Download Commission Services` Country Report on Belgium 2015

The 2015 European Semester and
Belgium: EDP Decisions & Country
Profile
02/03/2015
The new annual coordination cycle
November
Autumn
Forecast
AGS
Winter
Forecast
AMR
Early March
Country
Profile
Opinion on DBP
Communication on action taken in EDP
15 April
15 Oktober
EA MS:
Draft Budgetary Plans
SP
CSR
NRP
Decisions in SGP
EU2020 strategy
Macro-economic surveillance
Fiscal surveillance
May/June
Spring
Forecast
2
The February 2015 Economic Package
A "chapeau" Communication from the Commission, including the
decisions on further steps within
• The Macro-economic Imbalances procedure (MIP)
• The Stability and Growth Pact (SGP)
3 Reports prepared in accordance with article 126 (3) TFEU (BE,
IT, FI)
A Recommendation to the Council on France's deficit (article
126 (7) TFEU)
27 Commission Services' Country Profiles + 1 Report on the Euro
Area
3
Formal decisions in the framework
of the Stability and Growth Pact
In light of the excess over the deficit reference value and
insufficient progress towards debt reduction, the Commission has
drawn up a report (art. 126 (3) TFEU).
Main conclusions:
•the estimated excess over the deficit reference value can be
qualified as exceptional and temporary
•BE deviates from the required trajectory towards debt
reduction
•In light of all relevant factors, however, this does not warrant the
opening of an excessive deficit procedure at this stage
Next steps:
•Stability Programme by mid-April
•The publication of notified and validated fiscal data may entail a
new assessment.
4
Outline of the art. 126 (3) report
Art. 126 (3) TFEU: "If a MS does not fulfil the requirements under one or both of
these criteria [with regard to the deficit and debt ratio], the Commission shall
prepare a report. The report of the Commission shall […] take into account all other
relevant factors, including the medium-term economic and budgetary position of the
Member State."
Assessment of the deficit criterion:
• Estimated deficit outcome for 2014 is close to the reference value (Δ = 0.2%
GDP)
• Estimated excess is exceptional
• Statistical changes in national accounts of October 2014 -> Δ 0.3% of GDP in
2013 – likely similar magnitude in 2014
• Revenue shortfalls, some of which were foreseeable (e.g. reduced dividends
and guarantee fees from the financial sector).
Assessment of the debt criterion:
• Required MLSA of 0.7% GDP vs. deterioration of 0.1% GDP
• As of 2015: MSLA of 1.1% vs. improvement of 0.6%
• Relevant factors:
• Progress towards mid-term objective is satisfactory
• Structural reforms in the area of pensions, cost-competitiveness, labour
market participation
• Extraordinary economic conditions: low inflation on top of low growth
Formal decisions in the framework
of the macro-economic imbalances procedure
Belgium is considered to be in a situation of macro-economic
imbalance requiring policy action and monitoring
Main issues:
•External competitiveness of goods
•Public debt
Next steps:
•Bilateral and multi-lateral discussions on the findings of the indepth review and the other chapters of the Country Report
•Presentation of National Reform Programme by Mid-April
•Country-specific recommendations in May
6
Commission Services'
Country Report on Belgium 2015
Outline of the Country Report on Belgium
• Executive Summary & Scene Setter
• Imbalances, risks and adjustment
•
•
•
•
Cost competitiveness
Non-cost competitiveness
Public Indebtedness
Household indebtedness and the housing market
• Other structural issues
•
•
•
•
Labour market and education
Taxation and fiscal framework
Service and product markets
Greening the economy
8
Outline of the Country Report on Belgium
• Executive Summary & Scene Setter
• Imbalances, risks and adjustment
•
•
•
•
Cost competitiveness
Non-cost competitiveness
Public Indebtedness
Household indebtedness and the housing market
• Other structural issues
•
•
•
•
Labour market and education
Taxation and fiscal framework
Service and product markets
Greening the economy
9
The competitiveness issue
10
The role of labour costs
11
The steep decline of manufacturing
Share of manufacturing in total value added
The steep decline of manufacturing
Policy responses
Fight against inflation
• Competition enhancing interventions in key markets
• Reform of the health index
Wage cost reduction policies
• Real wage freeze
• Reductions of employer social security contributions and other wage
subsidies
• Temporary suspension of indexation clauses in collective bargaining
agreements
Reform of the wage setting framework?
