

market

On average

exclusion (in %)

Youth NEET (% of total

population aged 15-24)

Employment rate (%

population aged 20-64)

Unemployment rate (%

population aged 15-74)

GDHI per capita growth

Better than average

To watch

On average

Dynamic

labour

markets and

fair working

conditions

Impact of social transfers

(other than pensions) on

Better than average

poverty reduction

Social

Children aged less than 3 years

Best performers

protection

in formal childcare

and inclusion

Self-reported unmet need for

On average

medical care

Individuals' level of digital skills

On average

The effectiveness of social transfers in reducing

poverty and promoting social inclusion is

comparatively high.

Childcare is particularly

important to enhance equal opportunities and promote

social inclusion of children from disadvantaged background. It has reached the Barcelona targets, with half the

children younger than 3 in childcare, and 99 % of those between 3 and the minimum compulsory school age.

Several factors contribute to this result but some capacity problems seem to be emerging, particularly in the

larger cities. It is culturally acceptable to put very young children in child care. Affordable full coverage is an

important policy objective in all communities and from 2.5 years onwards, child care is basically free and

linked to the school system. There is a formal and well-regulated system of care for very young children with

child minders who operate from their private home.

Members States' are classified according to a statistical methodology agreed with

the EMCO and SPC Committees. The methodology looks jointly at levels and changes

of the indicators in comparison with the respective EU averages, and classifies

Member States in seven categories (from "best performers" to "critical situations").

For instance, a country can be flagged as "better than average" if the level of the

indicator is close to EU average, but it is improving fast. For methodological details,

please consult the draft Joint Employment Report 2018, COM (2017) 674 final.

The low employment rate and the high share of

part-time working of women remain challenges.

Belgium combines a relatively low employment rate

(67.7 %) with a high inactivity rate (26.7 %). In

particular labour market outcomes for the low-

qualified, older workers, single parent households

and people with a migration background are far

below the levels recorded for similar groups in other

Member States. This is largely explained by

structural and group specific factors hindering

integration on the labour market. Since 2015, several

measures, such as the tax shift and the revision of

the 1996 Law on wage formation, are implemented

to reduce labour costs, improve cost competitiveness

and strengthen incentives to work. While a relative

high share of women is engaged in the labour

market, the share of part-time work of women is

high as well. In addition, women are more likely to

work with flexible contracts than men. The high

marginal effective tax rate and joint taxation system

create disincentives for second earners, mainly

women, to work longer.

The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States

performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and

"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States.

Possible alternatives will be discussed in the relevant Committees. Abbreviation: GDHI – gross disposable household

income.

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3.3. Labour market, education and social policies

As a result, part-time work is relatively widespread

in particular among women (41.9 % of the female

employees worked part-time in 2016 compared to

9.3 % of the male employees) (see Box 3.3.1).

Graph 3.3.3:

Change in average take-home pay after the

tax-shift

Minimum

wage

Median wage Average wage

2017-21

Maximum

wage

2014-16

Source:

OECD, Tax-Benefit Models; OECD, Taxing Wages

database obtained from the 2017 Belgium economic survey

"flexi-jobs" to new sectors and opening them up

for pensioners. The government also plans

introducing a tax-free professional income up to

EUR 6 000 per year for employees who work at

least 80 %, self-employed and pensioners. This

only applies on voluntary work and services in the

peer-to-peer economy. Both the extension of flexi-

jobs and the envisaged EUR 6 000 of tax-free

additional income could provide financial

incentives to shift some professional activities

from regular full-time employment or from part-

time self-employment to less taxed or even tax-

exonerated statures. In particular the latter measure

could entail reduced financing of the social

security and slower build-up of social rights. Other

measures that have been announced include

combining a partial pension with part-time work,

lowering employer charges in the construction

business, a system of 'soft-end-of career' jobs and

the option of part-time retirement. To the extent

that some of the measures (flexi-jobs, EUR 6 000

tax free) seem to target mainly those already on the

labour market they may have little impact on

activity or employment rates.

At subnational level, governments have

reformed and simplified the employment

incentives and the monitoring and guidance

activities of their respective public employment

services

(PES). The new schemes were introduced

in the course of 2016 and 2017 (see European

Commission, 2017a). It is not yet possible to

evaluate whether the newly reformed schemes are

properly targeted and cost-effective. The capacity

of the various public employment services to

carry-out the necessary monitoring and act on the

information generated seems uneven. The Walloon

public employment service (Le Forem) has started

an ambitious reorganisation project to improve its

efficiency and effectiveness. The Flemish

government and social partners reached an

agreement on reforming training for employees.

The Flemish Region aims to improve employment

performance through a new policy approach called

'Focus on Talent', which provides bespoke

guidance

workers

and

jobseekers.

Implementation of the Upskilling Pathways

Recommendation offers an opportunity for all

those who are disadvantaged in adulthood due to

educational inequalities and skills deficits.

Inactivity and unemployment are largely

concentrated among specific population groups.

At federal level measures have focussed on

controlling the cost of labour, strengthening

financial incentives to work and making the

labour market more flexible.

The government

amended the Competitiveness Law, which

regulates the wage formation process in Belgium.

The principal aim of the reform was to better

safeguard cost competitiveness and keep wage

growth in line with that in Belgium’s main trading

partners (the Netherlands, France and Germany),

but without interfering with wage indexation

clauses in collective bargaining agreements, cf.

Section 3.4 (see also European Commission,

2017a). The new law on ''workable and flexible

work'' allows for more flexible worktime

arrangements and is designed to promote in-

company training.

Further measures aim at improving labour

market flexibility, but some entail risks

regarding the social security.

They include

revising the labour law to facilitate e-commerce;

revising the notion of 'suitable job' for recipients of

unemployment benefits; making provisions to

lower gross salaries for young workers between 18

and 21 while keeping net salaries unchanged; and a

slower build-up of the notice period and extending

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3.3. Labour market, education and social policies

There are differences depending on age,

educational attainment level and origin (Graph

3.3.4). People with a migrant background and

young are overrepresented among the unemployed,

while low-skilled and older workers are more

likely to be inactive. In 2014, the unemployment

rate for foreign-born immigrants (17.1 %) and for

native-born with foreign-born parents (14.0 %),

which together account for 27.4 % of the working

age population, was much higher than for native-

born with native-born parents (5.6 %) (

). The

inactivity rate of low skilled, which represent 24 %

of the working age population, is 45.9 % (2016; 20

to 64 years).

Graph 3.3.4:

Characteristics of the employed, unemployed

and inactive (20-64), 2014

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

Employed

Unemployed

Inactive

Non-low edu & non-migrant backg

Non-low edu & migrant backg

Low edu & non-migrant backg

Low edu & migrant backg

below the EU average (9.9 % vs 11.5 %)

. There

are very large regional differences, with major

challenges in the Brussels Region

On average, more than seven in ten NEETs

aged 15-24 years were registered with the

Youth Guarantee Scheme.

Three in five of those

leaving the scheme were known to be in

employment, education or training 6 months later.

Abolishing of the reductions of the minimum wage

for young people does not seem to have affected

employment (European Commission, 2017f). The

number of recipients of an 'insertion allowance' has

dropped sharply over the past four years, as a

consequence of their limitation in time. The

number of people making the transition into

employment has risen even if some of those

coming to the end of their rights move on to other

forms of social security support (Rijksdienst voor

Arbeidsvoorziening, 2017).

The employment rate of older workers remains

low.

The employment rate of older workers (50-

64) is increasing but still well below the EU

average (56.6 % vs 63.4 %). The low employment

rate of older workers reflects high inactivity in this

age group. A large proportion (12.1 %) of the

inactive older workers who are not yet retired is

discouraged and not looking for a job as they

believe there is nothing available (the rate is 2.4 %

for 20-49 year-olds).

Generous early exit schemes used to provide the

wrong incentives to both employers and

employees.

These have been addressed by earlier

reforms which tightened age and career

requirement and strengthened availability to work

requirements. Low activity of older workers may

also be linked to the higher pay for older workers

in Belgium (Cockx, Dejemeppe and Van der

Linden, 2017). In 2014 workers aged over 50 years

earned 23 % more than 30 to 39 year-olds,

controlling for educational attainment, type of

contract, occupation and sector of employment, see

Graph 3.3.5. Only 7 % of the 25-64 population

engage in life-long learning activities. This is

lower than the EU average (11 %) and

(

)Regional NEET rates: 7.5 % in Flanders, 12.2 % In

Wallonia and 15.2 % in Brussels.

(

)Data available for Flanders suggests that a long-term trend

of falling activity rates is now also linked to the fact that

young people need more time to complete their studies

(OECD, 2016).

The graph represents the proportion of different groups

according to educational attainment and origin. Low-edu

refers to educational attainment (ISCED 0-2) as compared

to non-low edu (ISCED 3-6). Migrant background refers to

individuals born outside the EU or who have at least one

parent who is born outside the EU as compared to non-

migrant background.

Source:

Commission calculation based on the Eurostat AHM

Labour Force Survey

Youth unemployment is falling.

The youth (<25

years) unemployment fell from 23.7 % in 2013 to

20.1 % in 2016 but is still above the EU average

(18.7 %)

. The rate of young people not in

education, employment, or training (NEETs) is

(

) Source: LFS 2014 ad hoc module – Migration and labour

market (see European Commission, 2017a for details per

region and origin).

(

) Regional youth unemployment rates: 14.1% Flanders,

27.9% Wallonia and 35.9% in Brussels

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3.3. Labour market, education and social policies

considerably below top innovators such as

Sweden, Denmark and Finland (which are on

average above 25 %). The March 2017 law on

'workable and feasible work' is designed to

encourage firms to step up their efforts to provide

training.

Non-EU born migrants are less well integrated

in the labour market than persons with Belgian

origin.

In 2016, the employment rate of non-EU

born was 49.1 %, which is 21.1 percentage points

lower than for native born. This is one of the

highest gaps in the EU (and even more pronounced

for women at 27.4 percentage points). Several

factors drive the unfavourable labour market

outcomes

immigrants,

notably

overrepresentation of lower education and skills

levels. Moreover, employment outcomes of

immigrants differ strongly across origin, gender

and reason for migration (FOD Werkgelegenheid,

Arbeid en Sociaal Overleg, 2017). In particular

those having arrived for family reasons are less

likely to be employed (40 % on average, 35 %

among women) (

). Factors impeding integration

include the lack of recognised qualifications,

limited professional networks and insufficient

language skills.

(

) This strongly matters as 54 % of non-EU born migrants

residing in Belgium came for family reasons (and up to

66 % among women).

Graph 3.3.5:

Pay gap between older (50+) and younger

(30-39) workers , 2014

25%

20%

15%

10%

-5%

-10%

-15%

-20%

The results are based on Mincer equation that controls for

educational background, type of contract, working hours,

sector of employment and occupation. When limiting the

sample to only private firms the pay gap decreases to 20 %

which is still the highest among the Member States included

in the sample.

Source:

Commission calculations based on the 2014

Structure of Earnings Survey

This adverse employment situation is found

among immigrants as well as among native-

born people with at least one foreign-born

parent ('second generation')

(see European

Commission, 2017a). Part of this gap can be partly

explained by the fact that they have less favourable

educational outcomes (

). However, even after

adjusting

for

differences

individual

characteristics (age, sex, education level), native-

born people with non-EU born parents remain less

likely to be in employment (

), although the gap

narrows with education (Graph 3.3.6).

(

) Among those aged 25-54, native-born people with at least

one foreign born parent were (in 2014) more likely not to

have completed higher secondary education (18.0 %, and

up to 28.9 % for those with two foreign born parents) than

native born with native background (16.3 %).

(

) People with a 'second-generation migrant' background are

less likely to find jobs, even if adjustments are made to

take account of different literacy levels, see OECD (2014),

'International Migration Outlook 2015', Table A.7.

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3.3. Labour market, education and social policies

Graph 3.3.6:

Likelihood of employment by origin, gender

and educational attainment

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

Men

Women

Low

Men

Women

Men

Women

High

Medium

adopted a federal law designed to make it easier to

prove ''discriminatory'' infringements through

testing (based on fake CVs) or 'mystery calls'. The

Flemish Region updated its action plan to combat

work-related discrimination while, the Brussels

Region adopted a specific decree to tackle

discrimination in recruitment practices through

'mystery calls'. However, little progress has been

made towards setting the diversity objective for the

federal public services that was announced in the

government agreement. There is still a lack of

coordination across policy domains and political

levels to address the challenge of integrating

people with a migrant background into work.

Native born with at least one non-EU born parent

Native born with native born parents

3.3.2. POVERTY AND SOCIAL INCLUSION

Based on a logit regression, which allows estimating the

adjusted probability of employment controlling for age,

education and gender.

Source:

Commission calculations based on the 2014 AHM of

the Labour Force Survey

The lower probability of employment for people

with a migrant background suggests that

discriminatory practices may be involved.

Existing studies based on tests conclude that being

of foreign origin directly affects a person's chance

to be hired, all other things being equal (OECD,

2013) though the effect seems to decline with

experience (Baert et al, 2017). There is also

evidence that activation measures do not reach all

the sectors of the population equally efficiently.

Participation in activation measures varies

markedly depending on people's origin (FOD

Werkgelegenheid, Arbeid en Sociaal Overleg,

2017). In Flanders, taking part in activation

measures helps people with a migrant background

of the second generation find a job, although to a

lower extent than for people with a Belgian origin

(Vandermeerschen et al, 2018). This is also

corroborated by measurements of subjective

perception of discrimination, which are higher in

Belgium than in other EU countries (Fundamental

Rights Agency, 2017).

A few measures to help newly arrivals integrate

and to tackle discrimination, including

discrimination on the basis of ethnic origin,

have been adopted.

The three Regions have now

adopted integration measures that are compulsory

for newly arrived non-EU nationals. Belgium

Social transfers are very effective in

Belgium (

Pre-transfer poverty was reduced by

41 pp thanks to social transfers, whereas the EU28

average was 33 pp (in 2016). A uniform ‘right to

social integration’ covers all aspects from

eligibility conditions to governance arrangements.

