Belgium "urgently" needs to tackle its budget deficit and debt levels, as the OECD has recommended that a reduction in public spending should be a "cornerstone" strategy to addressing the issue.
An economic survey of Belgium published on Monday by the Organisation for Economic Co-operation and Development (OECD) – a group of mostly rich countries – has highlighted that reducing public spending, as well as boosting employment and improving the business environment for SMEs are key for high living standards.
The report notes that the Belgian economy has shown resilience to recent shocks like the pandemic, followed by supply bottlenecks and high inflation. It forecasts national GDP growth at 1.2% this year, down from 1.4% in 2023 but rising back to 1.4% in 2025 as "financial conditions improve".
However, the OECD cautioned that the country's fiscal deficit and debt "remain too high". Belgium's debt-to-GDP ratio is expected to reach 110% in 2025, and will grow further without consolidation measures, as the country's ageing population and the climate transition put additional strain on resources.
Belgium is one of seven EU Member States currently under fire from EU regulators for overspending, as its annual budget deficit and growing overall debt are beyond acceptable limits set by EU law.
A major task for Belgium's incoming governments will be deciding how to reduce the budget by around €28 billion over the next four to seven years.
The global policy forum said that Belgium needs to be more efficient with its public spending, and should conduct spending reviews to identify where it can save money. The report highlighted that as Belgium's taxes are among the highest in the OECD, the State should primarily address its deficit and debt through spending cuts.
However, the OECD did say that Belgium needs "major tax reform" to make the system clearer and fairer, as well as to reduce work disincentives, strengthen capital income taxation, and remove ineffective tax expenditure like fossil fuel subsidies.
Employment and small businesses
Improving Belgium's employment rate was also identified as a key means to expand the tax base and sustain economic growth. In 2023, 67% of working-age people in Belgium were in employment, compared with the OECD average of 70%.
The survey suggested that strengthening in-work benefits for low-paid workers and second earners would make working more attractive, and better supporting people with reduced work capacity would help close the employment gap between persons with and without disabilities.
The OECD also recommended a number of measures to support SMEs, such as reducing business administration costs, helping small businesses develop or avail of training programmes to address skills shortages, and doing more to encourage and support female entrepreneurs.
Finally, the report said Belgium needs to set more binding climate targets and improve co-ordination of climate policy across federal and regional governments, to help accelerate the expansion of renewable energy production.
"Clear regulations of future standards, together with adequate and well-targeted financial incentives, would sustain household investment in energy efficiency and electrification, particularly in transportation and for building renovations," the OECD suggested.
