Belgium’s fiscal framework: what is good and what could be better?

During the COVID-19 crisis, a strong fiscal stimulus has supported economic activity. The flipside is a marked increase in budget deficits and public debt, that will have to be brought down again when the crisis is over. The crisis has thus brought fiscal policy to the fore as an essential element of macroeconomic policy aimed at promoting stability and growth. Well-conceived fiscal frameworks can make a significant contribution to this.

Over the years, the belief that the European fiscal framework needs to be backed up by solid and efficient national fiscal frameworks has gained ground. These frameworks consist of a set of procedures, rules and institutions that underlie the conduct of fiscal policy.

This article points up the principal aspects of the Belgian fiscal framework and examines, on the basis of a comparison with the best practices in other euro area countries, which aspects perform good and which aspects could be improved. The assessment of the Belgian fiscal framework leaves a mixed impression. Some aspects give good results, but some others could be improved.

A number of strong points can be clearly distinguished.

A comparison between the growth estimates that underpin the drafting of national stability programmes and the European Commission’s projections reveals that the estimates for Belgium on average show only a very small gap and no optimism bias. These estimates are also quite close to actual figures.

Moreover, the Belgian fiscal framework has been strengthened in several areas over the last few years. Among these, it is worth mentioning the creation of the Federal Monitoring Committee which plays a useful role in following up and monitoring the budget. The reports established by this Committee generally tend to give an accurate and adequate picture of the budget, as well as the efforts needed to meet the targets. The costing of the election manifestos by the Federal Planning Bureau has also reinforced the fiscal framework, as it has led to greater transparency.

Besides these solid aspects, the analysis also clearly points up certain elements of the Belgian fiscal framework that need improving.

First of all, one can pinpoint the frequent distortions that tarnish estimates of tax revenue. The quality of these estimates could be raised by improving documentation, underpinning the estimation methodology, greater transparency in the assessment of the policy measures, and a verification by an independent institution of the quantification of the impact of those measures.

A second aspect of the Belgian fiscal framework needing improvement concerns setting up multiannual fiscal planning at all levels of government in Belgium, possibly accompanied by an expenditure rule. Putting this kind of framework in place will effectively ensure an improvement in the transparency of the targets and the consistency of fiscal policy over time.

One adjustment that has already been made and needs to be continued involves carrying out regular spending reviews. These reviews enable a critical examination of public spending and look at ways of making it more efficient. This exercise is a useful instrument especially in the context of the necessary consolidation of public finances in the aftermath of the COVID-19 crisis.

Another possible area of improvement is how the High Council for Finance’s “Public Sector Borrowing Requirement” section operates. In this regard, a choice should be made between maintaining the current staffing level, on the one hand, and raising the number of staff in line with the provisions of the 2018 reform, on the other hand. In this latter case, the section could take on additional duties.

One last possible improvement concerns budgetary coordination. Although there is a detailed legal framework governing this, it is not working ideally in the absence of any agreement on targets between the different levels of power. Following up the call of the “Public Sector Borrowing Requirement” section of the High Council of Finance and of the Ecofin Council, it is worth stressing the importance of an annual agreement on binding targets for the overall government and by government level. This will clarify the responsibilities of each party and will enable independent monitoring by the High Council for Finance.