The right to social integration main aims are being

a pathway to employment and the provision of a

guaranteed minimum income. However, for a

country with a relatively low level of income

inequality and a comparatively high level of social

spending, Belgium has a comparatively high level

of relative income poverty (

). At 15.5 % it is

lower than the EU and EA averages (17.3 % and

17.4 % respectively). It is also lower that the figure

for Germany (16.5 %) but above those for the

Netherlands (12.7 %) and France (13.6 %).

Certain groups have higher poverty rates than

the EU average.

This is notably the case for

people in quasi jobless households with children

(80.7 % versus an EU average of 68.3 %) or for

people born outside of the EU (44.9 % versus an

EU average of 30.8 %). This at-risk-of-poverty

rate among people born outside of the EU has risen

to 44.9 % in 2016 (when it was 41.5 % in 2015)

and is four times higher than among native

Belgians (11.1 %). Severe material deprivation

was found to be more than five times higher

(

) The inequality reducing effect of taxes and transfers on the

Gini coefficient is 23.6 percentage points, one of the

highest in the EU.

(

) People who are at-risk-of poverty (AROP): in a household

with an equivalised disposable income below 60 % of the

national median.

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3.3. Labour market, education and social policies

(18.3 % versus 3.6 % among native Belgians). The

main reason for this is the lower employment rates

among people born outside of the EU but another

reason is higher in work poverty within this group

(19.5 % versus 3.3 %). Child poverty is also

comparatively high and driven mainly by the

number of children in quasi-jobless households.

This applies particularly for children with parents

educated to less than lower secondary level. The

poverty rate for this group is above the EU and EA

averages and the rates for the Netherlands and

France though lower than for Germany. Belgium

has one of the largest gap between the risk of

poverty or social exclusion for persons with

disabilities and those without. Among people of

working age, the poverty risk rises significantly for

those with low educational attainment. It is worth

noting that it is also increasing for those with a

‘medium’ educational attainment (FOD Sociale

Zekerheid, 2017).

Despite increased employment the rate of very

low working intensity households has barely

decreased.

Many people find themselves excluded

from the labour market and, despite a slight

decrease in 2016, the proportion of the working

age population (25-54) living in very low work

intensity households remains high by comparison

with the neighbouring countries (Graph 3.3.7). The

proportion of women at risk of poverty increased

in 2016, probably because of the increase in

relative poverty among single-parent households

which reached 41.4 % (

). The risk of very low

work intensity in these households has increased in

recent years. The federal government announced

that it will automatically grant social rights to

beneficiaries who meet the criteria and increase the

tax deductibility of child care costs for working

parents at the bottom of the pay scale. It has

restated its intention to raise the level of benefits to

the level of the poverty threshold.

Graph 3.3.7:

Share of the population (25-54) living in very

low work intensity households, 2005-2016

Source:

Eurostat

Belgium has a well-developed social protection

system for the self-employed but differences

with employees remain.

Social contributions are

lower than for employees but also confer fewer

rights. Belgium is one of the nine countries where

the self-employed are not entitled to

unemployment benefits

. Public provision can be

complemented by private insurance. Self-

employed people and family workers are much

more likely than employees to be at risk of

poverty. This can hamper the attractiveness of

entrepreneurship (see section 3.4.3 and 3.4.4). In

recent years, the authorities have taken important

steps to harmonise the protection levels for the

self-employed and the employed. The federal

government has announced a number of measures,

and a few have been adopted, notably additional

support for pension build-up of self-employed

individuals and a reduction of the social security

contribution limit for self-employed at the start of

their activities. The lag time at the beginning of a

work incapacity period during which no

substitution income is granted was cut by half to

two weeks.

Access to quality healthcare is an issue for

vulnerable groups.

The level of unmet needs for

medical care is high in the lowest income quintile

(

)However, in 2016 the federal government introduced a

“bridging right”, with which social rights are maintained

and allowances are provided under certain circumstances,

while the payment of social contributions is suspended.

(

) 83 % of the heads of single-parent households were women

in 2014.

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3.3. Labour market, education and social policies

compared to other EU countries and has been

rising in recent years (

). The difference between

the 5

and the 1

income quintile in self-reported

unmet health needs has increased steadily since

2011, reaching 6.8 pps in 2015 (6

highest in EU)

and 7.4 pps in 2016. It is not clear what caused the

increase. Non take up or deteriorated income

situations could be possible causes.

encourage firms to step up their efforts to provide

training.

Whilst Belgium performs well on top achievers,

the downward trend and differences among

communities are raising concerns.

The PISA

2015 survey confirms that the Belgian share of top

performers is above the OECD in all tested areas

with a downward trend in mathematics and

communities'

differences

(see

European

Commission, 2017a). Moreover, disadvantaged

groups are much underrepresented amongst top

achievers in science, mathematics and reading.

The proportion of tertiary graduates is high.

Yet, educational inequalities, skills shortages

and regional disparities are observed.

45.6 % in 2016, the percentage of 30 to 34 year-

old graduates is high. The Brussels Region attracts

highly skilled young people, but it has the lowest

proportion of students likely to successfully

complete tertiary education (Statistics Belgium,

2015). Inequalities linked to socioeconomic status,

family and migrant background persist in tertiary

education. The attainment gap between people

with disabilities and those without far exceeds the

EU average (18.3 pps. vs. 13.7 pps., EU-SILC

2015). The share of STEM graduates is one the

lowest in the EU (see section 3.5.3). The different

language Communities face different levels of

teaching staff shortages

Large performance gaps between schools go

hand-in-hand with unequal educational

opportunities.

Disadvantaged pupils are more

likely to be steered towards certain schools and

towards lower educational pathways. The variance

in science performance between schools is high by

international and EU comparison. Explanatory

factors include teachers' lower expectations,

greater turnover in teaching staff, difficulties in

attracting experienced teachers, levels of

cooperation between teachers, cultural differences.

(King Baudouin Foundation, 2017) and unequal

access to educational resources (European

Commission, 2017b). There is limited monitoring

of schools performance. The French Community

has developed new indicators such as the

proportion of schools whose pupils' average score

is below the basic level.

(

) In the Flemish Community the shortages are only recently

emerging and are confined to certain subjects and cities

3.3.3. EDUCATION, TRAINING AND SKILLS,

Belgium combines an overall good education

performance with major education inequalities;

this is intricate with wide performance gaps

between schools and differences between the

Communities. The two main education systems

face longstanding structural problems relating to

equal opportunities and inclusive education.

However reforms are being implemented. The

challenges could increase as the strong growth of

the school population should be concentrated in

disadvantaged groups (European Commission

2016a). Both communities had lower than average

results than the EU-average at the 2016 Progress in

International Reading Literacy Study (PIRLS),

with the French Community score being the EU's

lowest one and with the sharper downward trend

recorded for the Flemish Community.

Participation in life-long-learning is very low

(7.0% against an EU average of 10.8%).

In the

Cedefop's European Skills index (

) and on the

Skills Matching pillar Belgium ranks amongst the

lowest with a poor performance for structural

vacancies (27

) and for Skils obsolescence (19

To prevent skills obsolescence and to enable

people to handle transitions, more commitment by

individuals and employers to continuous adult

learning would be important. The March 2017 law

on 'workable and feasible work' is designed to

(

) It was 4.2 % in 2011 and has increased to 7.7 % in 2016.

The Cedefop's European Skills Index measures the

comparative performance of the skills formation and

matching system across EU Member States. This is a

composite index with three pillars, each of which measures

a different aspect of a country's skills formation and

matching system:

Pillar 1 'Development' measures training and education

activities,

Pillar 2 'Activation' measures the transition of people into work,

and participation in the labour market,

Pillar 3 'Matching' measures the degree of successful matching

of skills that is the extent to which skills are effectively

matched in the labour market.

kom (2018) 0120 - Ingen titel

3.3. Labour market, education and social policies

The lower performance of pupils with a

migrant background is a concern, with

differences across the Communities.

Belgium is

one of the EU countries with the largest share of

students with a migrant background (17 % vs

11.3 % EU average), mostly concentrated in big

cities. PISA 2015 shows that 36.9 % of those

pupils are low achievers and only 2.9 % top

achievers, compared with 15 % and 10.5 %

respectively for students without a migrant

background. After adjusting for socioeconomic

status, migrant background has an impact above

the EU average in Belgium. The adjusted

performance gap in the Flemish Community is the

highest in the OECD. In the other Communities it

is below average (Universiteit Gent, 2016).

Graph 3.3.8:

Between schools variation in performance

explained by schools' and students' social-

economic status (PISA 2015- Science)

girls in large cities.(Vlaams Ministerie van

Onderwijs and Vorming, 2016). Such analysis is

not available for the French Community.

The implementation of major schools reforms

and measures is at an early stage.

Major school

reforms to improve equity, basic competences and

vocational training have been launched by both the

French and the Flemish Communities. In 2017, the

Communities introduced new measures on early

childhood education (European Commission,

2017b). In 2017 the French Community adopted a

set of objectives, a multi-annual budget, and an

implementation calendar for the reform ('Pacte

pour un enseignement d’excellence 2015-2030')

and the 2017-2018 key measures. In July 2017, the

Flemish government gave its initial approval for a

draft decree on the structure and organisation to

modernise secondary education. It decided in

November 2017 to postpone the incremental

implementation of the decree from 2018 to 2019.

On related reforms, the adoption of the decree on

dual learning reform has been postponed to 2019,

although the new system of dual learning has been

in a trial phase for the last two years. A draft

decree on the basic principles of the attainment

targets has been adopted. New measures also

support the implementation of the 2015-2016

decree to include students with special educational

needs in the mainstream system (M-Decree). Full

implementation will take time to materialise.

Specific measures target groups or schools with

disadvantaged pupils.

The Communities have

taken and plan to take specific measures (European

Commission 2017b). An evaluation (Rekenhof,

2017) of Flemish equal opportunities policy for the

most disadvantaged schools ('GOK') in primary

education found no overall improvement but

identified success factors enabling policy to be

improved and adapted to take account of growing

pupil diversity. These included a broad support

base, parents involvement and a student follow-up

system. The French Community improved its

funding formula for such schools in 2017. Since

2012 enrolment policy in the Flemish Community

has required all schools to reserve a share of places

for both disadvantaged and advantaged pupils. The

first positive impacts on social mix have been

observed. The long awaited evaluation and reform

of the French Community's enrolment policy is

pending.

Source:

DG EAC based on Pisa 2015(science), averages

weighted,

More attention may need to be given to gender

differences in education.

Boys and girls make

different study choices of in secondary and tertiary

education. Boys significantly outperform girls in

science (12 points vs 3.5 OECD average, Pisa

2015). Female students' underrepresentation in

sciences, mathematics and statistics is among the

highest internationally (OECD, 2017c,). In

addition, there are some indications of recent

potentially worrying trends. Despite the quasi

universal enrolment in pre-primary at the age of

three, a recent survey suggests that the profile of

the few cases of non-enrolment and/or irregular

attendance after enrolment are mostly immigrant

kom (2018) 0120 - Ingen titel

3.3. Labour market, education and social policies

New quality assurance and school governance

measures are designed to reduce inequalities

between schools.

In the French Community

central steering will be stepped up while giving

schools greater autonomy. To support a

collaborative approach, all schools will establish

by 2018/2019 a six-year plan covering pupil

performance, school climate, inclusive education,

pupil pathways and professionalization. Support

measures will be taken to help underperforming

schools. On the Flemish side, measures may help

strike a balance between autonomy and

accountability (OECD, 2015) and address concerns

about the possible unequal value of the

qualifications awarded. In 2017-2018, centrally

validated tests to be used in the award of primary

school certificates will become part of schools’

internal quality assurance systems. A new quality

framework is available for the inspectors.

The need to adapt teachers' continuous

professional development is recognised.

There

are few measures to help teachers combine

teaching and continuous professional development

(CPD). The existing system is not well-suited to

helping school teams deal with an increasingly

diverse school population. It is neither well

developed nor mandatory in all Communities. Nor

is it recognised for career development (European

Commission, 2017a). It involves actors at central,

intermediate and school levels. The French

Community plans to step up continuous

professional

development

from

2019.

Postponement of retirement age for Belgian

teachers (from 2019 onwards) will bring additional

challenges regarding (re)training and organisation

of end of career.

Reforms relating to initial teacher education

and career are making slow progress in a

context of emerging teacher shortage.

Measures

announced in the 2014-2019 government

agreements referring to the need to attract qualified

teachers to disadvantaged schools have not yet

materialised. The French Community introduced

mandatory support to new teachers in 2016/2017.

Negotiations on teachers' careers are ongoing

(Flemish Community) or have resulted in planned

reforms

(French

Community).

both

Communities, the results of surveys on teachers’

missions and workload are awaited.

The effects of the reforms and measures will

very much depend on their implementation and

monitoring.

It is too early to see if the reforms of

the Flemish secondary education will address the

negative effects on equity of the current general,

technical and vocational tracks. Educational

inequalities may even increase if early tracking is

not effectively counterbalanced (OECD, 2017b).

Delays in the implementation are observed. The

monitoring will rely on the current system. The

new longer common curriculum in the French

Community should yield positive results. The

French Community is improving its monitoring

system.

kom (2018) 0120 - Ingen titel

3.3. Labour market, education and social policies

Box 3.3.2:

Policy highlights: Reform of early childhood and compulsory education in the

French Community (Pact for Excellence in Teaching, 2015-2030)

A systemic reform to address longstanding educational challenges

The school reform, launched in 2015, aims to reduce high educational inequalities, raise the average

performance (with Pisa 2015 results below the national average and below or close to the OECD average)

and the overall efficiency of the system. To strengthen prevention, the reform includes early childhood

education (ECEC). The French Community adopted in 2017 the objectives, priorities of the reform, a well-

defined implementation plan with a 15-year horizon and a multi-annual budget.

