Economic Sustainability
#22Key Findings
In the area of economic sustainability, Belgium performs relatively poorly in international comparison (rank 22).
The country is a leader in circular economy policy, with high recycling rates. Financial difficulties have hampered infrastructure investment, leading to a decline in the government’s net capital stock. While Belgium is a pioneer in offshore wind power, it still relies heavily on fossil fuels.
The labor market lacks flexibility, partly due to its neocorporatist structure and strong labor market institutions. The wage-setting mechanism reduces inequality but may hinder job reallocation. The labor market performs poorly with regard to integrating migrants. Social welfare benefits are generous.
Tax revenues are high, but the tax base is narrow, placing excessive pressure on labor income. The country’s debt-to-GDP ratio remains worryingly high. Structural consolidation will be needed to stabilize public debt. Escalating debt ratios at the regional levels are also a concern.
The country is a leader in circular economy policy, with high recycling rates. Financial difficulties have hampered infrastructure investment, leading to a decline in the government’s net capital stock. While Belgium is a pioneer in offshore wind power, it still relies heavily on fossil fuels.
The labor market lacks flexibility, partly due to its neocorporatist structure and strong labor market institutions. The wage-setting mechanism reduces inequality but may hinder job reallocation. The labor market performs poorly with regard to integrating migrants. Social welfare benefits are generous.
Tax revenues are high, but the tax base is narrow, placing excessive pressure on labor income. The country’s debt-to-GDP ratio remains worryingly high. Structural consolidation will be needed to stabilize public debt. Escalating debt ratios at the regional levels are also a concern.
Graph View
Graph View
How committed is the government to driving the transition toward a circular economy?
10
9
9
The government is clearly committed to transitioning to a circular economy.
8
7
6
7
6
The government is largely committed to transitioning to a circular economy.
5
4
3
4
3
The government is somewhat committed to transitioning to a circular economy.
2
1
1
The government is not at all committed to transitioning to a circular economy.
Belgium is a leader in the transition to a circular economy, achieving high recovery and recycling rates for various waste types. The Brussels-Capital and Flanders regions are recognized as leaders among OECD regions for their circular economy initiatives (OECD 2019). Despite these accomplishments, increased efforts are necessary to enhance recycling and composting. The country has initiated innovative measures in sectors like construction and food to advance the circular economy.
Eurostat data reveals that Belgium has the highest recycling rate of all waste in the EU (87% in 2020) and the second-highest circular material use rate (23.7% in 2021). Although the country’s resource productivity significantly exceeds the EU average, its per capita waste generation is slightly above the EU average. However, per capita packaging waste generation is below the EU average. Private investment in the circular economy, as a percentage of GDP, is the highest in the EU. Nevertheless, the gross added value related to the circular economy and the employment rate in circular economy sectors are both below the EU average.
Belgium has implemented ambitious circular economy strategies across all three regions, integrating these with economic development plans. The Brussels-Capital Region adopted a Program for the Circular Economy in 2016, promoting resource circularity, reducing food waste, and supporting urban farming. Flanders launched the Materials Program in 2011, aiming for an economic model with closed material cycles, and introduced the Circular Flanders program in 2017. Wallonia prioritized the development of a circular economy and resource efficiency in its 2015-19 Regional Development Plan. In February 2021, the Walloon Government adopted Circular Wallonia, the region’s first circular economy deployment strategy (OECD 2021).
At the federal level, a federal action plan for a circular economy was adopted at the end of 2021. One of the recently approved measures under this plan is the introduction of a reparability and durability index for goods, allowing consumers to understand a product’s reparability and estimated lifespan (see press article). Several inter-regional and inter-departmental bodies support circular economy work, exchanging information and establishing working groups on indicators, requirements for recycled content in products, and legal barriers to circular initiatives through an inter-regional platform.
Initially, Belgium’s circular economy indicators focused on program results, such as the number of enterprises receiving financial support and legislative barriers reformed. More recently, broader economic indicators have been considered, with a focus on consumption rather than production. The Intra-Belgian Circular Economy Platform, together with the Federal Planning Bureau, is in charge of developing a strategy for monitoring the transition to a circular economy using concrete indicators (FAP 2021).
