Belgian Stability Programme

2011-2014

2011 budget

Reduction in the deficit to 3.6 %

Apart from the measures taken under the multi-annual budget for 2010/2011 in October 2009, on 24 March 2011 the Belgian government approved the 2011 budget which will replace the provisional loans and the Finance Law previously passed. This budget will be presented to Parliament in mid-April. The target which the Belgian government has set itself for the deficit is 3.6 % of GDP. That target:

1) is 0.5 % of GDP more favourable than the target set in the January 2010 stability programme;

2) should permit stabilisation of the endogenous debt;

3) is more favourable than the target recommended by the High Council of Finance.

It is always possible that the budget outcomes might be even better than expected, as the target set by the Belgian government takes no account of the more favourable performance in 2010.

On that basis, in comparison with the stability programme introduced in January 2010, the Belgian general government deficit should already have declined to close to the threshold for the excessive deficit procedure during 2011. The Belgian government therefore considers that it is fully respecting its European obligations for the year 2011.

Measures taken at the level of Entity I

The Entity I budget is based on the Monitoring Committee’s report dated 14 February 2011⁽¹⁾. With no change of policy, the estimates indicated a deficit of 4.5 % of GDP for general government as a whole and 3.7 % for Entity I.

At federal level, despite its caretaker status, the government decided to take the necessary measures to comply with the European requirements by placing the emphasis partly on expenditure control and partly on optimising the collection of public revenues and stepping up the control of social security fraud and tax evasion. The measures taken at Entity I level amount to 0.6 % of GDP.

TABLE 12 Summary of the measures taken at Entity I level under the 2011 budget
In € million	Entity I measures 2011 budget
Primary expenditure	506
Social security	501
of which: health care	252
social security fraud	78
Tax revenues	693
of which: banking secrecy, regularisation, court settlements	460
notional interest	50
Non-fiscal revenues	592
of which: additional dividends from financial institutions	422
Total effort	2292
Total effort (in % of GDP)	0,6

At the level of primary expenditure, the Belgian authorities focused on efficiency gains. Apart from the fact that the initial budget was based on provisional twelfths and the take-up was re-assessed according to the level seen in previous years, it was decided to reduce the ministerial office appropriations by 10 % over the year 2011 (€ 6 million).

Regarding social security, the emphasis was also on controlling expenditure, especially in the health care sector. In that sector, economy measures were applied in both 2010 and 2011, mainly in the medicinal products sector and in the sectors with strong expenditure growth (clinical biology and medical imaging). In addition, taking account of the very modest growth of health care expenditure in 2010, spending will be cut by a further € 252 million in 2011, on top of the € 1.094 million approved on 15 October 2010.

Additional measures were also passed in connection with fraud prevention, notably in order to combat the “sham self-employed workers” in the service voucher sector and in regard to temporary lay-offs, particularly by widespread recourse to electronic returns. In the service voucher sector, the government decided to tighten up the approval conditions and to take a set of tougher measures to control infringements and fraud.

In regard to tax revenues, the Belgian government also took two key decisions with a view to improving the proper collection of taxes in an international context of increasing data exchange and in the context of the Savings Directive: 1) the lifting of banking secrecy and 2) amicable settlements (court cases).

The federal Parliament recently decided to lift banking secrecy in regard to income taxes, subject to conditions guaranteeing privacy protection. Those measures should increase the effectiveness of the control of tax evasion in Belgium, and will also avoid international sanctions, owing to the existence of a legal instrument permitting the exchange of banking information with other Member States with a view to the assessment of income tax by those countries. These new decisions should most definitely encourage many citizens to apply for regularisation in the coming months, by payment of the tax due and a fine.

The federal Parliament also approved a court settlement procedure. In particular, amicable settlements provide for a number of measures giving rise to an extension of the system of dropping criminal proceedings on payment of a sum of money, known as the “settlement”. That settlement will only be possible following payment of the defrauded taxes or social security contributions, including interest, and with the agreement of the tax or social security authorities. This measure should enable the Belgian government to recover more of the sums due more quickly.

Together, these measures plus the tax regularisations and measures to cut abuse under the notional interest system should generate € 510 million.

The federal State is also receiving growing remuneration from the financial sector, as a result of both the increase in dividends from some institutions, in a context of increasing profitability, and a rise in the yield from the new deposit guarantee system in view of the expansion in the volume of deposits.

TABLE 13 Impact on the budget of contributions from the financial sector in 2011
In € million	Contributions from the financial sector 2011
Participating interests	361,6
Loans	425,1
Guarantees	622,5
Special protection fund	751,9
Total	2161,1

As will be explained in more detail in chapter 7 and in the national reform programme, the Belgian government also adopted certain measures to boost the competitiveness of the Belgian economy, to support domestic demand, to increase the flexibility of the labour market and to make it easer for persons affected by a disability to return to work.