The five strategic axes to reform the system:

Teach the knowledge and skills required for 21st century society:

A common comprehensive pathway

from ECEC till the third year of lower secondary education (currently second year) will be progressively

rolled out starting with ECEC in 2019/20. Its successful implementation requires inter alia to adapt

school and teaching approaches to face the increasing diversity of the school population.

Mobilise education stakeholders within a framework of school autonomy and accountability.

The

overhaul of the governance involves

a stronger central steering namely by setting objectives at system

level and by geographical area;

schools and teachers greater autonomy and responsibility to achieve

agreed objectives and

support and monitoring of schools by geographical area with measures for

significantly low-performing school. At central level, plans include a redefinition of roles (e.g. of the

school inspectorate) and a decentralisation of responsibility by geographical area. Less administrative

burden on heads is coupled with a strengthening of their role on teaching, shared leadership and in

human resource management. School plans to achieve the objectives are to be established by 2018/2019.

Teachers’ reforms focus on continuous professional development and on the introduction of a

differentiated career and of an appraisal system.

Make the vocational pathway a stream of excellence.

Close to 50%, the share of pupils, mainly from

disadvantaged background, enrolled in initial vocational training is above the EU average. To increase

its quality and relevance, initial vocational training would be reduced to one track of 3 years (currently

four) after a longer common pathway. Main measures aim for a stronger monitoring and faster revision

of the training offer with less and more relevant study options and greater focus on basic competences.

Promote inclusive education, and strengthen the fight against school failure, drop out and repetition.

Objectives encompass to half by 2030 the grade repetition rate (at 46%, the highest in Pisa 2015) and the

early school leaving rate. Main measures target groups or schools with disadvantaged pupils or

significantly underperforming, new pedagogical approaches, social mixity and cooperation with parents.

Ensure the well-being of each child in a quality school, favouring a democratic school.

Measures to

address infrastructure shortages and increase public investment in this area are a priority. A range of

measures cover quality school environment, a revised school timetable and extracurricular activities.

With a 15-years horizon, implementation is at an early stage and deserves close monitoring

The reform process so far attests a positive shift towards a participatory process and an evidence-based

policy. The reform has been adopted and the implementation of first measures, inter alia on governance,

started. However, the results of the reform will very much depend on the design of measures and on their

implementation. Sustained political support, support to teachers engagement, a phased implementation,

consistency with the initial teacher education reform led by the minister of Higher Education are seen as

success factors. The context is challenging with one of the highest growth of the school population in the

EU. For more information see: http://www.pactedexcellence.be, Education and Training Monitor - European

Commission

kom (2018) 0120 - Ingen titel

3.4. INVESTMENT AND COMPETITIVENESS

3.4.1. EVOLUTION OF PRODUCTIVITY GROWTH

Low productivity growth remains a challenge

for Belgium.

Since 2000, labour productivity

growth in Belgium has underperformed by

comparison with average growth in the EA (Graph

3.4.1). In the aftermath of the crisis, productivity

growth was slower than in the pre-crisis period.

The main reason for this was low productivity

growth rates in the services sector, which halved

between the two periods. Productivity growth rates

in manufacturing, on the other hand, proved more

resilient (cf. Biatour and Kegels, 2017). A regain

in productivity growth is essential to ensure future

growth, as well as the sustainability of public

finances, as the expected increase in the share of

old-age population is likely to depress the

contribution from labour utilisation (see Section

3.1).

Graph 3.4.1:

Developments in labour productivity growth

(Gross value added per hours worked)

120

sectors, such as business services, have weighed

on productivity growth. Some inefficiencies in the

Belgian research and innovation system, reflected

by a lower export share of medium-high and high

tech products compared to the EA average(

) in

spite of relatively higher R&D expenditure (2.5 %

of GDP in 2015 compared to 2.1 % in the EA),

also played a role. A rather heavy administrative

burden with a complex tax system (see section 3.2)

and low scores on entrepreneurship are likely to

hamper productivity developments. Finally, the

slow productivity growth also reflects the

persistent low level of public investment, notably

in transport infrastructure as illustrated by the

highly saturated road and rail network. This

appears to have a negative impact on firms'

decision to invest in Belgium (National Bank of

Belgium, 2017c) (see Box 3.4.1 and section 3.5).

Investment in research and innovation and

other intangibles, which have the most potential

for innovation output, is high, though rather

concentrated within a few sectors in Belgium.

Overall investment in intangibles (knowledge

based capital (

)), one of the highest in the EU,

has grown strongly since the crisis to reach 4.4 %

of GDP in 2015(

), representing 20 % of total

private investments. However, the level remains

below that of France (5.1%) and the Netherlands

(4.6%) (Biatour & Kegels, 2017). Business R&D

has risen to one of the highest levels in the EU

(1.73% of GDP, ranking 6

in the EU). This

performance is notably underpinned by the

biopharmaceutical sector which accounts for about

a third of total business R&D (

), followed by

computer, electronic and optical products (7%) and

chemicals (6%). The strong R&D performance of

these high-tech sectors is a key driver for Belgium

strength in exports and productivity.

(

)However, the exports diamond trade (a contribution to the

export share of “low-tech” goods worth EUR 11.4 billion

in 2016, approximately 3% of total Belgian exports)

contributes to explain the low share of medium and high-

tech exports in total exports.

( ) cf. footnote (42)

(

) Based on national accounts. The figure increases to 8 %

when incorporating additional dimensions covered in the

INTAN database.

(

) This assumes that part of the ‘scientific research and

development’ service sector (10.4 % of Business R&D),

where many biotech firms are classified, should be added

to the pharmaceutical sector (28.8 % of Business R&D).

115

110

105

100

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

EA-19

Source:

European Commission

A key driver of the productivity slowdown has

been the low growth in total factor productivity

(TFP)

(

) (cf. European Commission (2016b)). In

this respect, Belgium has lagged behind its

neighbours. In addition to the structural factors

shared by all the most advanced economies, some

features are specific to Belgium. In particular,

remaining barriers to competition in services

(

) That is, how efficiently firms combine capital and labour

inputs for producing outputs.

kom (2018) 0120 - Ingen titel

3.4. Investment

Box 3.4.1:

Investment challenges and reforms in Belgium

Section 1. Macroeconomic perspective

Investment in Belgium has proved resilient to the crisis. Unlike in neighbouring countries and the EA as a

whole, in 2016, the level of overall investment in Belgium exceeded that of 2007. At 23.4 % of GDP it is

currently higher than the EA average and the level observed in France, Germany and the Netherlands. This

relatively good overall performance is due to private investment, in particular business investment, which

has increased compared to its pre-crisis level. The share of household investment in total GDP has remained

stable at 5.9 %, a level which is in line with neighbouring countries. By contrast, public sector investment

remains a major challenge both with respect to its overall level and with respect to its orientation and

contribution to the country's growth potential. Belgium is one of the beneficiaries of the Juncker Plan with

approved financing reaching EUR 1.3 billion.

Section 2. Assessment of barriers to investment and ongoing reforms (

)

Regulatory/ administrative burden

Public administration

Public

administration/

Public procurement /PPPs

Business

Judicial system

environment

Insolvency framework

Competition and regulatory framework

Labour

market/

Education

Legend:

EPL & framework for labour contracts

Wages & wage setting

Education

CSR

Sector

specific

regulation

Financial

Sector /

Taxation

R&D&I

Financing of R&D&I

Business services / Regulated professions

Retail

Construction

Digital Economy / Telecom

Energy

Transport

CSR

Taxation

Access to finance

Cooperation btw academia, research and business

No barrier to investment identified

CSR

Investment barriers that are also subject to a CSR

No progress

Limited progress

Some progress

Substantial progress

Fully addressed

Barriers to private investment in Belgium are overall relatively moderate as confirmed by the European

Commission assessment. Substantial progress was made on wage setting. Some progress was also made on

education. More ambitious liberalisation of regulated professions and business services and the retail sector

could spur investment in the affected sector as well as economy-wide.

Main barriers to investment and priority actions underway:

1. Belgium appears to lag behind as regards the quality of public infrastructure to support the

competitiveness of the economy (see Section 3.5). With its National Pact for Strategic Investment, the

Belgian federal government aims to promote structural reform and address the deficit in public investment.

Wallonia has also recently adopted its investment plan, contributing to that process. It is hoped that the

national investment pact will provide around EUR 60 billion in public and private investment by 2030, not

only by mobilising public funds, but also by tapping private sources of finance, notably by developing a

framework for public-private partnerships (PPS). Several policy areas are within the remit of the pact:

support for innovative firms and funding for research and development, health, mobility, education, energy

transition, digitalisation.

2. The comparatively high level of taxation (in spite of the recent reforms) and the overall complexity of the

tax system, characterised by a large number of exemptions, deductions and reduced rates, makes Belgium

less attractive to potential investor. For this reason, the authorities have undertaken a reform of the corporate

tax system (see section 3.1).

(

) See 'Member States Investment Challenges', SWD(2015)400final/2.

kom (2018) 0120 - Ingen titel

Broadening the innovation base to encompass a

larger pool of firms would help disseminate

innovation to SMEs as well making the system

more resilient.

A high concentration of R&D in a

few large firms and sectors is a widespread

observation, especially in small economies. In

Belgium, firms with over 500 employees

undertake most of the R&D (54 % in 2013), a

share that has remained broadly stable over the

years. Moreover, 60 % of business R&D is carried

out by foreign-controlled firms, the largest share in

the EU after Ireland (OECD, 2015). However,

SMEs also make a significant contribution to R&D

in Belgium compared with other EU countries, (in

2013, 0.58 % of GDP compared to 0.33 % of GDP

for EU countries for which data is available).

The existing productivity gap between the most

productive firms and the rest of businesses is

widening.

As in other countries, Belgium's most

productive firms, particularly top frontier firms,

display significantly higher productivity growth

rates than the rest of the firms. This may point to

obstacles hampering the diffusion of innovation.

Investment in intangibles, (so-called knowledge

based capital (

)) including R&D, could also be an

important factor that differentiates firms at the

global productivity frontier from those that are

lagging behind (cf. European Commission, 2016b).

This disparity is observable in all sectors, though

the gap is widest in the manufacturing sector (see

Graph 3.4.2).

The dynamics of entrepreneurial activities and

innovative business growth seems particularly

weak, hindering the potential innovation impact

of SMEs in terms of sales and jobs.

The share of

employment in fast growing SMEs in innovative

sectors is only 2.5 %, which is one of the lowest

proportions in the EU (European Commission,

2017a). The proportion of the population aged

18-64 engaged in early-stage entrepreneurial

activity has increased to 6.2 % but remains quite

(

) According to the OECD, knowledge-based capital

encompasses all assets that lack physical substance but,

like physical capital, generate economic benefits that can

be retained by firms, at least to some extent, for a period

that exceeds one year. Three main categories of intangible

assets are usually measured: computerised information

(which includes software and databases), innovative

property (covering R&D, design, mineral exploration,

financial innovation and artistic originals) and economic

competencies (including advertising, marketing research,

own-account organisational capital and training).

below the average of advanced economies (8.4 %).

Crucially, Belgian entrepreneurs appear much less

driven by opportunity than those in other advanced

economies (

). A large majority of SMEs polled in

a survey report having recently introduced a

product or process innovation that is new to the

firm (75 %) or new to the market (69 %). But the

share of their turn-over relating to innovation is

low (7.6 %) compared to the EU average (13.7 %).

Graph 3.4.2:

Distribution of labour productivity growth,

Belgium, (average 2011-2013)

Mean

P10

P50

P90

P99

80%

60%

40%

20%

-20%

Notes: a) Real estate activities; b) Manufacturing; c)

Professional, scientific and technical activities; d)

Accommodation and food service activities; e)

Administrative and support service activities; f) Information

and communication; g) Transportation and storage; h)

Construction; i) Wholesale and retail trade.

(1) The vertical axis shows the average annual productivity

growth rate between 2011 and 2013 for five group of firms

classified according to their level of productivity, namely:

those at the percentile 99, i.e. firms whose level of

productivity is higher than that of 99% of firms; those at the

percentile 90 (P90) and 10 (P10); those more productive

than 50% of firms but less productive than the remaining 50%

(median); those whose level of productivity is equal to the

average productivity level in the sector (mean).

Source:

Compnet

Firms directly linked with foreign markets

appear to have higher productivity.

The share of

firms in Belgium that export or import directly is

small, as in other advanced economies (

(

) Based on the motivational index of the Global

Entrepreneurship Monitor, which measures opportunity-

driven entrepreneurship as opposed to necessity-driven

entrepreneurship.

(

) In 2014, only 2.1 % of Belgian firms were exporting, 3.9 %

were importing, and 1.3% were both exporting and

importing a significant amount defined as 1 % of total sales

or total input consumption (Dhyne, Duprez 2017, The

kom (2018) 0120 - Ingen titel

3.4. Investment

However, almost two thirds of businesses are

directly or indirectly connected to foreign demand.

Recent empirical results also show a productivity

ranking of Belgian firms according to their

proximity to foreign markets and firms that are

indirectly connected to markets abroad tend to lag

behind in terms of technological efficiency (cf.

Dhyne and Duprez, 2017).

Public support for research and innovation

integration of research policy with enterprise and

innovation policies has been a positive

development. This has gone some way towards the

rationalisation of the complex governance

framework, by integrating executive agencies and

simplifying programmes and instruments. There is

also a strong focus now on boosting innovation in

SMEs and start-ups.

With the gradual expansion of these measures

and greater uptake by firms, total measures in

support of R&D has expanded considerably to

reach EUR 1.7 billion of fiscal spending in 2015

(see Graph 3.4.3). Together with direct support

from regional grants, total public support to

business R&D represented 0.39 % of GDP in

2015, the highest level observed in the OECD

(OECD, 2017c). The announced expansion of the

partial exemption of advance payment of the

withholding tax on wages to researchers with a

bachelor's degree and the introduction of the

innovation box will probably contribute to this

growing trend (see Section 3.1).