Citations:
OECD. 2019. “The Circular Economy in Cities and Regions: Key Lessons Learnt.” CFE/RDPC/URB(2019)16. Paris: OECD.
https://ec.europa.eu/eurostat/databrowser/explore/all/tb_eu?lang=en&subtheme=cei&display=list&sort=category
OCDE. 2021. OECD Environmental Performance Reviews: Belgium 2021. Paris: Éditions OCDE. https://doi.org/10.1787/738553c5-en
Press article on the reparability and durability index for goods: https://www.dhnet.be/dernieres-depeches/2023/12/22/le-federal-instaure-un-indice-de-reparabilite-et-de-durabilite-des-biens-HTPB24UON5AM3DJG73GAASFRGI/
Federal Action Plan for a Circular Economy (FAP). https://www.health.belgium.be/fr/plan-daction-federal-pour-une-economie-circulaire-2021-2024
Eurostat data reveals that Belgium has the highest recycling rate of all waste in the EU (87% in 2020) and the second-highest circular material use rate (23.7% in 2021). Although the country’s resource productivity significantly exceeds the EU average, its per capita waste generation is slightly above the EU average. However, per capita packaging waste generation is below the EU average. Private investment in the circular economy, as a percentage of GDP, is the highest in the EU. Nevertheless, the gross added value related to the circular economy and the employment rate in circular economy sectors are both below the EU average.
Belgium has implemented ambitious circular economy strategies across all three regions, integrating these with economic development plans. The Brussels-Capital Region adopted a Program for the Circular Economy in 2016, promoting resource circularity, reducing food waste, and supporting urban farming. Flanders launched the Materials Program in 2011, aiming for an economic model with closed material cycles, and introduced the Circular Flanders program in 2017. Wallonia prioritized the development of a circular economy and resource efficiency in its 2015-19 Regional Development Plan. In February 2021, the Walloon Government adopted Circular Wallonia, the region’s first circular economy deployment strategy (OECD 2021).
At the federal level, a federal action plan for a circular economy was adopted at the end of 2021. One of the recently approved measures under this plan is the introduction of a reparability and durability index for goods, allowing consumers to understand a product’s reparability and estimated lifespan (see press article). Several inter-regional and inter-departmental bodies support circular economy work, exchanging information and establishing working groups on indicators, requirements for recycled content in products, and legal barriers to circular initiatives through an inter-regional platform.
Initially, Belgium’s circular economy indicators focused on program results, such as the number of enterprises receiving financial support and legislative barriers reformed. More recently, broader economic indicators have been considered, with a focus on consumption rather than production. The Intra-Belgian Circular Economy Platform, together with the Federal Planning Bureau, is in charge of developing a strategy for monitoring the transition to a circular economy using concrete indicators (FAP 2021).
Citations:
OECD. 2019. “The Circular Economy in Cities and Regions: Key Lessons Learnt.” CFE/RDPC/URB(2019)16. Paris: OECD.
https://ec.europa.eu/eurostat/databrowser/explore/all/tb_eu?lang=en&subtheme=cei&display=list&sort=category
OCDE. 2021. OECD Environmental Performance Reviews: Belgium 2021. Paris: Éditions OCDE. https://doi.org/10.1787/738553c5-en
Press article on the reparability and durability index for goods: https://www.dhnet.be/dernieres-depeches/2023/12/22/le-federal-instaure-un-indice-de-reparabilite-et-de-durabilite-des-biens-HTPB24UON5AM3DJG73GAASFRGI/
Federal Action Plan for a Circular Economy (FAP). https://www.health.belgium.be/fr/plan-daction-federal-pour-une-economie-circulaire-2021-2024
Graph View
How committed is the government to updating and protecting critical infrastructure?
10
9
9
The government is clearly committed to updating basic technical infrastructure.
8
7
6
7
6
The government is largely committed to updating basic technical infrastructure.
5
4
3
4
3
The government is somewhat committed to updating basic technical infrastructure.
2
1
1
The government is not at all committed to updating basic technical infrastructure.
Belgium, a densely populated country, has one of the densest road and rail networks in the world. Despite this, its road coverage continues to expand, making it one of the costliest infrastructures to maintain relative to the country’s size. However, due to a high debt-to-GDP ratio, infrastructure investment has been relatively low both historically and compared to neighboring countries, leading to a visible decline in the Belgian government’s “net capital stock” (Biatour et al. 2017). Despite this, most of Belgium’s infrastructure remains in good condition, close to the EU average.
