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Structural reduction in the public deficit in
accordance with the European recommendations
In the excessive deficit procedure, the European
Council recommends the Belgian government to effect an average annual
reduction of 0.75 % of GDP over the period 2010- 2012.
The proposed path provides for a cumulative
structural improvement in the financing balance of 1.5 % over the period
2010-2012.
It is important to note that, for the year 2012,
non-structural factors will affect the financing balance, although the
European Commission’s methodology does not take them into account as
temporary factors. This concerns in particular:
· the effect of relative prices, which have
an adverse impact on public finances in 2012 in view of the
acceleration of inflation in 2011; these delayed inflation effects
are evident mainly at the level of public expenditure and social
benefits, and in personal income tax revenues on account of the
delayed indexation of the tax scales;
· the effect of the local authority electoral
cycle, amounting to 0.2 % to 0.3 % of GDP; this factor mainly
affects investment at that level of power.
Moreover, so long as economic growth hovers
around the potential growth rate, the government is firmly committed to
fulfilling the conditions for ending the excessive deficit procedure in
2012.
Over the period 2013-2014, the structural
improvement in the financing balance should be 1.4% , in accordance with
the European Council’s stipulations.
TABLE
17
Components of the structural financing balance |
|
% of GDP |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
|
1. Real GDP growth |
-2,8 |
2,1 |
2,0 |
2,3 |
2,1 |
2,3 |
|
2. Net lending of general government |
-6,0 |
-4,1 |
-3,6 |
-2,8 |
-1,8 |
-0,8 |
|
3. Interest expenditure |
3,6 |
3,4 |
3,5 |
3,6 |
3,7 |
3,7 |
|
4. One-off and other temporary measures |
-0,9 |
-0,1 |
0,0 |
-0,1 |
0,0 |
0,0 |
|
5. Potential GDP growth |
1,4 |
1,5 |
1,6 |
1,6 |
1,7 |
1,8 |
| |
contributions: |
| |
-
labour |
0,5 |
0,5 |
0,5 |
0,4 |
0,4 |
0,4 |
| |
-
capital |
0,3 |
0,3 |
0,4 |
0,5 |
0,4 |
0,5 |
| |
-
total factor productivity |
0,5 |
0,5 |
0,6 |
0,7 |
0,8 |
0,8 |
|
6. Output gap |
-3,1 |
-2,7 |
-2,2 |
-1,6 |
-1,2 |
-0,6 |
|
7. Cyclical budgetary component
|
-1,7 |
-1,4 |
-1,2 |
-0,8 |
-0,6 |
-0,3 |
|
8. Cyclically-adjusted balance (2 - 7) |
-4,3 |
-2,7 |
-2,4 |
-2,0 |
-1,2 |
-0,5 |
|
9. Cyclically-adjusted primary balance (8 + 3) |
-0,7 |
0,7 |
1,1 |
1,6 |
2,5 |
3,2 |
|
10. Structural balance (8 - 4) |
-3,4 |
-2,6 |
-2,4 |
-1,9 |
-1,2 |
-0,5 |
The structural component of the financing balance
is based on average potential growth estimated at 1.6 % over the period
2010-2012 and 1.8 % over the period 2013-2015. Note that this
macroeconomic variable is still below the potential growth observed
before the financial crisis, fluctuating around 2 %. In fact, the
financial crisis has had a lasting impact on potential growth,
particularly via a decline in the capital stock and an increase in
structural unemployment, which tends to be reflected in a loss of human
capital.
However, these estimates are highly uncertain,
notably because of the potential impact of the economic and financial
crisis on the potential growth of the economy. Also, the extent to which
the decline in potential growth due to the financial crisis and
population ageing will be structural and therefore permanent depends on
the economic policy measures implemented now and in the future by the
various levels of power. In that context, the Belgian government aims to
achieve a sustainable increase in the employment rate and at the same
time to step up the measures designed to encourage R&D expenditure under
the EU2020 strategy (see national reform programme). These measures
should provide sustainable support for the potential growth of the
Belgian economy.
Furthermore, the Belgian government is adhering
to its aim of converging as quickly as possible towards the MTO, set at
0.5 %, and thus to prefinance part of the cost of ageing. The MTO is
therefore not confined to simply restoring the structural balance of
public finances but also means recording structural surpluses. In fact,
the Belgian government considers that it is vital to ensure that the
costs of ageing are shared fairly between the generations in order to
prevent future generations from having to bear a disproportionate
financial burden.
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