Country Report Belgium 2020
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EUROPEAN COMMISSION Brussels, 26.2.2020 SWD(2020) 500 final COMMISSION STAFF WORKING DOCUMENT Country Report Belgium 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150 final} EN EN CONTENTS Executive summary 4 1. Economic situation and outlook 8 2. Progress with country-specific recommendations 15 3. Reform priorities 19 3.1. Public finances and taxation 19 3.2. Financial sector 30 3.3. Labour market, education and social policies 34 3.4. Competitiveness and Investment 50 3.5. Environmental sustainability 66 Annex A: Overview Table 72 Annex B: DSA statistical annex 83 Annex C: Standard Tables 84 Annex D: Investment guidance on Just Transition Fund 2021-2027 for Belgium 90 Annex E: Progress towards the Sustainable Development Goals (SDGs) 91 References 96 LIST OF TABLES Table 1.1: Key economic and financial indicators – Belgium 14 Table 2.1: Progress with the implementation of the 2019 CSRs 17 Table 3.1.1: Government size by subsector in 2021, (% of GDP) 22 Table 3.2.1: Domestic banking groups and standalone banks, foreign (EU and non-EU) controlled subsidiaries and foreign (EU and non-EU) controlled branches 30 Table 3.4.1: Distribution of competences between government tiers - Funding 63 Table C.1: Financial market indicators 84 Table C.2: Headline social scoreboard indicators 85 Table C.3: Labour market and education indicators 86 Table C.4: Social inclusion and health indicators 87 Table C.5: Product market performance and policy indicators 88 Table C.6: Green growth 89 1 Table E.1: Indicators measuring Belgium’s progress towards the SDGs 91 LIST OF GRAPHS Graph 1.1: GDP growth and components 8 Graph 1.2: Potential growth estimates and components 8 Graph 1.3: Changes in merchandise export market share 9 Graph 1.4: Employment growth by occupation, cumulative, thousands 10 Graph 1.5: External accounts developments 11 Graph 1.6: Private indebtedness 12 Graph 1.7: Deflated house price index 12 Graph 1.8: Monetary and financial institutions lending to the non-financial private sector 13 Graph 2.1: Overall multiannual implementation of 2011-2019 CSRs to date 15 Graph 3.1.1: Breakdown of gross public debt 19 Graph 3.1.2: Evolution of primary expenditure 20 Graph 3.1.3: Evolution of public net capital stock 21 Graph 3.1.4: Public debt medium-term projections and scenarios (% of GDP) 24 Graph 3.1.5: Tax wedge on average wage, single earner (2018) 27 Graph 3.2.1: Evolution of households debt 33 Graph 3.2.2: Households indebtedness, selected indicators 33 Graph 3.3.1: Key labour market indicators 34 Graph 3.3.2: Number of jobseekers per vacancy, by region 34 Graph 3.3.3: Share of private sector salaried employment that is ill, by duration of the illness 35 Graph 3.3.4: Employment rates, by population groups and regions (2018) 35 Graph 3.3.5: Low wage traps for different social benefits (for a single earner household working at the minimum wage), (2019)) 37 Graph 3.3.6: Correlation between the transition rate (2018) and participation in ALMPs (2017) 37 Graph 3.3.7: STEM wage premium (as% of the wage of a non-STEM worker; average 2014-2017) 38 Graph 3.3.8: Potential wage and productivity growth by sector from increased training (2008-2017) 39 Graph 3.3.9: Job seniority by age bracket 40 Graph 3.3.10: Average PISA score for reading, by region, gender, type of programme and socio- economic and migrant background 41 Graph 3.3.11: Self-reported unmet needs for medical examination by main reason declared ("Too expensive") and income quintile (2018 data, % quintile population, inter-quintile differences (Q1-Q5)) 45 Graph 3.4.1: Export market share 50 Graph 3.4.2: Market dynamism and competitiveness of goods exports for top-10 sectors (2000- 2018) 50 Graph 3.4.3: Productivity growth (2010 = 100) 51 Graph 3.4.4: Services content of manufacturing (in 2015) in percent 51 Graph 3.4.5: Unit labour cost decomposition 53 2 Graph 3.4.6: Employment in fast-growing enterprises in 50% most innovative industries and employment in all fast-growing enterprises, both as % of total employment, 2016 57 Graph 3.4.7: GDP per head, 2017 – Index EU=100 62 Graph 3.5.1: Contribution of non-ETS sectors (%, 2016) 67 Graph 3.5.2: Building stock energy consumption, KWh/m² (2016) 68 LIST OF BOXES Box 2.1: EU FUNDS AND PROGRAMMES TO ADDRESS STRUCTURAL CHALLENGES AND TO FOSTER GROWTH AND COMPETITIVENESS IN BELGIUM 18 Box 3.1.2: Unequal tax treatment of rental income taxation 29 Box 3.3.3: The importance of skills in the Belgian labour market 46 Box 3.3.4: Monitoring performance in light of the European Pillar of Social Rights 49 Box 3.4.5: Investment challenges and reforms in Belgium 56 3 EXECUTIVE SUMMARY Structural reforms and targeted investment employed in 2019, the highest figure in the