Belgium Urged To Correct Deficit In IMF Consultation

by Ulrika Lomas, Tax-News.com, Brussels

17 December 2009

The International Monetary Fund, in its Article IV consultation recommendations, has called on the Belgian authorities to begin drafting proposals to consolidate the budget when the economy begins to recover in 2010.

While Belgium is expected to shake off recession in 2010 – with estimated growth of 0.8%, and 2% over the medium term – the IMF has noted that the crisis has had an effect on public debt that will be harder to shake off. According to the IMF, public debt will rise above 100% of GDP in 2010, partly undoing earlier successful efforts in debt reduction.

Commenting on the government’s strategy of targeting a balanced budget by 2015, the IMF has observed that the draft 2010 budget strikes the right balance between supporting the recovery and initiating the much-needed fiscal consolidation. The intergovernmental burden-sharing agreement for 2009-10 and the first multi-year fiscal framework covering 2010-11 have been welcomed as important first steps in the consolidation strategy.

The draft 2010 budget aims to reduce the overall deficit by 0.5% of GDP and to limit the further rise in the public debt ratio. Given the large fiscal adjustment required in the coming years, the IMF has said that it is important to direct higher-than-budgeted fiscal revenues towards reducing the deficit.

In its recommendations, the IMF urged action on both revenue and expenditure, recommending:

• Broadening the tax base, and further revision to the taxes on employment to reduce the labor tax wedge;
• Enhancing the efficiency and effectiveness of revenue collection;
• Introducing spending limits for each level of government and the social security administration to curb unsustainable growth in spending allocation; and
• Empowering regional governments with greater oversight of local government budgets, to ensure their feasibility.

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