Updated stability programme of Belgium, 2006-2010 - Main contents

EN

Official Journal of the European Union

C 89/2

On 27 March 2007 the Council examined the updated stability programme of Belgium, which covers the period 2006 to 2010 (2).

The macroeconomic scenario underlying the programme envisages that real GDP growth will decrease from 2,7 % in 2006 to 2,2 % on average over the rest of the programme period. Assessed against currently available information, this scenario appears to be based on plausible growth assumptions. The programme's projections for inflation also appear realistic.

The current update of the stability programme is based on the assumption of a balanced budget in 2006. This assumption seems to be broadly confirmed by most recent data, whereas the Commission services' autumn forecast had projected a deficit of 0,2 % of GDP. While cyclical conditions in 2006 turned out to be significantly better than foreseen in the previous update and expenditure developed broadly as expected, revenues were lower than anticipated (notably because of an underestimation of the impact of the final stage of the 2001 direct tax reform, which was aimed at reducing the tax wedge). This shortfall was partly compensated by the fact that planned one-off measures yielded more than expected and by some additional one-offs of a limited magnitude. Therefore the structural balance (i.e. the cyclically-adjusted balance net of one-off and other temporary measures) significantly deteriorated in 2006, mainly due to revenue reducing measures.

The main goal of the medium-term budgetary strategy in the programme is to ensure a continuous reduction of the still high debt ratio (close to 90 % in 2006) to below 75 % of GDP in 2010, through a gradual build-up of nominal budgetary surpluses (from 0,3 % of GDP in 2007 to 0,9 % in 2010), to prepare for the ageing shock ahead. The primary surplus, which has been decreasing since 2001 (when it was 7 % of GDP), is expected to stabilise at around 4,1 % of GDP. The overall adjustment is nearly entirely due to reduced expenditure (by 1

 percentage point of GDP between 2006 and 2010). The expenditure reduction is attributable to a fall in interest expenditure (

percentage point) which results from the continuous debt reduction as well as to a reduction of primary expenditures (

a percentage point). It is partly offset by a decrease in government revenue (

a percentage point). Beyond 2007 the programme's projections broadly correspond to no-policy change projections, although the programme also (implicitly) seems to rely on further one-offs to achieve the budgetary targets. This strategy is largely similar to the one presented in the previous update of the stability programme against a broadly unchanged macroeconomic scenario.

As the programme does not provide information on the use of one-off and other temporary measures after 2007, the structural balance from 2008 onwards cannot be calculated based on the information in the programme. Assuming that the relative impact of one-off measures remains unchanged after 2007, the structural balance calculated according to the commonly agreed methodology is planned to improve from around -0,4 % of GDP in 2006 to 0,7 % at the end of the programme period. As in the...