OECD Economic Surveys: Belgium 2024

1. Ensuring sustainable and high living standards

After a strong recovery from the COVID-19 crisis, the Belgian economy, like many, faced supply bottlenecks, high inflation, and monetary policy tightening. However, it has been relatively resilient compared with other EU countries, thanks to robust domestic demand. Automatic wage indexation and energy-related support measures helped preserve household purchasing power. Despite rising production costs, firms coped relatively well. In 2023, business investment growth reached its highest rate since 2011 and employment has continued to grow. Indexation has, however, eroded price competitiveness for exporters and Belgium is highly exposed to the slowdown in global trade. Though higher borrowing costs and weak global trade are expected to continue slowing economic activity, a soft landing looks achievable, with moderate increases in business failures and unemployment. Nevertheless, uncertainty around economic prospects remains high including from heightened geopolitical tensions (Chapter 2).

Belgium performs very well on many economic and wellbeing dimensions, but reforms are needed to sustain high living standards amid population ageing, ensure equal opportunities for all and achieve the digital and the green transitions. Considerable scope remains to raise employment rates despite large regional variations (Figure 1.1). Higher employment rates would contribute to improving wellbeing and social inclusion, while helping to address challenges posed by demographic changes, including fiscal sustainability. Fiscal imbalances and limited fiscal space add to Belgium’s challenges. The public debt burden was already among the highest in the EU before the pandemic. In 2024, it is expected to be around 107% of GDP and is set to increase further as ageing costs and the climate transition strain future budgets (Figure 1.2).

Figure 1.1. Employment rates are relatively low

Source: OECD Economic Outlook database; OECD Labour Force Statistics database; and OECD calculations.

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Figure 1.2. Fiscal imbalances are large

Source: OECD Analytical database.

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Socio-economic inequality and poverty in Belgium rank favourably, close to the OECD average, thanks to the relatively strong redistributive impact of the tax and benefit system (Figure 1.3). Long-term unemployment has fallen, and some vulnerable groups are better integrated in the labour market, notably older people, partly due to the favourable economic outlook and past reforms. However, additional efforts are needed to close employment gaps, notably for people with disabilities and low skills as they did not experience such an improvement in labour market outcomes (Chapter 3). While the gender pay gap is estimated to be low by international comparison (Figure 1.3), there remains scope for increased participation of women in the labour force, particularly among those with childcare responsibilities, low education levels, and a foreign background. Regional socio-economic disparities remain high and have not declined in recent years. Regional polarisation, defined as the ratio of a country’s top and bottom regions in terms of GDP per capita, has remained broadly stable at around 2 over the past two decades. Poverty risks and educational outcomes vary significantly between regions (Figure 1.3).

Figure 1.3. There is room to improve access to equal opportunities

1. Indicator reversed so that the right side of the scale corresponds to better outcomes.

Note: Relative poverty rate is determined after taxes and transfers based on a poverty line at 60% of median household income. Average PISA score is the average scores in mathematics, science and reading. Gender wage gaps are defined as the unadjusted difference between median wages of men and women relative to the median wages of men. Sectors with substantial pay gaps, such as agriculture, mining, real estate, and professional, technical, and scientific activities are not accounted for in the calculation of Belgium’s gender pay gap.

Source: OECD Income Distribution database; OECD Labour Force Statistics database; OECD PISA database; OECD Education at a Glance database; OECD Earnings and Wages database; and OECD calculations.

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Strong labour productivity growth is a critical growth driver in ageing economies. Belgium’s productivity gains have been subdued over the past decade. Innovation outcomes have improved but remain concentrated in a low number of firms and sectors. Investment in research and innovation in environment-related areas lag behind. Skills shortages, reflecting mismatch issues on the labour market, likely hinder the diffusion of technologies and the digital and green transitions. Indicators suggest regulatory complexity and high administrative costs have declined but they continue to weigh on firms’ profitability and competitiveness. Regulatory and administrative overheads are a particular concern for small- and medium-sized enterprises. These businesses face other challenges, notably in employee training (Chapter 5).

Belgium has a mixed performance on advancing towards its energy and climate targets (Figure 1.4). Greenhouse gas emissions have declined by around a quarter since 2000 and energy intensity has dropped by almost 40%. Cuts in greenhouse gas emissions have mostly been achieved in sectors covered by the EU ETS, while less progress has been made in agriculture, transport, and buildings. Renewables still account for only a small share of the energy mix, while reliance on imported fossil fuels remains high and the phase out of nuclear poses challenges to energy security and decarbonisation in the medium term. Under current policy settings, Belgium will not meet its 2030 emission reduction targets and a coherent national climate strategy at the 2050 horizon is still missing (Chapter 4).

Figure 1.4. Households’ energy consumption is relatively high

1. Indicator reversed so that the right side of the scale corresponds to better outcomes.

Note: GDP per unit of GHG emissions is the production-based CO₂ productivity. Fine particles concentration is mean population exposure to PM2.5. Household energy consumption per capita is energy consumption per m² of households for space heating scaled to EU average climate.

Source: OECD Green Growth Indicators database; Odyssee-Mure; and OECD calculations.

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Progress has been made in some policy areas since the previous Survey (Box 1.1). However, there have also been setbacks. A broad tax reform aiming at rebalancing the tax mix, reducing tax complexity and expanding the tax base has not progressed. There has been patchy progress in implementing the Recovery and Resilience Plan which, inter alia, aims to foster long-term growth drivers and growth sustainability. Resuming reform efforts can significantly boost economic potential (Box 1.2). Belgium’s complex political and institutional structure adds to the challenge of economic policy reform. Greater coordination efforts are needed to ensure efficiency and consistency of policy making.