Graph 3.4.3:

Federal fiscal measures in support of R&D (left

scale in billion EUR) and business R&D (right

scale in billion EUR), 2008-2015

1,800

1,600

1,400

1,200

1,000

4000

800

The quality of public research offers an

excellent base for public-private collaborations.

The openness and quality of the public science

base is reflected in the number of highly cited

publications,

the

many

public-private

collaborations and the fact that a significant

proportion of research is contracted by the private

sector.

Despite Belgium's excellent science base, public

R&D intensity (0.74 %) remains below

innovation leaders (0.87 % on average)

(

Flanders however is making progress towards its

objective of spending 1 % of its GDP on public

research (estimated at 0.79 % for the Flanders

region, Debackere et al., 2017). The main reason

for this is the expansion of public research centres.

Developments seem more moderate in the other

regions/community, pulling down Belgium public

R&D intensity to 0.74 %. Research undertaken by

public institutions is supported by public budgets,

which represent 0.62 % of GDP, also a relatively

modest level by comparison with advanced peers.

However, there has been a trend towards

increasing R&D budgets in all entities in recent

years. The only exception is the cuts at the federal

level, particularly following the reforms of federal

research programmes.

Innovation is high on the agenda of regions and

communities, with the dual aim of making

existing industries more competitive and

enabling the emergence of new ones.

individual regional/community level, the closer

World is a village… The integration of Belgian firms into

the world economy, NBB Economic Review, Sept.2017).

(

) Innovation leaders defined in the European Innovation

Scoreboard 2017 (with respective public R&D intensities

for 2016) are Sweden (0.98%), Denmark (0.97%), Finland

(0.92%) , Germany (0.94%), the Netherlands (0.88%) and

the United Kingdom (0.52%).

8000

7000

6000

5000

600

400

200

2008 2009 2010 2011 2012 2013 2014 2015

3000

2000

1000

R&D tax credit/investment deduction

Patent box

Partial withold. tax exempt. for researchers (private sector)

BERD

Source:

Eurostat and SPF/FOD Finance

While business R&D has grown by about 50 %

since 2008, total fiscal spending in incentives for

R&D, including the patent box (see section

3.1.4), has grown by almost 500 %.

The

efficiency of the schemes seems questionable in

the absence of an in-depth evaluation. The latest

available study by the Federal Plan Bureau

(Dumont, 2015), which analyses the period

kom (2018) 0120 - Ingen titel

3.4. Investment

between 2005 and 2011 questioned the efficiency

of the tax credits and the patent box. The study

also suggests that combining different support

schemes seemed to reduce their effectiveness

Central to the issue is the lack of a distinction

between the objective of incentivising additional

R&D, especially in new sectors, and that of

improving the cost-competitiveness of the

sectors that are strong R&D performers.

2013, the Belgian Court of Auditors criticised

some of the schemes as suffering from a lack of

clear objectives, questionable design and

insufficient monitoring (Court of Auditors, 2013).

Since the measures were introduced at the request

of the pharmaceutical and chemistry sectors, their

design apparently mixed two objectives:

incentivising additional R&D and improving the

cost-competitiveness of these sectors, which are

already strong R&D performers (see above). As a

result, the beneficiaries are, on average, larger and

older firms rather than a more representative

population of enterprises (Dumont, 2015).

The Belgian economy could have a relatively

high share of non-viable businesses.

estimated 14 % of capital stock was sunk in

zombie firms (

) in 2013, down from around 17 %

in 2010 but still higher than Germany or France

(McGowan et al., 2017). Yet, Belgium's zombie

firms accounted for 9 % of the total in 2013 (6 %

in 2007 and 8 % in 2010) (

). The increasing

number of zombie firms and their survival have

adversely affected average productivity growth

and limited the availability of credit in the

economy for more productive firms.

In 2016, nominal wages remained stable as

compared with 2015, while relatively strong

growth in inflation led to a decline of 1.6 % in real

wages. There was no change in the nominal unit

labour cost as compared with 2015, leading for the

third year in a row to a relative improvement vis-à-

vis the euro area and reversing some of the

competitiveness losses accumulated in the past. In

2017 and 2018, nominal unit labour costs are

expected to increase again driven by relative high

inflation growth. This will have to be closely

monitored as the acceleration of inflation in

Belgium tends to enhance the risk of second-round

effects in the economy through automatic wage

indexation.

Graph 3.4.4:

Determinants of changes in unit labour cost

Rate of change y-o-y (%)

-1

-2

-3

-4

02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17*18*19*

Inflation (GDP deflator growth)

Real Compensation per Employee

Productivity Contribution (negative sign)

Nominal unit labour cost

ULC in Euro Area

Source:

European Commission

3.4.2. COST-COMPETITIVENESS AND INFLATION

Recent prolonged wage moderation has halted

the decline and reversed some of the cost-

competitiveness losses accumulated in the past.

(

) Firms aged 10y or more and with an interest coverage ratio

below 1 over three consecutive years.

( ) According to the McGowan et Al., 2017, Belgium exhibits

a higher number of zombie firms as compared to other EU

countries: for examples, in 2013 zombie firms were 2 % in

France, and 6 % in Italy. However, the high Belgian

number should be interpreted with caution since interest

charges are to a certain extent influenced by intra-group

loans that are particularly important in Belgium. Sample

biases might also explain the relatively higher Belgian

figure.

After having peaked in 2016, the inflation gap

between Belgium and the euro area has

narrowed considerably in 2017.

The inflation

gap between Belgium and its three main

neighbouring countries (Germany, France and the

Netherlands) also became smaller. Total inflation

in these countries in 2017 has accelerated (1.5 %

versus 0.3 % in the previous year) more than in

Belgium, but remained lower than that in the latter.

The spike in the inflation gap was mainly the

result of government measures which

temporarily pushed up the year-on-year

inflation for services and, to a lesser extent, for

energy and processed food

(Graph 3.4.5).

According to some estimates (National Bank of

Belgium, 2017d), these categories accounted for,

kom (2018) 0120 - Ingen titel

3.4. Investment

respectively, 1.1, 0.6 and 0.4 percentage points of

headline inflation from 2015 to 2017.

Electricity contributed significantly to the

acceleration of inflation in 2015-2017, and thus

also to the widening inflation gap.

Inflation in

Belgium shows greater sensitivity to world oil

price movements, as a result of a low level of flat-

rate taxation (excise duties) on heating oil and the

higher weight it has in energy consumption

patterns. This factor has mitigated the inflation gap

in 2015 and 2016, in periods of falling oil prices,

but exacerbated it at the beginning of 2017.

Graph 3.4.5:

Contribution of the main product groups to the

inflation differential with the EA

1.5

electricity prices in 2016 was mainly related to the

adoption of a couple of fiscal measures, such as the

increase in VAT from 6 % to 21 % in September

2015 or, in Flanders the sharp increase in the

contribution “energy fund” –a yearly tax for each

active connection point– in March 2016, as well as

the abolition of free electricity. Although

electricity inflation has now slowed down, partly

due to the fading out of the effect of tax on

electricity consumption, it is still high due to the

remaining effects of measures taken in 2016,

e.g.,contribution in the "energy fund" March

2016), removing free electricity in Flanders (May

2016). The resulting increase at the national level

is expected to fade out in 2018.

The rise in processed food prices has also been

responsible for higher inflation in Belgium.

was driven by decisions taken as part of the

(partial) financing of the policy action to reduce

the tax wedge on labour income (the so-called "tax

shift"), through the increase of excise duties on

alcohol and tobacco and soft drinks.

Over time, services prices seem to be the

primary reason for the inflation gap persistence

with respect to the euro area.

Core inflation –as

measured by the HICP excluding volatile

components such as unprocessed food and energy–

has been systematically higher than on average in

Germany, France and the Netherlands. Between

2008 and 2016 core inflation, in cumulated terms,

increased by 14.9 % in Belgium compared to an

average 9.6 % in the neighbouring countries

(12.3 % in the Netherlands, 9.9 % in Germany and

8.4 % in France). Over the same period, services

contributed slightly more than half to the inflation

differential, compared with a contribution of less

than a third for processed food and just over a fifth

for non-energy industrial goods (

). More

precisely, the Price Observatory (2016) identifies

three sectors, namely bars and restaurants (which

have a higher weight in the Belgian price index),

telecommunications and culture, which accounted

for most of the service price differential between

Belgium and its three main neighbouring countries

throughout the period. An additional factor

explaining the higher service market prices could

(

) The underlying inflation is divided into three product

groups, namely processed food, non-energy industrial

goods and services, which correspond to 16 %, 34 % and

50 % of the weight of the three product groups in the

calculation of underlying inflation in Belgium respectively.

0.5

-0.5

-1

Source:

European Commission

However, the acceleration of energy prices in

2015-17 was mainly related to the

non-energy

components (

) of the retail price (

) of gas and

electricity.

The share of the energy component in

the overall bill for electricity has clearly decreased

over the years; as such, the acceleration of

(

) The non-energy components include network tariffs

(distribution and transmission costs), as well as levies,

taxes and VAT. In the context of the sixth State reform

(Law of January 6, 2014) the regulation of distribution

tariffs for electricity and gas were transferred to the

regions. Since 2008, the transmission tariffs on electricity

and gas are approved by the federal regulator CREG for a

period of four years.

( ) Although the pre-tax energy price-setting in Belgium was

subject to a price control mechanism, the “safety net

mechanism”, till the end of 2017, its impact, especially on

electricity prices, is very limited, since these non-energy

components are not concerned by the control mechanism

and since almost two thirds of the contracts are fixed-price

contracts to which the mechanism does not apply either.

Energy

Unprocessed food

Services

Processed food

NEIG

HICP

kom (2018) 0120 - Ingen titel

3.4. Investment

be that prices for services, such as notaries, public

transport, education and insurances, are

administered and index-linked — albeit with some

time lag.

with ten or more employees in the 'business

economy' were high-growth firms, which is below

the EU-average of 9.2 % (

). Again, 3 % of new

businesses tend to be fast growing firms in their

first five years of activity (gazelles) (De Mulder,

Godefroid, Swartenbroekx, 2017).

Belgium has adopted several policy measures to

foster entrepreneurship, although differences

exist between the social protection system for

self-employed and that for employees

(see

section 3.3.2). At the federal level, measures have

been taken for the self-employed, including the

establishment of a specific status for student

entrepreneurs and the extension of the duration of

maternity leave period for the self-employed. At

the regional level, a new action plan on

entrepreneurial education has been implemented,

specific projects have been put into place for

immigrant entrepreneurs and to stimulate social

entrepreneurship (Flanders), to support enterprises

(Brussels region) and new dedicated growth

acceleration services for SMEs (Wallonia).

Belgium has a vibrant start-up environment

due to the wide range of public support

measures as well as one-stop-shops for

enterprise creation.

Concerning firms' scaling-up,

public support is available at regional level for

SMEs’ growth mostly in the form of coaching or

subsidies

for

the

provision

management/accounting services. As from January

2018 a new scale-up measure will become

effective for SMEs aged between 5 and 10 years

and complying with a set of requirements. Fiscal

benefits for investments and employment in start-

ups were included in the federal Start-up plan of

2015.

(

) In line with the Commission implementing regulation (EU)

No 439/2014, high-growth enterprises are defined as firms

with at least 10 employees in the beginning of their growth

and average annualised growth in number of employees

greater than 10 % per annum, over a 3-year period. The

share of high-growth enterprises is the number of high

growth enterprises divided by the number of active

enterprises with at least 10 employees. Source of the data

high-growth

enterprises

Eurostat

(http://ec.europa.eu/eurostat/web/products-datasets/-

/bd_9pm_r2,

last accessed 10.04.2017). Due to data

availability on Eurostat, the data on high-growth firms

refers to the ‘business economy’, which covers sections B-

N including section K (financial activities, except activities

of holding companies). The ‘non-financial business

economy‘ excludes section K.

3.4.3. BUSINESS ENVIRONMENT AND PUBLIC

ADMINISTRATION

Business environment and access to finance

The administrative burden on firms in Belgium

is relatively heavy, despite some reforms over

the last 5 years.

The time and number of

procedures needed for starting a business are

among the most favourable (three days and three

procedures), but the administrative burden is

relatively high (cf. OECD 2017b). Higher costs

and capital requirements, complex administrative

procedures, administrative capacity and the

relatively low level of regulatory certainty remain

significant obstacles (cf. European Commission,

2017c). The country’s complex legislative and

administrative system creates a challenging

context for potential for high-growth innovative

enterprises (HGIE), which may explain why

Belgium is among the laggards both in terms of the

number of and employment in HGIEs (cf.

European Commission, 2016c). The tax system is

also extremely complex (cf. 3.1.4). As regards

SMEs, growth has been moderate in recent years.

The added-value of SMEs increased by 10 % in

the period 2002-2016 with the sharpest rise in

small firms, whose value added increased by

19.6 %. To stimulate investment in recently born

SMEs (up to four years old), the government

approved a tax shelter measure to reduce rates on

investments.

Belgium ranks among the lowest-performing

EU countries in terms of entrepreneurship.

The

enterprise birth rate is the lowest in Europe

(according to Eurostat, it was 6.4 % in 2015,

compared to 10.1% for the EU28 average). Yet,

business creation in Belgium is among the lowest

of the EU15 since 2008 (De Mulder, Godefroid,

2016). At the same time exit rates are very low (cf.

OECD, 2017a). Recent research shows that the

decline in business dynamism has a secular feature

since the share of young firms becoming high-

growth firms, and small firms experiencing fast

growth has been declining since 2000 (Bijnens G.

and Konings J., 2017). In 2014, 8.0 % of all firms

kom (2018) 0120 - Ingen titel

3.4. Investment

Belgium continues to perform well in terms of

SME access to finance.

