IMF says Belgian reforms good step, but more is needed

Brussels - The Belgian government is planning “many welcome measures to address the critical macroeconomic challenges facing the Belgian economy”, but it can do more, the International Monetary Fund (IMF) said on Monday (15 December).

On the same day Belgian unions organised a general national strike, the IMF presented its findings from a ten-day mission to the country.

“The planned reforms of social security and budgetary measures are a step in the right direction”, the IMF wrote.

The centre-right government of Charles Michel i, the first coalition without socialists since 1988, started work in October. It plans spending cuts and increasing the pension age from 65 to 67 by 2030.

However, the IMF says that Belgium should also reform its tax system.

Denmark is the only EU state to have higher tax levels than Belgium, while when it comes to labour tax, Belgium ranks top with a rate of over 40 percent.

The IMF suggests that labour tax should be lowered and compensated with a higher tax on capital.

“Income from capital is not taxed uniformly, and a more harmonised treatment would put the taxation of such income on a more equal footing with labour income,” the IMF wrote.

“We also see scope for reducing deviations from the standard VAT rate, e.g., for electricity, and to increase environmental taxes.”

The fund also called for a “strategic vision” on energy policy, a lack of which has led to absence of investment.

The IMF also points to the lack of coordination between different levels of government, noting that the federal government needs to better coordinate its policies with the regional Flemish, Walloon and Brussels governments.

“The devolution of economic and labour market competencies to the regions ... raises the risks that uncoordinated actions and approaches will complicate rather than simplify economic life.”

Its advice on how to make Belgium - home to the EU institutions - more competitive was welcomed by the government.

“The IMF literally says that the economic programme of the new government contains many welcome measures”, finance minister Johan Van Overtveldt i told Belgian media.

His colleague Jan Jambon, minister of the interior, called on unions to stop the recent strike wave and start negotiating again. “You have made your point”, he said.

Tuesday however will see another protest, this time by police unions. Their demonstration is not directly against the government, but against the constitutional court which decided the pension age of police personnel should be 62 instead of 58.

Conclusions

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  IMF: Belgium: Concluding Statement of the 2015 Article IV Mission