14
The role of energy input costs
Situation
• Higher energy intensity than neighbours and euro area
• Natural gas cheaper for industrial consumers
• Electricity prices large industrial users 10% higher than neigbours,
but decreased since 2013
• Reductions of levies & charges at federal level compensated
with increases at regional level
• Main challenges: legacy costs of uncharged certificates, costs
of additional renewables, security of supply
Policy response
• SME: prolongation of safety net mechanism (for commodities)
• Plans for energy norm (for all price components)
• Requires collaboration with regions
• Interference may discourage investments
• Invest in interconnections instead
15
The role of services input costs
Graph 2.1.9: Forward linkages and productivity growth of the Belgian service sectors
3.0%
Financial Services
Post and
Telecommunications
Annual labour productivity growth
(2007-11 avg)
2.0%
Supporting Transport
Activities
1.0%
Retail Trade
Wholesale Trade
Construction
0.0%
Land Transport
-1.0%
Business Services
Air Transport
Real Estate
-2.0%
Services of Motor Vehicles
-3.0%
Water Transport
Hotels and Restaurants
-4.0%
0
1
2
3
4
5
6
Forward Linkages (2011)
Source: European Commission
16
Decomposition gross manufacturing exports by
value added (2009)
17
The role of non-cost factors
Declining contribution from total factor productivity to potential
growth
• Increased share of low-skilled employment
• Sectoral composition of the Belgian economy
• Resource misallocations
Integration of Belgium in the world economy
• Geographical focus on EU trading partners but deep integration
• Type and quality of exported products do not contribute (much) to
overall competitiveness
Other bottlenecks:
• Labour market performance
• Taxation system
• Inequality of educational outcomes
18
Strengths of the Belgian
innovation system
19
Mixed innovation output performance
20
The public debt issue
Public debt had been revised upwards since last year's In Depth
review
• Reclassifications of corporations into the general government sector
• Only partly offset by the upward revision of GDP
While the risk of fiscal stress in the short term seems to be
contained, a sustained interest rate increases might have a negative
impact on Belgium's public finances
The sustainability outlook over the longer term remains bleak
due to
• Anticipated costs of population ageing
• Low growth potential
Fiscal coordination between government levels remains
challenging
21
Household debt and the housing market
Situation
• Historical rising house prices: 110% since 2000 and 209% since
1985, but stabilised in recent years
• Inelastic supply, strong demand
Risk factors
• Rising mortgage indebtness (from 40% to 60% of GDP), but low
average risk rates 10% (EU 16%)
• Debt/financial assets increased but below euro area (high wealth)
• Unemployment risks higher than interest risks, but + outlook
• Price/income and price/rent ratios above historic average, but no
over-evaluation if corrected for demand and supply fundamentals
• Risk of a sharp correction in real estate prices appears contained.
• If prices fall, sound lending practices should limit impacts on banks
Deflated house price index
Price to rent and price to income
Overvaluation gap with respect to main supply
and demand fundamentals
d
30
25
20
15
10
5
0
-5
-10
-15
14*
12
10
08
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
-20
Outline of the Country Report on Belgium
• Executive Summary & Scene Setter
• Imbalances, risks and adjustment
•
•
•
•
Cost competitiveness
Non-cost competitiveness
Public Indebtedness
Household indebtedness and the housing market
• Other structural issues
•
•
•
•
Labour market and education
Taxation and fiscal framework
Service and product markets
Greening the economy
26
Labour market performance
Employment and activity rates
(BE vs. EA18)
78.0
76.0
74.0
72.0
70.0
68.0
66.0
64.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
EMPL EA18
EMPL BE
Activity EA18
Activity BE
Labour market performance
Labour market performance
High tax wedges hamper job creation…
Two-earner 2 children 100% of AW
One-earner 2 children 100% of AW
Single no children 100% of AW
Single no children 67% of AW
Single no children 50% of AW
0
10
EU27
20
BE
30
40
50
60
…and contribute to remaining
unemployment traps
One earner - no children
(50% of average wage)
140
Single – no children
(50% of average wage)
100
90
120
80
100
70
60
80
50
60
40
30
40
20
20
10
EL
FR
ES
PT
UK
BE
EU27
DE
EU15
IT
DK
NL
FI
AT
SE
LU
IE
EL
UK
AT
DE
PT
ES
EU27
FR
FI
EU15
SE
IE
IT
LU
BE
DK
NL
0
0
Mismatches cause labour market tension
Young unemployed face structural
barriers to entry
The situation of migrant unemployed is
particularly precarious
Employment rate population born outside EU27
100.0