For a long time, infrastructure maintenance lacked a clear strategy. Reactivity was good, keeping roads and rail at a decent to good quality, depending on the sub-region. However, decisions were typically backward-looking, with maintenance initiated only when significant damage was evident. This approach resulted in sluggish and somewhat disorganized works and building sites (see federal action plan for a circular economy).
One prominent case was the numerous tunnels in Brussels, mostly built in the late 1950s, which were barely maintained due to budgetary constraints. Some had to be closed in emergencies around 2018-2020 due to falling concrete blocks. This prompted the current government of Brussels to initiate a more proactive investment plan.
A similar turnaround is taking place across all regions and at the federal level. Significant adverse events, including climatic catastrophes, massive floods, and infrastructure damage, have driven improvements, aided by the EU’s Recovery strategy, which conditions funding on well-developed strategic plans.
Infrastructure management has largely been decentralized, with the federal government and regional governments each having authority over their areas of responsibility. This decentralization led to a relative decline in infrastructure quality in Wallonia (mainly in road and rail) and Brussels (mainly road, although public transport improved), and a relative improvement in Flanders (better roads and large investments in other infrastructure, including digital). Both Flanders and Wallonia developed “2019-2024 plans” containing several multi-year infrastructure renovation measures. Flanders, for instance, has improved the highway networks around its main cities and Brussels (one of the many anomalies of Belgian federalism is that the “Brussels ring” is in Flemish territory, together with Brussels’ main airport).
As detailed elsewhere in this report, another crucial turnaround during this legislature concerns electricity production. Previous governments decided to shut down nuclear plants and compensate for the loss in electricity production capacity with green energy, mainly wind farms in the North Sea and photovoltaic production across the country. Russia’s war of aggression against Ukraine has revealed the infeasibility of relying on imports, leading the government to delay the closure of some nuclear plants, invest in Small Modular Reactors, and accelerate the deployment of wind and solar energy.
Other crucial infrastructures have been delegated to corporations, some state-owned (e.g., railways or water supply and management), and some largely privately owned (e.g., telecommunication). This allows the government to outsource maintenance costs and professionalize decision-making. The outcome is good for water (though costly) but poor for railways, which suffer from a lack of funding and flexibility to fulfill their targets.
Citations:
Biatour, Bernadette, Chantal Kegels, Jan van der Linden, and Dirk Verwerft. 2017. “Public Investment in Belgium – Current State and Economic Impact.” Federal Planning Bureau Working Paper 01-17. https://www.plan.be/uploaded/documents/201701270618330.WP_1701_11411.pdf
Public Investment in Belgium – Current State and Economic Impact [ Working Paper 01-17 - 26/01/2017]
https://www.lesoir.be/544135/article/2023-10-18/les-grands-travaux-se-portent-bien
https://www.lecho.be/opinions/general/le-plan-de-relance-perpetue-les-erreurs-du-plan-marshall/10499038.html
https://www.lesoir.be/538672/article/2023-09-21/plan-de-relance-les-chantiers-nattendent-pas-largent-de-leurope-se-fait-attendre
https://www.consilium.europa.eu/en/press/press-releases/2023/12/08/recovery-fund-council-greenlights-amended-national-plans-for-13-member-states/
http://mobilite.wallonie.be/news/plan-infrastructures-2019-2024
Belgium – Set your infrastructure policies in the right direction https://infracompass.gihub.org/ind_country_profile/bel/
Benchmarking Infrastructure Development – World Bank Group | Economy https://bpp.worldbank.org/economy/BEL
Belgian sources on strategy:
https://nextgenbelgium.be/fr/
https://infra4be.com/
Critical infrastructures – Crisiscenter: https://crisiscenter.be/en/what-do-authorities-do/prevention/critical-infrastructures
Investeren in infrastructuur | Vlaanderen.be: https://www.vlaanderen.be/vlaamse-regering/vlaamse-veerkracht/investeren-in-infrastructuur
Geïntegreerd investeringsprogramma | Vlaanderen.be: https://www.vlaanderen.be/geintegreerd-investeringsprogramma
