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OECD Assesses Belgian Economy

by Ulrika Lomas, for, Brussels

16 March 2007

The Organisation for Economic Cooperation and Development (OECD) on Tuesday published its Economic Survey of Belgium.

The OECD observed that:

"The Belgian economy is in a strong recovery phase. The balancing of the budget since the start of the decade has allowed public debt to fall fast relative to GDP, providing a favourable macroeconomic background for the recovery. Moreover, structural reforms, particularly in the labour market, are showing signs of success."

"Output has accelerated and was by mid-2006 growing at 3% – the fastest pace since 2000. With growth well above potential, some production factors are already under strain. The challenge will be to persist with stability and reform-oriented policies to bolster the economy’s trend growth, a challenge made more acute by the impending ageing of the population."

According to the Organisation, maintaining public finances on a sustainable footing in the long term will require additional reforms.

It explained that:

"Ageing-related social security spending is projected to increase by some 6 percentage points of GDP by 2050. The current government strategy focuses on securing the system until 2030, pointing to the need for additional measures to secure fiscal sustainability thereafter."

"A further lowering of marginal tax rates could help to expand labour market participation and thereby also broaden the tax bases, but such cuts could only be sustained if expenditure growth is tightly constrained. Spending restraint is essential, not only at the federal government level, but also at other levels, where spending has been the most dynamic. All government levels need to share the burden of preparing for ageing."

It concluded:

"The well-functioning financial sector has contributed to growth, but it could work even better. Cross-selling of retail banking services intended to boost consumer loyalty may have increased switching barriers and reduced competitive forces. In a similar vein, a number of tax incentives have been introduced to influence household savings behaviour and achieve a variety of policy goals."

"Their cost effectiveness needs to be assessed against the potential benefits of lower tax rates. There are also various consumer-protection rules that restrict the take-up of credit. In particular, there is little demand among consumers to borrow against their housing wealth, which may partially be related to the lack of adequate mortgage regulation."

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