Measures taken at the level of Entity II

The federated entities also implemented significant economy measures designed essentially to increase efficiency in the public sector.

The following three sub-sections set out the respective contributions of the federated entities.

Walloon Region and French Community

“In the summer of 2009, the Governments of Wallonia and of the French Community passed a package of measures aimed at controlling the growth of primary expenditure of the two Entities. Measures were also adopted in order to improve the yield on certain regional revenues. The two Governments aimed to place Wallonia and the French Community on a path returning them to balance in 2015 while ensuring funding for the stated regional and community policy, particularly the Marshall 2. Green Plan.

These measures were already implemented at the time of the 2009 budget adjustment, and at the latest during preparation of the 2010 budget. The main economy measures are recurrent throughout the 2009-2015 period:

· In 2009, a 15 % cut in expenditure on the operation of ministerial offices and a cut in the number of Ministers.

· Freezing of the operating allowances paid to the Walloon Parliament and to the French Community Parliament.

· Freezing of the operating and/or investment subsidies granted to public interest agencies and to the RTBF [French language broadcasting company].

· Dropping of a range of new policies considered when the economic situation was more favourable.

· A 3 % cut in expenditure on the civil service.

· A cut of around 30 % in the Wallonian communication budget.

· Freezing of the appropriations allocated to certain primary expenditure.

At the level of the French Community, the phasing of certain multi-annual expenditure plans (uprating of operating allowances and subsidies for educational institutions, university funding, etc.) was revised in order to smooth the impact over the period in question.

In essence, the measures passed by the governments correspond to structural savings and have an effect over the whole of the period covered by the present stability programme.

In 2010 and 2011, the governments of Wallonia and of the French Community decided that part of the additional revenues generated by the revival in economic activity would be allocated to reducing the financing requirement, at a rate of €100 and €222 million respectively in 2010 and 2011.

Flemish Region

Safeguarding sound public finances was and is one of the major challenges facing the current Flemish government.

Cutting the expenditure of the Flemish public sector in general in order to create the budgetary margin for the future, to maintain a sound socio-economic fabric and restore a balanced budget from 2011 was and is one of the major challenges facing the current Flemish government.

When it took office, the government calculated that – taking account of the deterioration in revenues following the financial and economic crisis – a structural consolidation effort of over € 2 billion spread over the period 2009-2011 was needed; in that scenario, the deficit would come to € 1 billion in 2009, and € 500 million in 2010, with a balanced budget in 2011.

Immediately on taking office (July 2009), the government passed a safeguard measure: use of expenditure and commitments was limited to a maximum of 8/12. This measure was relaxed at the beginning of September (10/12) and October 2009 (11/12), then abolished at the end of October.

At the end of October 2009, the budget documents (2009 budget audit and compilation of the 2010 budget) were in fact submitted to parliament.

The recommended target – a balanced budget in 2011 – has since been achieved. From 2011 onwards, the Flemish budget will be in balance.

In 2010, the following savings were achieved:

· selective allocation of the index provision: € 100 million;

· zero indexation of non wage-linked appropriations in 2009 and 2010: € 120 million;

· increased efficiency of the administrative system (2.5 % on the wage element and 5 % on the operating element): € 133 million;

· efficiency gain on optional subsidies (5 %): € 45 million;

· saving on regulated subsidies (2 %): € 28 million;

· communication and consultancy budgets (-20 %): € 8.5 million;

· more selective application of the flat-rate reduction in payroll tax: € 635 million; 

· specific measures (e.g. Hermes Fund, cabinet appropriations, re-assessment of the interest rate, increase in Mina Fund revenues, extension of the Aquafin depreciation period, slowing of wage indexation, etc.): € 150 million;

· a small number of specific measures: sale of VMM land: € 125 million, activation of existing reserves of the VMSW and the Woningfonds : € 95 million.

In order to achieve the balanced budget recommended for 2011, the first step was to make the savings agreed when the government was formed.

· zero indexation of non wage-linked credits in 2011 ;

· additional saving on appropriations for the administrative system amounting to 1.5 % on the wage element and 2.5 % on the operating element;

· additional 5% saving on optional subsidies;

· additional 2% saving on other subsidies, except for certain social and welfare sectors such as care of the disabled, crèches, youth welfare, home care, sheltered workshops and rent subsidies;

· additional 10% saving on communication and consultancy appropriations.

In addition, a number of specific savings were also achieved totalling € 376 million.

There was no saving on investments.

Moreover, in 2011 under-utilisation was drastically reduced to € 120 million, so that the 2011 budget is realistic and the recommended budget balance will be achieved.