Infrastructuurprojecten | Vlaanderen.be: https://www.vlaanderen.be/departement-mobiliteit-en-openbare-werken/infrastructuurprojecten
Bovengemeentelijke investeringen – Vlaamse Milieumaatschappij: https://www.vmm.be/water/riolering/timing-en-subsidies/bovengemeentelijke-investeringen
Plan Mobilité et Infrastructures pour tous. 2023. “Plan Mobilité et Infrastructures pour tous.” https://infrastructures.wallonie.be/home/nos-thematiques/voies-de-eau/travaux-et-entretiens/plan-mobilite-et-infrastructures-pour-tous.html
pwi_vd.pdf (wallonie.be) : https://www.wallonie.be/sites/default/files/inline-files/pwi_vd.pdf
Aides aux investissements dans des infrastructures de santé en zone rurale – Portail de l’agriculture wallonne (wallonie.be) : https://agriculture.wallonie.be/aides-aux-investissements-dans-des-infrastructures-de-sante-en-zone-rurale
PIC – PIMACI 2022-24 (wallonie.be) : https://infrastructures.wallonie.be/pouvoirs-locaux/nos-thematiques/infrastructures-locales/batiments-et-voiries/plan-dinvestissement-communal.html
Découvrez nos projets ici | Région de Bruxelles-Capitale (budget.brussels) : https://budget.brussels/fr/showcases/expenses/
Plan d’investissement exceptionnel dans les bâtiments scolaires en FWB – DGI : https://infrastructures.cfwb.be/plan-investissement-exceptionnel/
Construction of infrastructure | BIPT: https://www.bipt.be/operators/construction-of-infrastructure
There is no investment gap in Belgian market, telecom regulator says – EURACTIV.com: https://www.euractiv.com/section/digital/interview/there-is-no-investment-gap-in-belgian-market-telecom-regulator-says/
For a long time, infrastructure maintenance lacked a clear strategy. Reactivity was good, keeping roads and rail at a decent to good quality, depending on the sub-region. However, decisions were typically backward-looking, with maintenance initiated only when significant damage was evident. This approach resulted in sluggish and somewhat disorganized works and building sites (see federal action plan for a circular economy).
One prominent case was the numerous tunnels in Brussels, mostly built in the late 1950s, which were barely maintained due to budgetary constraints. Some had to be closed in emergencies around 2018-2020 due to falling concrete blocks. This prompted the current government of Brussels to initiate a more proactive investment plan.
A similar turnaround is taking place across all regions and at the federal level. Significant adverse events, including climatic catastrophes, massive floods, and infrastructure damage, have driven improvements, aided by the EU’s Recovery strategy, which conditions funding on well-developed strategic plans.
Infrastructure management has largely been decentralized, with the federal government and regional governments each having authority over their areas of responsibility. This decentralization led to a relative decline in infrastructure quality in Wallonia (mainly in road and rail) and Brussels (mainly road, although public transport improved), and a relative improvement in Flanders (better roads and large investments in other infrastructure, including digital). Both Flanders and Wallonia developed “2019-2024 plans” containing several multi-year infrastructure renovation measures. Flanders, for instance, has improved the highway networks around its main cities and Brussels (one of the many anomalies of Belgian federalism is that the “Brussels ring” is in Flemish territory, together with Brussels’ main airport).
As detailed elsewhere in this report, another crucial turnaround during this legislature concerns electricity production. Previous governments decided to shut down nuclear plants and compensate for the loss in electricity production capacity with green energy, mainly wind farms in the North Sea and photovoltaic production across the country. Russia’s war of aggression against Ukraine has revealed the infeasibility of relying on imports, leading the government to delay the closure of some nuclear plants, invest in Small Modular Reactors, and accelerate the deployment of wind and solar energy.
Other crucial infrastructures have been delegated to corporations, some state-owned (e.g., railways or water supply and management), and some largely privately owned (e.g., telecommunication). This allows the government to outsource maintenance costs and professionalize decision-making. The outcome is good for water (though costly) but poor for railways, which suffer from a lack of funding and flexibility to fulfill their targets.