During 2016, the cost of

borrowing for small loans increased somewhat and

the banks’ willingness to provide loans has fallen

slightly but, on the other hand, loan rejections

declined. Bank loans remain the main form of

external financing (58 % of SMEs vs 50% at EU

level). Fewer SMEs did not apply because of fear

of rejection (4%) or got their application rejected

(5%) than in the EU on average (6% and 7%

respectively). However, there is evidence that

start-ups or businesses without a mature balance

sheet have difficulties accessing bank financing

and have to resort to alternative source of

financing (National Bank of Belgium, 2017e).

Policy measures continue to be implemented, at

both federal and regional level, to support

businesses financing. At federal level, a regulation

regarding access to finance for SMEs was

adapated at the end of 2017 in order to improve the

information for entrepreneurs. At regional level,

Wallonia has adopted a series of measures as part

of a comprehensive plan to support SME

financing. They aim to facilitate microcredit and

support other forms of private lending through the

introduction of targeted tax reductions. Various

alternative financing mechanisms are encouraged

both at federal and regional level, such as crowd-

funding, spin-off funding, access to equity, venture

capital, business angels, as well as investments in

specific sectors, e.g. creative industries.

Digital public services

complement the different projects underway, such

as the “Vlaanderen Radicaal Digitaal” programme,

the Open data Decree in Wallonia or the Federal

Open Data Strategy 2015-2020 ("Stratégie fédérale

'Open Data'; Federale open data-strategie"). In

certain areas, such as in the judiciary, the full

potential of ICT has not been tapped.

Insufficiencies in the reliability, comparability

and uniformity of court data and delayed

actions to improve the quality of the judicial

system remain a serious concern.

The roll-out of

initiatives to digitalise certain court services to all

courts such as e-box or e-deposit are behind

schedule. A working group is tasked to develop a

uniform national coding system for judicial cases.

(expected for January 2019). However, as long as

this uniform coding system is not applied across all

courts, data on efficiency of court proceedings will

remain of limited reliability and comparability.

Quality standards on informing parties about their

case progress do not exist (2018 EU Justice

Scoreboard).

3.4.4. SERVICES SECTOR

Competition in the services sector

Belgium is an average performer in digital

public services.

Compared to its good overall

position in the development of its digital economy,

it ranks only 13

in digital public

services (European Commission, 2017 (d)).

Belgium’s federal structure poses specific

challenges in establishing coherent and nationwide

eGovernment services. Diverse and not necessarily

interoperable systems create friction losses. In

December 2016, the Belgian federal government

announced the creation of the Digital

Transformation Office in charge of the digital

transformation of the federal government services.

The new Office aims to be a centre of excellence

and innovation in the use of new technologies and

the use of data. The federal government also

launched a new government cloud (“G-Cloud”)

which integrates the ICT applications of several

federal services and ministries. These initiatives

Disproportionate regulatory restrictions remain

in the services sector.

These restrictions continue

to impact negatively competitiveness of services.

For example, the lack of tacit approval mechanism

in many sector-specific legislation (construction,

tourism, food and beverage, real estate, business

services etc.) results in delays in the award of

business authorisations for services providers,

creating uncertainty. Differences in authorisation

requirements between the Belgian regions further

increase complexity and may fragment the Belgian

market. Recently, Flanders decided to abolish the

Establishment Act for a selected number of craft

professions. The assessment for another 11

regulated professions is still ongoing. The other

regions have not undertaken similar reforms of

these professions.

Tackling restrictions in services could lift the

productivity of the overall economy.

The

manufacturing sector is increasingly relying on

services, whether as inputs or output bundled with

goods. In Belgium, services already represent over

40 % of the added value generated in

kom (2018) 0120 - Ingen titel

3.4. Investment

manufacturing value chains, of which around one

fifth relates to non-tradable services (

). As a

result, low competition in services markets, as

evidenced by below EU-average churn rates in

sectors such as legal, accounting, architectural and

engineering activities, can also affect Belgian

manufacturing industries depending on services as

inputs. Lowering regulatory restrictions would thus

lead to higher value added and productivity in the

manufacturing industry (cf. Curnis and Manjón

Antolín, forthcoming).

Restrictions in services sector negatively impact

manufacturing through value chains.

The share

of manufacturing in gross exports is significantly

higher than in added value exports. As concerns

services, the share is higher in added value exports

than in gross exports for both tradable and non-

tradable services. These trends are similar to those

observed at EU level. They seem to indicate that

Belgium has positioned itself in upstream input on

services and downstream input on manufacturing.

This would imply that restrictions in the services

sector in Belgium and in other Member States

reduce added value in Belgium's manufacturing.

Indeed, it has been estimated that more than 20 %

of regulation embodied in manufacturing exports

from an EU country is imported from other EU

countries.

High regulation in some professional services

remains and is likely to negatively impacts

competition.

This is particularly the case for real

estate agents, with lengthy mandatory training

requirements. There are also high barriers to entry

for architects and accountants, in particular

requirements for establishing a practice, such as

legal form and shareholding requirements and

restrictions on the exercise of professional

activities such as incompatibility rules on the joint

exercise of professions.

In the construction sector, building permits

remain complex despite measures adopted in

recent years.

The churn rates in the Belgian

construction sector are substantially below the EU

average, which may indicate that the sector suffers

from insufficient competition. This also impacts

the delivery of important infrastructure projects.

Horizontal authorisation schemes for access to the

construction market are imposed. Ongoing

(

) Source: JRC using WIOD 2016 data.

discussions to simplify or remove these

requirements have started (notably in the Flemish

region). More extensive authorisation schemes are

additionally imposed regarding specific segments

(e.g. demolition with asbestos, certain drilling

services and alarm installation). None of these

authorisations operate to simplify subsequent

building permits, since Belgium does not foresee

alternative simpler procedures for pre-approved

providers. Finally, an insurance requirement (in

view of the stringent 10-year liability rule for

structural works) has been put in place recently.

Retail sector

Recent reforms have aimed at improving the

performance of the sector and reducing the

regulatory burden.

In retail establishment, new

regional laws have introduced simpler procedures,

but the substantive conditions for granting

authorisations leave a broad margin for

interpretation. The concrete implementation of

these rules will be important to ensure that this

does not lead to entry barriers. Some operational

restrictions are likely to be eased soon as the

government is going to present a draft legislative

project abolishing the cool-off period prior to the

sales. The new rules will make it possible to

announce price reductions just before the sales.

However, the ban on sales below costs remains,

even though past reforms have added several

exceptions making this provision more flexible. In

its current shape it still does not provide sufficient

incentives for large competitors on the retail

market, such as the supermarket chains, to strongly

compete on prices.

Despite efforts to improve the functioning of the

sector, retail prices remain relatively high.

Prices for many product categories continue to be

higher than in neighbouring countries. However

the level of inflation has recently decreased

significantly, especially for non-transformed food

products (SPF Économie, P.M.E., Classes

moyennes et Energie, 2017). Lower level of prices

on the other side of the border incites many

Belgians to shop cross-border both for non-food

products and daily consumer goods (

). The

Benelux Union is currently investigating into the

(

) It is estimated that Belgian consumers spend for physical

cross-border shopping nearly €3 billion annually (GfK,

Foreign Purchases of Private Belgian Households).

kom (2018) 0120 - Ingen titel

3.4. Investment

issue of territorial supply constraints, i.e. business

practices that could lead to a fragmentation of the

market and result in higher consumer prices. The

results of the public consultation on this issue are

expected during the first quarter of 2018. On this

basis the Belgian authorities could consider

measures to tackle this issue.

The potential of e-commerce on the Belgian

market is considerable.

A recent legislative

change has made night work in e-commerce

possible, but more flexibility would be needed to

attract investment in this sector as e-commerce

distribution

centres

continue

choose

establishment in the neighbouring countries.

Belgian citizens are also more likely than other EU

citizens to buy online from another Member State.

Further fostering the use of e-commerce, but also a

business environment and a regulatory framework

favouring its development, could contribute to

increasing consumer choice on the domestic

market.

Collaborative economy

€6.000 provided the activity is registered (see also

section 3.3.1)

Belgian authorities are actively establishing a

policy and regulatory framework for the

collaborative economy.

The approach taken by

the three regions in Belgium differs however

significantly. In the accommodation sector,

Flanders and Wallonia have adopted a regulatory

framework designed to facilitate the development

of the collaborative economy, while the Brussels

region has adopted a complex regulatory

framework on tourist accommodation with

restrictive requirements imposed on hosts,

including private citizens wishing to rent out their

own houses only occasionally. In the urban

passenger transport sector, regulatory requirements

are high in all three Belgian regions and

quantitative restrictions apply to some services.

Belgium is planning the introduction of a new law

whereby peer providers of collaborative services

are subject to a simplified tax scheme with a

reduced income tax rate of 10 % and an exemption

from social security contributions up to an income

threshold of €5 100 - under the condition that the

transaction is between peers and it is intermediated

by especially registered platforms (see also section

3.3.1). Currently, Belgium is planning a

modification of this regime to make income by

peers providing certain services tax-free up to

kom (2018) 0120 - Ingen titel

3.5. SECTORAL POLICIES

3.5.1. TRANSPORT

Belgium appears to lag behind with regard to

the quality of its public infrastructure

supporting the competitiveness of the economy

(see also Box 3.4.1). In particular, Belgium gets a

below average score for the quality of its road and

railway network (World Economic Forum, 2017).

These results are mostly explained by a relatively

poor efficiency of public spending on transport

(National Bank of Belgium, 2017f) as well as a

comparatively low level of public spending.

According to OECD data on transport

infrastructure investment and maintenance

spending, Belgium has among the lowest

investment rate in inland transport infrastructure in

the EU. Over the period 2000-14, annual inland

transport infrastructure investment (0.44 % of

GDP) was well below the EU average (1.01 %).

Transport activity is projected to increase in a

situation of already largely saturated transport

infrastructure.

Congestion in the major cities

continues to worsen year by year (

). Congestion

around Antwerp is particularly worrying as it

impacts the port activity, a major source of the

country trade in- and outflows. In 2013, 78.5 % of

road transport was by private car (FPB, 2016) and

in Flanders, 75 % of commuters still use their

private car (European Commission, 2014). By

2030 transport demand is expected to grow by

another 11 % for passengers and 44 % for goods

(Federal Planning Bureau, 2015). This is partly

linked to the preferential treatment of company

cars.

The government is introducing an alternative

for the current system of favourable tax

treatment of company cars, a so-called 'mobility

allowance' or "cash for car".

This mobility

allowance would provide certain employees the

option to hand in their company car in return for

cash. The fiscal treatment of this cash benefit will

be similar to that for the company car. Its success

will nevertheless depend on the final level of

incentives provided. The impact of the new

scheme on congestion and pollution remains to be

seen. Moreover, the announced plans would add to

(

) A 2011 study by CE Delft (Van Essen et al., 2011) referred

to in the 2013 OECD economic survey of Belgium

estimates the costs of congestion at 1-2 % of GDP. Since

then structural traffic jams have more than doubled.

the complexity of the Belgian tax system (see

section 3.1) and could continue to favour a

subgroup of the working population, in particular

high-income earners (European Commission,

2017e).

The management and development of the road

(and waterway) network is a regional

competence.

In 2016, the Walloon Region started

implementing its "Plan Infrastructure", which is

focused on the upgrade of the road and waterway

network. In addition, the Walloon Investment Plan

adopted in January 2018 foresses over the period

2019-2024 important investments in mobility

(EUR 1.1 billion) The Brussels-Capital Region

intends to mainly invest in public transport and

cycling routes in the following years. For its road

network, the Flemish Government is preparing the

capacity increase of the ring roads of Brussels and

Antwerp, and tackling bottlenecks and missing

links, as well as the construction of a regional light

rail network (Brabantnet). The waterway network

has also an important role in the modal shift from

road haulage and the reduction of congestion (

Since 2007works are ongoing on the Seine-Scheldt

link in two regions. Besides this, works are

ongoing throughout the country on the inland

waterway network and on several sea and inland

locks. In parallel, Flanders and Wallonia have

launched in 2017 their initiatives to promote modal

shift of road freight to alternative modes of

transport

("multimodaal.vlaanderen",

"FAST

vision- mobility 2030"). In terms of ports

development, on 8 December, the ports of Gent

and Zeeland officially signed their merger

agreement to become known as the "North Sea

Port", immediately positioning itself among the top

of European sea ports: number three in added

value and number ten in cargo transhipment.

Differently from local and regional public

transport, railway transport is a federal

competence.

The last negotiations at the federal

level led to a multiannual investment plan, for

investments for the next five years, where priority

will be given to the completion of the Regional

ExpressNet (GEN/RER) around Brussels. The

Federal government approved an additional EUR 1

billion for finalising the Regional ExpressNet

(

) The Flemish Government has proposed to SRSS a project

to improve the efficient handling of inland waterways as an

alternative to road transport.

kom (2018) 0120 - Ingen titel

3.5. Sectoral policies

(GEN/RER)

and

other

infrastructure projects.

priority

railway

Pact (

). The finalisation of "Energy Pact" is

foreseen for 2018.

Plans to decarbonise the economy while

guaranteeing

the security of supply will require

significant investments in the energy system

and in innovation.

An October 2017 study by the

Federal Planning Bureau (FPB, 2017) that

describes the evolution of the national energy

system until 2050, estimated that with unchanged

policy every year 1100 MW of additional capacity

would have to be built, amounting to investments

of over EUR 30 billion. Another study by the

transmission system operator, ELIA, from

November 2017 concluded that the planned

nuclear phase-out by 2025 is still possible, but

would require immediate action by the

Government to ensure that the much needed

replacement capacities are available on time. The

European Union's investment instruments can

underpin these efforts.

Based on the import capacity, the Belgian

interconnection level was 19 % in 2017, which is

higher than the EU average.

Various projects,

notably Projects of Common Interest, are under

preparation to further develop electricity

interconnections between Belgium and its

neighbours (

). Adequate interconnection levels

for electricity play an important role in improving

security of supply and facilitating the integration

of an increasing share of renewable energy

sources.