80.0
60.0
40.0
20.0
HR
BE
EL
EE
FR
IE
BG
FI
NL
DK
IT
SI
PL
SE
LV
RO
AT
PT
LU
MT
UK
LT
EE
HU
CY
SK
CZ
0.0
Employment and activity rates of the
elderly are low
Activity rates per age group (2013)
95.0
85.9
88.9
87.9
86.7
88.1
85.0
75.0
65.0
55.0
45.0
42.7
40.6
36.1
35.0
33.8
31.0
25.0
EU28
BE
DE
25-49
50-or over
FR
NL
Policy responses
• Wage subsidies to reduce the tax burden on labour
• Deadweight losses
• Readability of the system
• Benefit reform and targeted interventions in the taxation
system to reduce disincentives to work
• Complexity of the system hampers incentive effects
• Unemployment traps remain comparably sizeable in some cases
(e.g. singles, single parents)
• Reform of the old-age social security system
• Educational reform and first efforts to strenghten partnerships
between labour market and educational institutions
36
Taxation
Situation: high taxes skewed towards labour
Decomposition of implicit rates
on labour (2012)
Environmental taxation
%GDP (2012)
Taxation
Comparing Belgian tax revenues with EU averages
Tax revenues as % of GDP (2012)
Overall level
Labour
Consumption
Environment
VAT
Excise duties
Capital and business income
Household income from capital
Stock of capital wealth
Property
Recurrent taxation on immovable property
BE
45.4%
42.8%
8.8%
2.2%
7.2%
2.1%
5.9%
0.4%
4.1%
3.4%
1.3%
EU
36.1%
8.9%
2.4%
7.1%
2.7%
5.4%
0.9%
2.8%
2.3%
1.5%
Remarks
second highest after DK
excludes env taxes
lowest in EU
one of highest in EU
less distorting than transaction taxes
Taxation
High rates and narrow tax bases
•
•
•
Some positive spill-overs of tax expenditures
But foregone revenue EUR 25.6 billion or 6.8% of GDP in 2012
Broad tax base with lower rates is less distortive
Policy responses
•
•
•
•
VAT: no broad review of reduced rates
Personal income rebates: mostly a social character
Corporate income rebates: high rates and low base
Some reductions of labour costs but no compehensive tax reform
Conclusion
•
•
•
Commitment in government agreements to reform taxes
Avoid polarised debate between tax on labour & capital
Shift to wide range of taxes that distort less & cut tax expenditures
Service and product markets
•
Churn rates professional,
scientific and technical
activities
Churn rates retail
Electricity prices for residential consumers
Remaining gap towards 2020 target for non-ETS
GHG emissions
30%
23%
20%
17%
11%
10%
8%
7%
4%
3%
3%
2%
1%
1%
1%
0%
-1%
-1%
-2%
-2%
-2%
-3%
0%
-5%
-10%
-10%
-12%
-16%
-17%
-20%
-26%
-30%
-32%
-37%
-40%
-46%
-50%
LU
IE
BE
ES
AT
FI
IT
BG
LT
LV
NL
DE
SI
EL
MT
DK
FR
SE
UK
EE
PL
RO
CZ
HR
HU
PT
SK
CY
Greening the economy
Renewable energy
•
•
On track to 2020 target (13%) with share in final energy demand of 7.5% in
2013 and share of 25% in total electricity production
But expensive and achieving target will require much more efforts
Resource efficiency
•
•
•
•
Energy intensive economy
Not on track to meet target of 18% energy efficiency improvements by 2020
(compared to projections from 2007)
Should be priority in future energy pact to be decided by end of 2015
Belgium has already made headway on waste treatment, but more to be done
on promoting waste prevention, avoid incinerating reusable or recyclable
waste, promoting economic attractiveness of reuse and recycling.
Peak hour congestion
•
•
Economic costs of 1% of GDP
Areas of concern: company cars, road charging, efficiency of public transport
Full reports and references
The "chapeau" Communication from the Commission, including the
decisions on further steps within SGP and MIP
• http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_comm_en.pdf
27 Commission Services' Country Profiles
• http://ec.europa.eu/economy_finance/economic_governance/macroe
conomic_imbalance_procedure/index_en.htm
Reports prepared in the framework of the Stability and Growth
Pact (BE,FR,IT,FI)
• http://ec.europa.eu/economy_finance/economic_governance/sgp/cor
rective_arm/index_en.htm
Abbreviations
•
AGS: Annual Growth Survey
•
AMR: Alert Mechanism Report
•
AW: Average wage
•
COMP: Combination of sub-components GOOD and SERV, using equal weights
•
CSR: Country-specific Recommendations
•
DBP: Draft Budgetary Plan
•
DYN: Innovativeness of high-growth entreprises
•
EA MS: Euro Area Member States
•
EDP: Excessive Deficit Procedure
•
GOOD: High-tech and medium-tech product exports as % of total exports
•
KIA: Employment in knowledge-intensive activities in business industries as % of total employment
•
MLSA: Minimum linear structural adjustment
•
MS: Member State
•
NRP: National Reform Programme
•
PCT: Number of patent applications per billion GDP
•
SERV: Knowledge-intensive services exports as % of total exports
•
SGP: Stability and Growth Pact
•
SP: Stability Programme
•
TFEU: Treaty on the functioning of the European Union