Against this background, the main messages of the Survey are:

• The new federal and regional governments must act to continue fiscal consolidation by improving public spending efficiency and expanding the tax base. Extensive use of spending reviews should guide spending cuts, while reform to the budgetary framework should increase accountability across government levels. A major tax reform is needed to reduce work disincentives, strengthen capital income taxation, and remove ineffective tax expenditures, notably fossil fuel subsidies, while improving clarity, neutrality and fairness in the tax system.

• Encouraging participation in the labour market is critical to adapt to the demographic transition and address fiscal challenges. Reform of the tax and benefit system can increase work incentives for low-paid workers and reduce gender gaps. Policies should tackle the high and increasing take up of disability benefits and better support the integration of people with reduced work capacity in the labour market.

• Achieving climate targets requires a significant acceleration of emission reductions. Rapid expansion of renewable energy production to reduce dependency on fossil fuels alongside the current commitment to nuclear phase out is needed. In parallel, consumers must be incentivised to invest in efficient energy use and electrification, particularly in sectors such as transportation and buildings renovation, where challenges in financing and planning persist.

• Barriers to business dynamism and growth limit productivity gains. Reducing skills shortages and heavy administrative burdens can help small firms achieve their full potential. Removing barriers to women entrepreneurship can help tap into an underutilised pool of talent and creativity.

Box 1.1. Recent and planned structural reforms

Since 2022, Belgium has progressed in several reform areas that were previously discussed in OECD Economic Surveys.

Pensions

In 2020, the federal government initiated a reform to improve the adequacy of the public pension system, including increasing the minimum pension level and harmonising the pension calculation for the self-employed and employees. In 2023, the second phase of the reform included the introduction of a bonus for those working after the legal early retirement age, a supplementary career-length condition for access to the minimum pension, and a revision of the indexation of civil servants’ pensions.

Labour market

Reforms increasing flexibility in the labour market include the extension of the flexi jobs system to 12 new sectors, and the provisions for a 4-day working week. Work incentives have been strengthened with the increase in the minimum wage, the introduction of a wage premium for low-paid workers in Flanders (“Jobbonus”) and a premium for unemployed training in shortage occupations in Wallonia. A reform of hiring incentives is on-going in the Brussels Region. Recent measures aimed at improving access to training include the creation of individual learning accounts (at the federal level and in Flanders) and an individual right of five training days per year. Programmes for disability benefit recipients have been strengthened with the introduction of Return-to-work coordinators and more regular assessments of work capacity. Since 2022, employers with above average sickness and disability claims must pay higher social contributions.

Tax

A broad reform of the tax system did not progress, but measures have been implemented to reduce the tax wedge. Social security contributions were cut by EUR 300 million in 2022. The reduction of VAT on electricity and natural gas from 21% to 6% was made permanent and partly financed with excise duties. Three action plans have been implemented to combat tax and social fraud. A minimum top-up tax (QDMTT) for multinational companies and large domestic groups was introduced in December 2023 to implement the Global Minimum Tax (Pillar 2 of the Global Anti-Base Erosion Model Rules).

Climate

Belgium submitted a draft update of its National Energy and Climate Plan 2021-2030 in 2023. It includes plans to halve excise duties on electricity, compensated by higher excises on fossil fuels from 2028 to 2032. Measures to raise effective emission prices include for example a reform of the car registration tax in Wallonia, discontinuing grants for oil and gas boilers and caps on gas connection charges in Flanders. At the federal level measures include the limitation of the reimbursement of commercial diesel and the gradual reduction in tax deductibility for petrol and diesel company cars accompanying the greening of the corporate car fleet. Minimum energy performance requirements in the residential sector were introduced in all regions.

Box 1.2. Potential impact of recommended structural reforms on GDP

This box summarises the potential medium-term impacts on GDP of selected structural reforms included in this Survey (Table 1.1). The reforms comprise: i) reducing the tax wedge; ii) easing regulation and reducing the administrative burden on firms; iii) reducing employment gaps for older workers and women; iv) raising spending on training to improve employability of those detached from the labour market; and v) fostering business spending on research and development. Simulations based on the OECD Long-Term Model (Guillemette and Turner, 2018) suggest that the reform package could increase Belgium’s GDP per capita by around 8% over a 10-year horizon.

The quantification impacts are illustrative. The estimated effects include only the direct impact and exclude potential behavioural responses that may occur due to policy changes. While all recommended reforms in this Survey have GDP implications, not all can be quantified due to model limitations.

Table 1.1. Illustrative impact of structural reforms on GDP per capita

Policy	Measure	10-year cumulative effect	25-year cumulative effect
Tax reform	Reducing the tax wedge by 5 percentage points over 10 years (revenue neutral measure).	1.6%	2.6%
Business environment reform	Reducing PMR by 0.25 to the OECD average over 10 years.	1.1%	3.5%
Reforms fostering employment of older workers	Reforms increasing the employment rate of 55-74-year-olds by around 10 percentage points to the OECD average by 2050, including a bonus malus system to encourage longer working lives, extended access to training and prevention of health risks at work.	2.5%	7.9%
R&D business support	Improving efficiency of public support, increasing business spending on R&D by 10% in real terms over 5 years.	0.0%	0.3%
Active labour market policies	Increasing spending on active labour market policies by around 15% in real terms over 5 years.	1.2%	1.6%
Reforms reducing gender employment gaps	Reforms halving gender employment gaps by 2050, including by reducing the marginal taxation of second earners and expanding access to childcare.	1.1%	2.3%
Total		7.6%	18.2%

Source: OECD Long-term model.