Thanks to the sustained economy measures and a number of positive developments on the revenue side, it was possible to take new policy measures in 2010 and 2011 to strengthen the socio-economic fabric.

The savings are not an end in themselves. They are necessary to safeguard the future. When the government was formed, a growth path was defined in regard to the policy to be adopted.

In 2010 : € 77.5 million

In 2011 : € 150 million, in order to arrive at a figure of € 1 billion or 1.4 billion by the end of the parliament, depending on the economic situation.

The following additional expenditure could already be granted in 2010:

· € 22.5 millions provision for the employment plan;

· an extra € 10 million for crèches;

· an extra € 22.5 million for the disabled sector;

· an extra € 22.5 million for investments.

The new policy launched in 2010 was continued and reinforced in 2011 :

· new social policy (crèches): increase of € 10 million to € 20 million; 

· care of the disabled (clearing of waiting lists) /welfare: increase of € 45 million to € 67.5 million;

· employment and investment plan: increase of € 7.5 million to € 30 million;

· housing: € 12.9 million; 

· foreign policy/tourism: € 4.1 million; 

· agriculture/rural environment: € 3.8 million;

· economy/taxation (mileage levy): € 2.6 million;

· Flemish periphery: € 0.6 million;

· culture : € 0.9 million;

· investments : € 7.5 million.

In terms of capital participations, the budget figure is € 310 million. In addition to this, there is a figure of € 10 million for capital stakes in “IMEC” and “Vlaams Instituut voor Biotechnologie”.

In the coming years, the following increases have been agreed on the expenditure side: 2011: € 150 million; 2012: € 350 million; 2013: € 600 million and 2014: € 1 billion(€ 1.4 billion).

In addition, over the whole of the parliamentary term, € 800 million is earmarked for capital investments.

During the current 2011 budget audit, the strategy outlined above will be maintained. Positive developments on the expenditure side in the wake of stronger GDP growth (2 % instead of 1.7 %) and higher inflation (2.7 % instead of 2 %) will be largely used to form essential provisions and to honour past commitments, and thus to continue creating a budget buffer.

The Flemish budget is sound for the following reasons:

· realistic estimate of the payment appropriations required and formation of the necessary provisions; 

· small increase in the debt (€ 345 million in 2010, € 133 million in 2011) and, from 2011, implicit reduction in the debt;

· reduction in the estimated under-utilisation in the budgets, cutting it from € 456 million in 2010 to € 120 million in the 2011 budget.

In the years ahead, a rigorous fiscal policy will be maintained. The balanced multi-annual budget for 2011-2014, submitted to the Flemish parliament on 30 April 2010, will be updated with that in mind so that, in the years 2012-2014, the Flemish budget will continue to be in structural balance.”

Brussels Capital Region

“The 2010 budget was compiled on the basis of a target deficit of € 312,509,000. In that regard, a 13% saving in relation to 2009 had been recommended, to be achieved in particular (but not solely) on “reducible” - non-organic – expenditure; alternative funding of € 55 million in favour of the STIB/MIVB [urban public transport] investment programme had been devised via the Beliris Fund, and debt management had been improved in order to save € 10 million on the interest.

Finally, the provisional execution of the 2010 budget results in a deficit in ESA terms of €259,849,296 (down by € 52,659,704).

From a socio-economic angle, the Brussels Capital Region faces the following priority challenges. It needs to respond to the population explosion (population up by almost 10 % between 2004 and 2010), the high unemployment rate, mainly in the case of the low-skilled, and the impoverishment of its residents. Nonetheless, the target set in compiling the 2011 budget was the same as in 2010. In that regard, the additional expenditure in relation to 2009 was best offset on the basis of the principle of no change of policy, except for statutory obligations and the indexations laid down by law. The priority was to reduce the outstanding amount, an implicit debt.

The government also undertook to continue limiting this deficit given correct financing of the Brussels Capital Region. The Region’s resources must be sufficient not only to be able to offer its residents a legitimate policy, but also to finance the services offered by the Region to the entire Belgian and European population.

The multi-annual budget is therefore heavily dependent on the annual refinancing of the Region. The multi-annual path is therefore provisional and indicative, in view of the uncertain institutional context. That path will change radically according to the talks being conducted at federal level concerning the adaptation of the Special Finance Law and the correct financing of Brussels, which implies that – depending on the changes made – the path in question may be adjusted in a positive or a negative sense.

TABLE 14  Financing balance of the Brussels Capital Region
In € million	2011	2012	2013	2014	2015	2016
Financing balance of the Brussels Capital Region	313,0	-254,1	-172,5	-116,5	-40,9	0,0

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