The level of market concentration for power

generation significantly decreased over the

recent years, and is now below the EU average.

Wholesale electricity prices are now below EU

average and decreasing (Eurostat). The average

price has been following the average price in the

neighbouring countries since 2013. By contrast,

(

) The agreement maintains 2025 for planned nuclear phase-

out, and sets out a vision of the energy system for 2030 that

includes a rapid increase of renewable energy sources in

combination with additional gas-fired power plants. By

2050 the entire electricity system should be carbon-neutral.

(

) The Nemo project will connect Belgium to the UK, leading

to greater diversification of supply. The PCI ALEGrO

(Aachen Liege Electric Grid Overlay), will be the first

interconnection between Belgium and Germany, and can

result in price convergence within the CWE region. In

addition, two projects of common interests (internal lines)

aim at strengthening the northern Belgian border

connections to allow for better integration of the electricity

from offshore wind.

There are also important barriers for transport

services.

Competition in domestic passenger

railway services and in long-distance coach

services is low. According to a study undertaken

for the Commission (cf. Frazzani et al. 2016), in

the taxi and car-sharing services, regulatory

requirements are high in all three Belgian regions

and quantitative restrictions apply to some

services. These complicate the provision of

collaborative transport services and in some cases

have made them de facto impossible, despite

strong consumer demand (cfr. Section 3.4.4 on

collaborative economy).

3.5.2. ENERGY

Belgium's import dependency remains above

the EU average for all fuels, and in particular

due to the dependence on gas and petroleum

products

(

). The energy mix is characterised by

a lower share of coal and other solid fuels than the

EU average, a lower share of renewable energy

and a higher share of petroleum products and

nuclear.

Work is on-going to finalise the long-term

energy and climate policy. It will be the basis

for the integrated National Energy and Climate

Plan (NECP) required under the Energy Union

Governance.

It can build on a number of regional,

federal and national energy and climate vision

texts, plans and roadmaps (

). Another crucial

input into the plan will be the timely adoption of

the inter-federal "Energy Pact", for which a

political agreement is still pending. In December

2017 the four responsible Ministers for Energy

agreed on a text setting out the main outline of a

(

) Source Eurostat:

http://ec.europa.eu/eurostat/statistics-

explained/index.php/Energy_production_and_imports.

(

) Because the cooperation agreement on a burden sharing for

the period 2013-2020 was only ratified in January 2017,

the National Climate Commission decided in 2017 not to

draft a successor to the 2009-2012 national climate plan for

the period 2013-2020. Instead the focus lays on the

development of the integrated National Energy Climate

Plan (NECP) 2021-2030.

kom (2018) 0120 - Ingen titel

3.5. Sectoral policies

the average gas price in Belgium remains constant,

lower than the EU, but above the average in the

neighbouring countries (Eurostat). See section 3.4

for an analysis of the impact of energy prices on

inflation.

Triggered by several government measures (

retail markets for gas and electricity have

become significantly more dynamic in recent

years,

as reflected in lower market shares, higher

switching rates and higher entry rates. Domestic

gas

prices

are

lower

than

EU-28

average (Eurostat). Domestic retail prices for

electricity remain above the EU average, driven

mainly by consecutive increases in the non-energy

component (distribution and transport tariffs, as

well as VAT) (Eurostat).

for SMEs selling online.

Stimulating the adoption

of digital technologies combined with a workforce

able to use these technologies could further

underpin productivity growth. The share of firms

providing ICT training to their staff is high (34 %).

Investment in ICT has increased but remains lower

than in France and the Netherlands (Biatour &

Kegels, 2017). The digitisation of businesses and

“industry 4.0“ are a priority in the agendas of both

the Flemish and the Walloon region, such as Made

Different (Flanders) or Plan Marshall 4.0

(Wallonia).

Belgium has a low share of graduates in science,

technology and mathematics (“STEM”),

one of

the lowest in the EU (ranks 22nd). In 2015, only

20 % of students were graduating in STEM fields

at master level (compared to 35 % in Germany,

30 % in Sweden, 28 % in Finland, 24 % in

Denmark). As the majority of tertiary educated

workers in ICT sectors and of ICT specialists have

an academic background in a STEM fields

(OECD, 2017b), shortages in these fields could

become a major barrier to growth and innovation,

with scarcities already emerging for certain

functions which require, for example, digital skills.

Already today, in certain geographic areas, there is

a shortage of qualified ICT experts (

Addressing the shortage of ICT specialists remains

crucial to support the digital transformation of the

Belgian economy.

A number of measures have been taken to

address

these

shortages.

The

Flemish

Community and the Walloon Region are

developing plans to strengthen STEM and digital

competences, as for instance the Digital School

Plan (2014-20) in Wallonia and the Flemish STEM

action plan (2012-2020) in Flanders. In early 2017,

the Belgian federal government announced a

digital skills fund of € 18 million over 3 years

which will also fund coding and other digital skills

training courses for young people.

3.5.3. DIGITAL ECONOMY

Belgium has a good coverage of digital

communications networks and is third in the

EU in terms of overall connectivity

performance

(

). However, as regards the

adoption of mobile broadband, the country is

outclassed by other high-performing countries. 4G

coverage has improved significantly since 2014

and Belgium has caught up. It now ranks fifth in

the EU28 with a coverage rate of 99.9% in 2016.

However, mobile broadband uptake is still below

the levels of comparable countries. To achieve the

objective of the Digital Agenda for Europe that at

least half of households have access to Internet

speeds of at least 1 Gbps by 2020, reliance is

placed on market-led investment, combined in

Flanders with a planned public investment in fibre

networks. In Wallonia, the Investment plan

foresees EUR 50 million for covering the 'white

zones'.

The country is overall making steady progress

in the integration of digital technology, except

(

) Such as a modification of the energy law making it easier

to switch provider; a campaign organised together with

local communes informing and assisting consumers in

using comparison tools for comparing energy prices; and

promotion of joint energy purchases. Current regulatory

guidance specifies that contract termination can take place

at any moment without cancelation fees (as long as the one

month notification period is respected).

( ) European Commission, Digital Economy and Society

Index

2017,

https://ec.europa.eu/digital-single-

market/en/desi.

3.5.4. CIRCULAR ECONOMY, CLIMATE CHANGE

Belgium has made substantial progress on

promoting a circular economy at all levels of

(

) In October 2017, there were more than 14,000 open

vacancies for ICT experts. Source: real-time online

database of the European Commission.

kom (2018) 0120 - Ingen titel

3.5. Sectoral policies

government.

Year 2017 has seen a rollout of

measures in all three regions and at federal level.

Belgium continues to be among the top performers

with regard to waste management with recycling

rates of municipal waste of 53.5 % in 2016 (EU

average 45.6 %) (Eurostat). Belgium also has

sustainable development strategies for each of the

regions, and published the National Sustainable

Development Strategy (NSDS) in the spring of

2017. Air pollution in Belgium continues to give

rise of serious human health concerns and cause of

premature deaths (

According to the 2017 national projections

based on existing measures, the 2020 target of

15 % greenhouse gas emission reductions

relative to 2005 levels is expected to be missed,

with non-emissions trading system (non-ETS)

emissions only 11.5 % lower than 2005 levels in

2020. While Belgium would therefore miss the

2020 target itself, it expects to generate a small

surplus based on emission levels over the whole

compliance period 2013 to 2020.

Belgium’s non-ETS emissions are mainly

caused

direct

fuel

consumption,

predominantly for residential and commercial

purposes.

The renovation of the inefficient

building stock therefore remains a key sectorial

challenge. A national debate on the introduction of

carbon pricing in non-ETS sectors started in 2017,

which, in order to promote the development of

renewables, could lead to a new environmental

policy shifting taxation from electricity towards

fossil fuels. The internal burden sharing agreement

reached in December 2015 was finally translated

into a formal and legally binding cooperation

agreement on 22 November 2017. Regarding the

ETS sector, the accumulated revenues from the

auctioning of emission allowances under the

ETS (

) have been distributed among the Federal

State and the regions and used for climate and

energy purposes.

Belgium is not fully exploiting its potential to

become a low carbon innovation leader.

Ex-post

evaluation of climate policies shows that progress

(

) The number of premature deaths was estimated at 8340

from particulates, 1870 from nitrogen dioxide & 190 from

ozone in 2014, Air quality in Europe — 2017 report,

European Environment Agency, pp.57-58.

( ) According to Belgium's own reporting amounting to EUR

354 million in 2015.

in terms of emissions intensity of the economy is

mainly driven by innovation (ICF International,

2016), and is proof of the importance of ambitious

research and innovation strategies in this area.

Meanwhile though, (national) public investments

in the Energy Union R&I priorities in 2015 have

decreased by 3 % compared to 2014 (from EUR

167 million to EUR 162 million) and were

significantly lower than the EUR 211 million

reported in 2012 (

). A large part of this (48 % in

2015) was also dedicated to Nuclear Safety. At the

regional level, public funding to support energy

R&I has increased, particularly in renewables and

energy efficiency (

Transport activity also remains a challenge in

view of the medium (2020 and 2030) and long

term (2050) greenhouse gas emission reduction

objectives (

CO2 emissions from road transport

are 31 % higher than in 1990, having stabilised

since 2005. The proportion of transport greenhouse

gas emissions among Belgium’s total emissions

has steadily increased to 21.4 % in 2014. Transport

also causes significant air pollution problems. In

2015 it was responsible for 22.6 % of greenhouse

gas emissions (21 % in EU28), 51.8 % of NOx

emissions (46 % in EU28) and 16.6 % of PM2.5

emissions (13 % in EU28). A kilometre-charge for

heavy vehicles over 3.5 tonnes was introduced in

2016 across the whole territory, but there is no

agreement on extending this to light duty vehicles

(

). The Walloon and the Flemish region have

increased the share of their road network for which

a toll is to be paid. In the Brussels Region a

working group has been created on vehicle

taxation with a report due in spring 2018. From

January 2018, a low emission zone covering the

entire Brussels Region, adding to the existing one

in Antwerp in 2017; however, the actual

environmental benefits need to be demonstrated.

(

) International Energy Agency RD&D Statistics database

(http://www.iea.org/statistics/RDDonlinedataservice/)

(

) Notably via the Flanders Innovation and Entrepreneurship

and the Research Foundation (FWO) in Flanders, the

"Wallonie Energie SPW" and the Innoviris funds in

Brussels).

(

) Passengers transport activity increased in 2015 by 3.1 % as

comparing to 2005, similar with freight transport activity

and with the increase of energy consumption in transport

(excl. aviation). In addition, the share of collective

passengers land transport has slightly decreased, indicating

a relative higher use of private transport.

(

) The Flemish Region is currently examining the possibility

of introducing a smart kilometre charge for light duty

vehicles through detailed studies.

kom (2018) 0120 - Ingen titel

ANNEX A

OVERVIEW TABLE

Commitments

Summary assessment (

)

2017 Country-Specific recommendations (CSRs)

CSR 1:

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. Use windfall gains,

such as proceeds from asset sales, to accelerate

the reduction of the general government debt

ratio.

Agree on an enforceable distribution of fiscal

targets among government levels and ensure

independent fiscal monitoring.

Belgium has made

limited

progress in addressing

country-specific recommendation 1 (this overall

assessment of country-specific recommendation 1

does not include an assessment of compliance with

the Stability and Growth Pact):

Limited progress

has been made towards an

enforceable distribution of fiscal targets among the

various levels of government.



The federal government is taking steps to

reinforce the autonomy of the High Council and

the independence of its members. The adoption

of the necessary amendments requires prior

consultation with the federated entities.

However the calendar for consultation and

adoption has not been communicated.



The federal government has partially dismissed

its participation in BNP Paribas. Proceeds from

the sale of the participation have been used to

reduce the debt.



Wallonia has created a public debt management

(

) The following categories are used to assess progress in implementing the 2015 country-specific recommendations:

No progress:

The Member State has not credibly announced nor adopted any measures to address the country-specific

recommendation. Below a number of non-exhaustive typical situations that could be covered under this, to be interpreted on a

case by case basis taking into account country-specific conditions:

−

no legal, administrative, or budgetary measures have been announced in the National Reform Programme or in other

official communication to the national Parliament / relevant parliamentary committees, the European Commission, or

announced in public (e.g. in a press statement, information on government's website);

−

no non-legislative acts have been presented by the governing or legislator body;

−

the Member State has taken initial steps in addressing the country-specific recommendation, such as commissioning a

study or setting up a study group to analyse possible measures that would need to be taken (unless the country-specific

recommendation explicitly asks for orientations or exploratory actions), while clearly-specified measure(s) to address the

country-specific recommendation has not been proposed.

Limited progress:

The Member State has:

−

announced certain measures but these only address the country-specific recommendation to a limited extent; and/or

−

presented legislative acts in the governing or legislator body but these have not been adopted yet and substantial non-

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

−

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

country-specific recommendation.

Some progress:

The Member State has adopted measures that partly address the country-specific recommendation and/or the

Member State has adopted measures that address the country-specific recommendation, but a fair amount of work is still needed

to fully address the country-specific recommendation as only a few of the adopted measures have been implemented. For

instance: adopted by national parliament; by ministerial decision; but no implementing decisions are in place.

Substantial progress:

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

recommendation and most of which have been implemented.

Full implementation:

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

appropriately.

kom (2018) 0120 - Ingen titel

A. Overview Table

agency.

Remove distortive tax expenditures.



Some Progress

has been made

removing distortive tax expenditure.

toward



The corporate tax reform contributes to simplify

the system, however several distortive tax

expenditures remain.



Company car system: the conditions attached

and the voluntary nature of the mobility

allowance proposal (a second reading by the

Government is expected after the State Council

provided its opinion) will result in uncertain

environmental gains, with very little changing to

the level of tax expenditure.

Limited progress

has been made to improve the

composition of public spending.