past should contribute to more sustainable and 10 years. Recent employment growth is mainly inclusive growth in Belgium. Reforms in the concentrated among older workers and in the high areas of pensions, corporate and labour taxation, skilled and – to a lesser extent - low-skilled wage indexation, the labour market and the professions. Wage and labour costs are expected to business environment have been introduced in continue to grow moderately in the coming years. recent years. Nevertheless, Belgium is still midway Combined with a drop in unemployment, wage in this process and adopting and implementing increases are expected to support growth in further reforms is needed if it is to address households’ disposable income, which has been remaining challenges, especially in the context of sluggish in recent years. population ageing and subdued productivity growth. Addressing skills shortages, low The high level of public debt, combined with the innovation diffusion, as well as barriers to structural budget deficit, limits the fiscal space competition in the product and services market available in case of an economic downturn. will help to boost productivity growth. Increasing According to the Commission's 2019 Autumn the still relatively low labour participation, will Forecast, under a no-policy-change assumption, also have a positive impact on public finances. the general government headline deficit is Improving the composition and efficiency of expected to widen to 2.6% of GDP in 2021, public spending, notably through spending following a notable improvement in 2017 and reviews, could create room for an increase in the 2018 when the deficit was at 0.7 % of GDP. Some share of growth-friendly expenditure, such as tax reforms adopted in recent years are expected to public investment. However, while reforms can be weigh on revenues. Rising age-related expenditure, pursued at regional and communities level, the notably due to higher pension, long-term care and protracted situation of a caretaker government has health expenditure, will further worsen the led to an almost complete stop of the reform headline deficit. Public debt is set to remain high at process at the federal level.(1) around 100% of GDP. Economic growth is set to gradually slow down. Belgium has significant investment needs in The economy grew at an average rate of 1.8% per education, sustainable transport, energy, digital year in the wake of the financial crisis although it infrastructure such as 5G and social housing. has been trailing behind the euro area average Belgium’s commitment to fully phasing out since 2015. In 2019, GDP growth is expected to nuclear energy by 2025 means there is a need for have stood at 1.4% of GDP against 1.2% in the major investment in power generation, as well as euro area. Economic activity is forecast to interconnection capacity, smart grids and storage. moderate further to just above 1% in the near Addressing labour shortages, especially of future. According to the latest Commission employees with backgrounds and skills in science, forecast, private consumption is set to continue technology, engineering and mathematics, will driving economic growth, supported by robust require investment in the training and education fundamentals and offsetting a slowdown in system. Important investments are on-going in investment growth. Net exports are forecast to suburban rail infrastructure and signalling. weigh negatively on growth, amid subdued Renovating the old building stock, which predates prospects of growth in world trade. the introduction of energy norms, will help Belgium meet its 2020 and 2030 emission Employment growth remains robust. Almost 4.9 reduction targets. There are important needs in million people are expected to have been terms of social infrastructure (early childhood education and care, social housing, schools) and (1) This report assesses Belgium’s economy in light of the workers in the social sector. Digitalisation of European Commission’s Annual Sustainable Growth Strategy published on 17 December 2019. In this public services and justice, and the reinforcement document, Commission sets out a new strategy on how to of certain key enforcers and public bodies, would address not only the short-term economic challenges but improve institutional governance. also the economy's longer-term challenges. This new economic agenda of competitive sustainability rests on four dimensions: environmental sustainability, productivity gains, fairness and macroeconomic stability. 4 Executive summary Overall, Belgium has made limited (2) progress specific groups. Moreover, the share of individuals in addressing the 2019 country-specific living in low work intensity households continues recommendations, due in part to the lack of to be high.