Among regional and federal governments, the Brussels-Capital Region will face the biggest challenge to cut spending and fall in line with new EU budgetary rules, according to the National Bank of Belgium (NBB).
The European fiscal framework sets out spending rules for Member States at a national level, but an article published this week by the NBB highlights that some of Belgium's governments will have to save more than others in the coming years.
Since the Covid-19 pandemic and subsequent energy crisis due to Russia's invasion of Ukraine, EU countries have been given some leeway to boost spending and go beyond the agreed limits for budget deficits and public debt. The EU's fiscal framework was suspended between 2020 and 2023 for this purpose.
However in 2024, a new fiscal framework was agreed, and Member States are required to keep their annual budget deficit below 3% of gross domestic product (GDP), and their overall debt below 60% of GDP.
As Belgium's public spending has gone significantly beyond that (a deficit of 4.4% of GDP in 2023 and public debt of 105.2% of GDP), it is one of seven Member States that have been called out under the EU's excessive deficit procedure, and will have to cut spending over the next four to seven years.
EU Commission Vice-President for An Economy that Works for People, Valdis Dombrovskis, EU Economy Commissioner Paolo Gentiloni and EU Employment Commissioner Nicolas Schmit, announcing the excessive deficit procedure for Belgium and other countries. Credit: Belga / Nicolas Landemard
As the NBB explains, the new EU fiscal framework will seek to tighten up Belgium's spending targets, as the country should be aiming for a deficit of 1.6% of GDP by 2028, or 1.3% of GDP by 2031.
The Federal Planning Bureau (FPB) has previously estimated that if Belgium makes no changes to its spending, the deficit will rise to 5.5% of GDP in 2028, so "substantial fiscal consolidation is needed to meet the new fiscal target," the NBB said.
Some government entities must save more than others
The savings will have to be achieved across Belgium's various levels of government, and as there is no hierarchy between them, they will have to negotiate an agreement. The High Council of Finance has already made a proposal about how the burden of budget cuts should be shared between federal, regional and community governments.
The NBB has concluded that the Brussels-Capital Region will have to make the biggest spending cuts over the next five years, as it will have to reduce expenditure by 10% to fall in line with EU rules. It noted that the capital faces a "considerable fiscal challenge" given that its deficit amounts to nearly 30% of its disposable revenue.
Meanwhile, the Federal Government will also have to make a "great effort" and cut spending by 8%, and the French Community Government will have to make a "significant reduction" of 5%. For the Walloon Region and the Flemish Community, spending cuts already agreed upon would be "sufficient" to reach the deficit targets.
The central bank also "fully endorsed" the views of the High Council of Finance, that the new EU fiscal framework is an opportunity to "thoroughly revise" spending rules in Belgium and make them more binding.