There are plans to limit the increase of current

expenditure, this should determine the relative

increase of the share of capital expenditure.



The Flemish region plans to introduce a

spending review in its budgetary exercise.



The federal government has announced a

National Pact for Strategic Investment to

promote structural reform and address the

deficit in public investment.



Regional government plans to increase

investment in transport infrastructures.

CSR 2:

Ensure that the most disadvantaged groups,

including people with a migrant background,

have equal opportunities to participate in quality

education, vocational training,

Belgium has made

some progress

in addressing

country-specific recommendation 2.

Some progress

has been made in ensuring equal

opportunities to participate in quality education and

vocational training.



The reform of adult education was adopted by

the Flemish Community in June 2017 and

should be phased in by August 2019. It requires

a scale increase in order to better use available

resources,

modernise

human

resources

management and offer full-pathways.



Flemish Dual learning reform in secondary

education, the pilot has been extended to new

fields, however, its full implementation has

Improve the composition of public spending in

order to create room for infrastructure

investment,

including

transport

infrastructure.

kom (2018) 0120 - Ingen titel

A. Overview Table

been postponed to 2019/2020.



The Flemish action plan on pre-primary

education was launched in Dec 2016. To be

progressively implemented



Both communities are developing specific

attainment targets. In Flanders a draft decree on

the basic principles of the attainment targets was

adopted. Working groups started work to made

them operational. The first ones should be ready

by 2019/2020, in time for the progressive

implementation of the modernisation of

secondary education. Similar measures are

taken in the overall framework of the French

Community reform.



In 2017 the French Community adopted the

objectives, a multi-annual budget, an

implementation calendar for its systemic reform

of ECEC and compulsory education. The

implementation will be rolled out in the next 15

years starting with early childhood education.



In the French community in the framework of

the school reform several measures were

adopted: a) on pre-primary education the

introduction of an ‘initial key competences

framework’, which should enter into force in

2019/2020 and a EUR 50 million budget to

recruit 1 100 pedagogical staff between 2017-

2019; b) the establishment by 2018/2019 of a

six-year plan covering pupil performance,

school climate, inclusive education, pupil

pathways and professionalization; c) new

governance measures, for instance the set-up of

a geographical responsible and quality

measures.

Limited progress

has been made in ensuring equal

opportunities in participating to the labour market.

The initiatives taken by the federal government and

the three Regions focus on first arrivals, notably

asylum seekers and refugees and fighting

discrimination. They include:



Cooperation agreements between the reception

agency Fedasil and the Flemish Employment

Service as well as with the Forem (Walloon

agency for employment and training) to provide

information on labour market opportunities and

training to asylum applicants, as well as to

and the labour market.

kom (2018) 0120 - Ingen titel

A. Overview Table

perform a screening of the competences in an

early stage. Belgium also developed special

procedures for asylum seekers and refugees deal

with incomplete documentation of their

qualifications, to allow for validation of relevant

competences.



The three Regions have adopted integration

measures that are compulsory for newly arrived

third-country nationals. However this is not

likely to be sufficient to address the

multifaceted obstacles to labour market for

immigrants.



Practice tests (double CVs or mystery calls) to

detect and fight discrimination on the labour

market have been authorised in the Brussels

region and will soon be possible in the whole

country.



The Flemish Region also updated its action plan

to combat work-related discrimination together

with social partners and other stakeholders,

focussing on awareness-raising, self-regulation

and reinforced monitoring.



The Brussels Region adopted a "regional plan

for diversity and combat discrimination in

hiring" which must be translated into an

operational plan.

CSR 3:

Foster investment in knowledge-based capital,

notably with measures to increase digital

technologies adoption, and innovation diffusion.

Belgium has made

limited progress

in addressing

country-specific recommendation 3.

Some progress

has been made in fostering

knowledge-based capital.



The tax shelter for equity investment in start-ups

was extended to scale-ups (fast growing

enterprises). A fund-of-fund which would

facilitate the availability of venture capital

funding in Belgium was also announced.



Via the National Pact for Strategic Investment,

Belgium notably announced more investments

in the digital economy.



Flanders made substantial budgetary effort in

2017 in support of research and innovation

(EUR 195 million additional funding), notably

in support of stronger public-private

collaborations (via the strategic centres like

kom (2018) 0120 - Ingen titel

A. Overview Table

IMEC and the new cluster policy).



Under Flanders' targeted cluster policy,

initiatives in the area of sustainable chemistry,

logistics, materials and energy started in 2017.

Specific cluster pacts lay out the commitments

of businesses, knowledge institutions and the

government.



Flanders pursued its STEM initiatives which

dispose of a sizable budget of EUR 9 million.

In 2017, the ICT impulse programme was

launched

increase

computer

and

programming skills in young people.



Flanders started implementing the Innovation

Procurement Action plan with the aim of

fostering innovation in the private sector in

response to public needs (budget EUR 5

million).



The Brussels region has started implementing

the action plan of its Regional Innovation Plan

2016-2020.



The Walloon region is implementing its Small

Business Act 2015-2019, integrated in the

Marshall plan 4.0.



In its Walloon investment plan, the Walloon

government announced additional investments

in research, development and innovation for the

period 2019-2024

Increase competition in professional services

markets and retail

Limited progress

has been made in increasing

competition in professional services and retail



Flanders has initiated the assessment of the 27

craft professions. For 16 of them the assessment

has been finalised. On march 2017 it has been

decided to abolish the Establishment Act a

selected number of professions.



The profession of travel agent has been

completely deregulated in the Walloon region.



Simplified procedures for retail establishment in

Flanders entered into force on 1 January 2018.

A monitoring system to assess the impact of the

new legislation is foreseen. Brussels Region has

also adopted new rules recently, which will

enter to force gradually as of 2018. An

kom (2018) 0120 - Ingen titel

A. Overview Table

evaluation of the new legislation on retail

establishment is ongoing in the Walloon region.

Limited progress

has been made in enhancing

market mechanisms in network industries



Since July 2017 a simplified procedure has been

introduced to change of telecom operator. The

new telecom operator is charged of the

administrative burden and of the technical

transfer.



The IBPT has been charged with the analysis of

the telecom market in order to adapt regulation

in relation to new operator to increase

competition

Europe 2020 (national targets and progress)

Employment rate (20-64):

73.2 %.

The employment rate for 20-64 years old workers

increased to 67.7 % in 2016, remaining more than 3

pps below the EU average (71.7 %).

Job creation has been high; nevertheless, the 73.2 %

target still seems out of reach.

R&D:

3 % of GDP.

R&D intensity has pursued its increase to reach

2.49 % in 2016. This is due to increasing private

R&D (1.77 %) while public R&D remains relatively

stable (0.68 %).

According to the latest national projections submitted

to the Commission and taking into account existing

measures, it is expected that the target will be missed:

-11.5 % in 2020 compared with 2005 (i.e. projected

shortfall of 3.5 percentage points).

Compared to 1995, the share of renewable energy

increased more than the EU average (from less than

1 % to 6.9 % in 2015), but remains at rather low

levels (

). Still, in 2015 for the first time Belgium's

renewable energy share decreased compared with the

previous year (

), and although the 2016 RES share

of 8.65 % of final energy consumption is above the

2015-2016 indicative target of 7.1%, such a tendency

would not be compatible with a timely 2020 target

achievement. Following the agreement on the internal

Enhance market

industries.

mechanisms

network

Greenhouse gas emissions:

-15 % in 2020 compared to 2005 (in the

sectors not covered by the EU Emissions

Trading System (ETS)).

Renewable energy:

13 %, with a share of renewable energy in all

modes of transport equal to 10 %.

(

) Thanks to their deployment, it is estimated that Belgium has consumed in 2014 about 6.7% less fossil fuels than they would

have otherwise. In addition, greenhouse gas emissions have been 6.5% lower.

( ) This is notably due to decreases in renewable energy shares in the heating and cooling and transport sectors, and is also

explained by the drop of biodiesel supply by 42% compared to 2014 because of the invalidation of the law specifying the rules

for the mixing of biofuel in diesel in June 2015.

kom (2018) 0120 - Ingen titel

A. Overview Table

effort sharing reached in December 2015, regional

governments have introduced new legal instruments

and expressed their intention to promote renewables

in the future. A range of policies and measures have

recently been launched at regional level.

Energy efficiency:

43.7 Mtoe

primary

consumption

32.5 Mtoe final energy consumption

and

In terms of energy efficiency, there is still a gap

between Belgium's primary and final energy

consumption (respectively 45.7 Mtoe and 35.8 Mtoe

in 2015) and its indicative national 2020 targets (43.7

Mtoe in primary consumption and 32.5 Mtoe in final

energy consumption.

In 2016, Belgium reached its Europe 2020 national

target on early school leaving (ESL). With 8.8 % at

national level, the rate is below the EU average but it

remains high in the Brussels region. The gender gap

is close to the EU average. The gap between foreign-

(17.8 %) and native-born (7.6 %) students is high.

The proportion of young people in 2016 not in

employment, education or training (NEET, 15-24

years old) at 9.9 %, is below the EU average.

In 2016, the proportion of 30- to 34-year-old tertiary

graduates in Belgium jumped to 45.6 %, on track to

reach the Europe 2020 national target of 47 %.

Belgian and regional rates (47.3 % in Flanders,

51.9 % in the Brussels region and 39.6 % in

Wallonia) are above the EU average of 39.1 %.

The number of people at risk of poverty or social

exclusion has been increasing. The cumulative

difference from 2008 stood at (in thousands):

+146 in 2014;

+143 in 2015;

+141 in 2016.

Early school leaving:

9.5 %.

Tertiary education:

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

Target for reducing the number of people at

risk of poverty or social exclusion:

- 380 000 compared to 2008.

Belgium is therefore unlikely to achieve its target of

reduction by 380 000.

kom (2018) 0120 - Ingen titel

ANNEX B

MACROECONOMIC IMBALANCE PROCEDURE SCOREBOARD

Table B.1:

The MIP scoreboard for Belgium (AMR 2018)

Thresholds

2011

2012

2013

2014

2015

2016

Current account balance, % of GDP

3 year average

-4%/6%

-0.1

0.2

-0.5

-0.4

-0.3

External imbalances and competitiveness

Net international investment position

% of GDP

-35%

60.9

51.8

51.9

45.1

47.2

51.2

Real effective exchange rate - 42 trading

partners, HICP deflator

3 year % change

±5% (EA)

±11% (Non-EA)

-1.6

-4.3

-0.2

-0.6

-1.6

-0.4

Export market share - % of world exports

5 year % change

-6%

-7.5

-15.2

-12.7

-13.0

-11.9

-2.3

Nominal unit labour cost index

(2010=100)

3 year % change

9% (EA)

12% (Non-EA)

5.3

5.4

8.3

5.5

1.5

-0.6

House price index (2015=100), deflated

1 year % change

1.0

0.3

0.4

-1.3

1.4p

1.0p

Private sector credit flow, consolidated

% of GDP

14%

21.8

15.3

7.4

-1.9

12.2

13.3

Internal imbalances

Private sector debt, consolidated

% of GDP

133%

177.0

185.5

165.4

166.0

178.9

190.1

General government gross debt

% of GDP

60%

102.6

104.3

105.5

106.8

106.0

105.7

Unemployment rate

3 year average

10%

7.8

7.7

8.2

8.5

8.3

Total financial sector liabilities, non-

consolidated

1 year % change

16.5%

5.4

-5.2

0.9

2.7

1.2

Employment indicators

Activity rate - % of total population aged

15-64

3 year change in pp

-0.2 pp

-0.4

0.0

-0.2

1.0

0.7

0.1

Long-term unemployment rate - % of

active population aged 15-74

3 year change in pp

0.5 pp

0.2

-0.1

0.8

1.0

0.1

Youth unemployment rate - % of active

population aged 15-24

3 year change in pp

2 pp

0.7

-2.1

1.3

4.5

2.3

-3.6

Flags: e: Estimated. p: Provisional.

1) This table provides data as published under the Alert Mechanism Report 2018, which reports data as of 24 Oct 2017. Please

note that figures reported in this table may therefore differ from more recent data elsewhere in this document.2) Figures

highlighted are those falling outside the threshold established in the European Commission's Alert Mechanism Report.

Source:

European Commission 2017, Statistical Annex to the Alert Mechanism Report 2018, SWD(2017) 661.

kom (2018) 0120 - Ingen titel

ANNEX C

STANDARD TABLES

Table C.1:

Financial market indicators

Total assets of the banking sector (% of GDP)

(1)

Share of assets of the five largest banks (% of total assets)

Foreign ownership of banking system (% of total assets)

(2)

Financial soundness indicators:

- non-performing loans (% of total loans)

(3)

- capital adequacy ratio (%)

- return on equity (%)

(4)

Bank loans to the private sector (year-on-year % change)

(1)

Lending for house purchase (year-on-year % change)

(1)

2012

280.1

66.3

50.4

5.1

18.2

3.3

-1.2

6.0

56.6

185.5

55.0

103.3

150.5

124.8

2013

260.4

64.0

51.1

5.3

18.7

6.2

10.1

58.2

165.4

56.6

103.6

84.0

36.3

2014

275.3

65.8

50.3

3.3

17.6

7.8

9.9

19.5

59.5

1.6

166.0

67.8

102.5

55.0

31.0

2015

261.6

65.5

49.2

3.0

18.7

10.3

7.0

12.1

62.3

1.0

178.9

65.5

103.8

34.4

30.0

2016

260.5

66.2

49.5

2.6

18.8

8.9

6.8

9.2

66.2

1.9

190.1

66.6

118.7

38.6

28.8

2017

234.9

49.1

2.4

18.5

5.1

5.9

7.0

67.0

2.9

64.3

113.6

42.1

14.6

Loan to deposit ratio

Central Bank liquidity as % of liabilities

Private debt (% of GDP)

Gross external debt (% of GDP)

(2)

- public

- private

Long-term interest rate spread versus Bund (basis points)*

Credit default swap spreads for sovereign securities (5-year)*

1) Latest data Q3 2017. Includes not only banks but all monetary financial institutions excluding central banks

2) Latest data Q2 2017.

3) As per ECB definition of gross non-performing debt instruments.

4) Quarterly values are not annualised.

* Measured in basis points.

Source:

European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all

other indicators).

kom (2018) 0120 - Ingen titel

Table C.2:

Headline Social Scoreboard indicator

2012

Equal opportunities and access to the labour market

Early leavers from education and training

(% of population aged 18-24)

Gender employment gap (pps)

Income inequality, measured as quintile share ratio (S80/S20)

At-risk-of-poverty or social exclusion rate

(AROPE)

Young people neither in employment nor in education and

training (% of population aged 15-24)

Dynamic labour markets and fair working conditions

†

Employment rate (20-64 years)

Unemployment rate (15-74 years)

Gross disposable income of households in real terms per capita

(Index 2008=100)

Public support / Social protection and inclusion

Impact of social transfers (excluding pensions) on poverty

reduction

Children aged less than 3 years in formal childcare

Self-reported unmet need for medical care

Individuals who have basic or above basic overall digital skills

(% of population aged 16-74)

†

2013

2014

2015

2016

2017

12.0

11.0

4.0

21.6

12.3

11.0

10.2

3.8

20.8

12.7

9.8

8.7

3.8

21.2

12.0

10.1

8.3

3.8

21.1

12.2

8.8

9.3

3.8

20.7

9.9

9.8

67.2

7.6

67.2

8.4

67.3

8.5

96.6

67.2

8.5

96.4

67.7

7.8

96.7

68.1

7.2

44.8

48.0

1.7

42.6

46.0

1.9

43.6

48.8

2.5

44.2

50.1

2.4

60.0

41.1

43.8

2.4

61.0

The Social Scoreboard includes 14 headline indicators, of which 12 are currently used to compare Member States

performance. The indicators "participants in active labour market policies per 100 persons wanting to work" and

"compensation of employees per hour worked (in EUR)" are not used due to technical concerns by Member States. Possible

alternatives will be discussed in the relevant Committees.

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from

severe material deprivation (SMD) and/or living in households with zero or very low work intensity (LWI).

(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin

working immediately or within two weeks.

(3) Gross disposable household income is defined in unadjusted terms, according to the draft Joint Employment Report 2018.

(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates

before social transfers with those after transfers; pensions are not considered as social transfers in the calculation).

(5) Average of first three quarters of 2017 for the employment rate and gender employment gap.

Source:

Eurostat.

kom (2018) 0120 - Ingen titel

Table C.3:

Labour market and education indicators

Labour market indicators

Activity rate (15-64)

Employment in current job by duration

From 0 to 11 months

From 12 to 23 months

From 24 to 59 months

60 months or over

Employment growth*

(% change from previous year)

Employment rate of women

(% of female population aged 20-64)

Employment rate of men

(% of male population aged 20-64)

Employment rate of older workers*

(% of population aged 55-64)

Part-time employment*

(% of total employment, aged 15-64)

Fixed-term employment*

(% of employees with a fixed term contract, aged 15-64)

Transition rate from temporary to permanent employment

(3-year average)

Long-term unemployment rate (% of labour force)

Youth unemployment rate

(% active population aged 15-24)

Gender gap in part-time employment

Gender pay gap (in undadjusted form)

Education and training indicators

Adult participation in learning

(% of people aged 25-64 participating in education and training)

Underachievement in education

Tertiary educational attainment (% of population aged 30-34 having

successfully completed tertiary education)

Variation in performance explained by students' socio-economic

status

2012

66.9

11.6

9.0

16.2

63.1

0.4

61.7

72.7

39.5

24.7

8.1

37.3

3.4

19.8

34.5

8.3

2012

6.9

19.0

43.9

19.6

2013

67.5

10.5

8.5

15.9

65.1

-0.3

62.1

72.3

41.7

24.3

8.1

38.0

3.9

23.7

33.8

7.5

2013

6.9

42.7

2014

67.7

10.9

7.9

16.6

64.6

0.4

62.9

71.6

42.7

23.7

8.6

38.3

4.3

23.2

32.8

6.6

2014

7.4

43.8

2015

67.6

10.8

8.1

15.9

65.2

0.9

63.0

71.3

44.0

24.3

9.0

35.6

4.4

22.1

32.1

6.5

2015

6.9

20.1

42.7

19.3

2016

67.6

11.2

8.1

15.1

65.7

1.3

63.0

72.3

45.4

24.7

9.1

4.0

20.1

32.6

2016

7.0

45.6

2017

1.4

63.3

73.0

47.7

24.6

10.3

3.6

19.1

31.7

2017

* Non-scoreboard indicator

(1) Long-term unemployed are people who have been unemployed for at least 12 months.

(2) Difference between the average gross hourly earnings of male paid employees and of female paid employees as a

percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for

the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All

employees working in firms with ten or more employees, without restrictions for age and hours worked, are included.

(3) PISA (OECD) results for low achievement in mathematics for 15 year-olds.

(4) Impact of socio-economic and cultural status on PISA (OECD) scores.Values for 2012 and 2015 refer respectively to

mathematics and science.

(5) Average of first three quarters of 2017, unless for the youth unemployment rate (annual figure).

Source:

Eurostat, OECD

kom (2018) 0120 - Ingen titel

Table C.4:

Social inclusion and health indicators

2012

2013

8.3

2.2

11.8

2.2

3.4

0.2

0.7

28.8

1.5

20.1

8.0

6.4

18.1

21.9

15.1

4.4

5.1

0.2

3.4

14.0

11164

2014

8.4

2.3

11.8

2.2

3.4

0.3

0.6

29.0

1.4

19.9

8.1

6.3

18.2

23.2

15.5

4.8

5.9

0.4

3.0

14.6

11140

2015

8.5

2.4

12.1

2.1

3.1

0.2

0.7

29.1

1.4

20.2

7.7

6.4

17.6

23.3

14.9

4.6

5.8

0.1

3.0

14.9

11061

2016

21.6

15.5

4.7

5.5

0.8

5.5

14.6

11317

2017

Expenditure on social protection benefits* (% of GDP)

Sickness/healthcare

Disability

Old age and survivors

Family/children

Unemployment

Housing

Social exclusion n.e.c.

Total

of which: means-tested benefits

General government expenditure by function (% of GDP, COFOG)

Social protection

Health

Education

Out-of-pocket expenditure on healthcare (% of total health expenditure)

Children at risk of poverty or social exclusion (% of people

aged 0-17)*

At-risk-of-poverty rate

(% of total population)

In-work at-risk-of-poverty rate (% of persons employed)

Severe material deprivation rate (% of total population)

Severe housing deprivation rate , by tenure status

Owner, with mortgage or loan

Tenant, rent at market price

Proportion of people living in low work intensity households

(% of people aged 0-59)

Poverty thresholds, expressed in national currency at constant prices*

Healthy life years (at the age of 65)

Females

Males

Aggregate replacement ratio for pensions

(at the age of 65)

Connectivity dimension of the Digital Economy and Society Inedex

(DESI)

GINI coefficient before taxes and transfers*

GINI coefficient after taxes and transfers*

Notes:

8.2

2.1

11.5

2.1

3.4

0.2

0.7

28.3

1.5

19.5

7.9

6.2

18.0

22.8

15.3

4.5

6.3

0.1

2.2

13.9

10815

11.0

10.6

0.5

49.3

26.5

10.9

10.8

0.5

48.7

25.9

11.0

0.5

69.3

49.5

25.9

11.0

11.2

0.5

74.6

49.8

26.2

0.5

75.8

50.3

26.3

77.9

* Non-scoreboard indicator

(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national

equivalised median income.

(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay

their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein

equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing

machine, viii) have a colour TV, or ix) have a telephone.

(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation.

(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the

adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months.

(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of

people aged 50-59.

(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital

Scoreboard.

Source:

Eurostat, OECD

kom (2018) 0120 - Ingen titel

Table C.5:

Product market performance and policy indicators

2010

2011

2012

2013

2014

2015

2016

Performance Indicators

Labour productivity (real, per person employed, year-on-year %

change)

Labour productivity in Industry

Labour productivity in Construction

Labour productivity in Market Services

Unit labour costs (ULC) (whole economy, year-on-year % change)

ULC in Industry

ULC in Construction

ULC in Market Services

Business Environment

Time needed to enforce contracts

(1)

(days)

Time needed to start a business

(1)

(days)

Outcome of applications by SMEs for bank loans

(2)

Research and innovation

R&D intensity

General government expenditure on education as % of GDP

Persons with tertiary education and/or employed in science and

technology as % of total employment

Population having completed tertiary education

(3)

Young people with upper secondary level education

Trade balance of high technology products as % of GDP

Product and service markets and competition

(5)

OECD product market regulation (PMR) , overall

OECD PMR5, retail

OECD PMR5, professional services

(6)

OECD PMR5, network industries

(4)

6.84

0.44

1.89

-5.53

-0.11

-0.77

2010

505.0

4.0

0.45

2010

2.05

6.00

0.37

-0.33

-1.69

0.23

2.83

1.36

1.45

2011

505.0

4.0

0.48

2011

2.16

6.20

0.22

-0.13

1.40

-1.02

3.93

1.48

3.42

2012

505.0

4.0

0.68

2012

2.27

6.20

0.14

2.60

0.20

0.34

0.24

0.92

1.47

2013

505.0

4.0

0.54

2013

2.33

6.40

0.33

6.29

-0.60

-0.07

-3.95

0.18

1.10

2014

505.0

4.0

0.36

2014

2.39

6.30

0.52

2003

1.64

4.68

2.52

2.84

5.09

3.10

1.47

-5.33

-3.48

0.29

2015

505.0

4.0

0.46

2015

2.47

6.40

0.50

2008

1.52

4.56

2.47

2.08

0.58

-0.67

-0.93

-0.81

-0.33

-0.30

2016

505.0

4.0

0.31

2016

2.49

2013

1.39

4.06

2.47

1.84

1 The methodologies, including the assumptions, for this indicator are shown in detail here:

http://www.doingbusiness.org/methodology.

2 Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing over

the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if received

most of it, two if only received a limited part of it, three if refused or rejected and treated as missing values if the application is

still pending or don't know.

3 Percentage population aged 15-64 having completed tertiary education.

4 Percentage population aged 20-24 having attained at least upper secondary education.

5 Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are

shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm

6 Aggregate OECD indicators of regulation in energy, transport and communications (ETCR).

Source:

European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for

the product market regulation indicators); SAFE (for outcome of SMEs' applications for bank loans).

kom (2018) 0120 - Ingen titel

Table C.6:

Green growth

Green growth performance

Macroeconomic

Energy intensity

Carbon intensity

Resource intensity (reciprocal of resource productivity)

Waste intensity

Energy balance of trade

Weighting of energy in HICP

Difference between energy price change and inflation

Real unit of energy cost

Ratio of environmental taxes to labour taxes

Environmental taxes

Sectoral

Industry energy intensity

Real unit energy cost for manufacturing industry excl.

refining

Share of energy-intensive industries in the economy

Electricity prices for medium-sized industrial users

Gas prices for medium-sized industrial users

Public R&D for energy

Public R&D for environmental protection

Municipal waste recycling rate

Share of GHG emissions covered by ETS*

Transport energy intensity

Transport carbon intensity

Security of energy supply

Energy import dependency

Aggregated supplier concentration index

Diversification of energy mix

kgoe / €

kg / €

% GDP

% of value

added

ratio

% GDP

kgoe / €

% of value

added

% GDP

€ / kWh

% GDP

kgoe / €

kg / €

HHI

2011

0.15

0.33

0.47

-4.6

11.02

14.6

17.2

0.09

2.3

0.20

28.4

10.29

0.11

0.03

0.01

54.3

40.4

0.52

1.29

75.4

19.2

0.27

2012

0.15

0.32

0.42

0.15

-5.0

11.71

3.3

17.6

0.09

2.2

0.20

27.7

10.06

0.11

0.03

0.01

53.4

39.1

0.50

1.27

76.1

14.1

0.27

2013

0.15

0.32

0.41

-4.5

11.29

-5.8

16.5

0.08

2.1

0.21

25.8

10.44

0.11

0.04

0.01

52.6

37.9

0.51

1.29

77.4

16.2

0.27

2014

0.14

0.30

0.40

0.15

-3.8

10.92

-8.0

16.8

0.09

2.1

0.20

26.0

10.90

0.11

0.03

0.01

53.6

38.5

0.52

1.31

80.0

14.4

0.28

2015

0.14

0.31

0.38

-2.7

11.02

-5.5

0.09

2.1

0.19

11.63

0.11

0.03

0.01

53.4

38.0

0.54

1.36

84.3

14.0

0.29

2016

0.15

0.37

-2.2

9.22

0.4

2.2

0.19

11.61

0.11

0.03

0.01

53.5

36.9

0.56

76.0

0.28

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices)

Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR)

Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR)

Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR)

Waste intensity: waste (in kg) divided by GDP (in EUR)

Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP

Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP

Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual %

change)

Real unit energy cost: real energy costs as % of total value added for the economy

Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 EUR)

Real unit energy costs for manufacturing industry excluding refining : real costs as % of value added for manufacturing

sectors

Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP

Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000–100 000 GJ; figures

excl. VAT.

Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste

Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP

Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions

(excl land use, land use change and forestry) as reported by Member States to the European Environment Agency.

Transport energy intensity: final energy consumption of transport activity (kgoe) divided by transport industry gross value

added (in 2010 EUR)

Transport carbon intensity: GHG emissions in transport activity divided by gross value added of the transport sector

Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of

international bunker fuels

Aggregated supplier concentration index: covers oil, gas and coal. Smaller values indicate larger diversification and hence

lower risk.

Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable

energies and solid fuels

* European Commission and European Environment Agency

Source:

European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European

Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators)

kom (2018) 0120 - Ingen titel

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