Citations:
Biatour, Bernadette, Chantal Kegels, Jan van der Linden, and Dirk Verwerft. 2017. “Public Investment in Belgium – Current State and Economic Impact.” Federal Planning Bureau Working Paper 01-17. https://www.plan.be/uploaded/documents/201701270618330.WP_1701_11411.pdf
Public Investment in Belgium – Current State and Economic Impact [ Working Paper 01-17 - 26/01/2017]
https://www.lesoir.be/544135/article/2023-10-18/les-grands-travaux-se-portent-bien
https://www.lecho.be/opinions/general/le-plan-de-relance-perpetue-les-erreurs-du-plan-marshall/10499038.html
https://www.lesoir.be/538672/article/2023-09-21/plan-de-relance-les-chantiers-nattendent-pas-largent-de-leurope-se-fait-attendre
https://www.consilium.europa.eu/en/press/press-releases/2023/12/08/recovery-fund-council-greenlights-amended-national-plans-for-13-member-states/
http://mobilite.wallonie.be/news/plan-infrastructures-2019-2024
Belgium – Set your infrastructure policies in the right direction https://infracompass.gihub.org/ind_country_profile/bel/
Benchmarking Infrastructure Development – World Bank Group | Economy https://bpp.worldbank.org/economy/BEL
Belgian sources on strategy:
https://nextgenbelgium.be/fr/
https://infra4be.com/
Critical infrastructures – Crisiscenter: https://crisiscenter.be/en/what-do-authorities-do/prevention/critical-infrastructures
Investeren in infrastructuur | Vlaanderen.be: https://www.vlaanderen.be/vlaamse-regering/vlaamse-veerkracht/investeren-in-infrastructuur
Geïntegreerd investeringsprogramma | Vlaanderen.be: https://www.vlaanderen.be/geintegreerd-investeringsprogramma
Infrastructuurprojecten | Vlaanderen.be: https://www.vlaanderen.be/departement-mobiliteit-en-openbare-werken/infrastructuurprojecten
Bovengemeentelijke investeringen – Vlaamse Milieumaatschappij: https://www.vmm.be/water/riolering/timing-en-subsidies/bovengemeentelijke-investeringen
Plan Mobilité et Infrastructures pour tous. 2023. “Plan Mobilité et Infrastructures pour tous.” https://infrastructures.wallonie.be/home/nos-thematiques/voies-de-eau/travaux-et-entretiens/plan-mobilite-et-infrastructures-pour-tous.html
pwi_vd.pdf (wallonie.be) : https://www.wallonie.be/sites/default/files/inline-files/pwi_vd.pdf
Aides aux investissements dans des infrastructures de santé en zone rurale – Portail de l’agriculture wallonne (wallonie.be) : https://agriculture.wallonie.be/aides-aux-investissements-dans-des-infrastructures-de-sante-en-zone-rurale
PIC – PIMACI 2022-24 (wallonie.be) : https://infrastructures.wallonie.be/pouvoirs-locaux/nos-thematiques/infrastructures-locales/batiments-et-voiries/plan-dinvestissement-communal.html
Découvrez nos projets ici | Région de Bruxelles-Capitale (budget.brussels) : https://budget.brussels/fr/showcases/expenses/
Plan d’investissement exceptionnel dans les bâtiments scolaires en FWB – DGI : https://infrastructures.cfwb.be/plan-investissement-exceptionnel/
Construction of infrastructure | BIPT: https://www.bipt.be/operators/construction-of-infrastructure
There is no investment gap in Belgian market, telecom regulator says – EURACTIV.com: https://www.euractiv.com/section/digital/interview/there-is-no-investment-gap-in-belgian-market-telecom-regulator-says/
Graph View
How committed is the government to fully decarbonizing the energy system by 2050?
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9
The government is clearly committed to transitioning to a decarbonized energy system.
8
7
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7
6
The government is largely committed to transitioning to a decarbonized energy system.
5
4
3
4
3
The government is somewhat committed to transitioning to a decarbonized energy system.
2
1
1
The government is not at all committed to transitioning to a decarbonized energy system.
Belgium has made strides in its energy transition, including deferring the closure of two nuclear power plants by a decade, initiating an energy savings campaign, and offering financial incentives for energy-efficient renovations. However, given its heavy dependence on imported fossil fuels, more efforts are needed to achieve climate neutrality by 2050.
The country is a leader in offshore wind power development, but onshore wind power development faces hurdles due to public acceptance and permit issues. Belgium’s renewable energy consumption was only 13% in 2021, and there is considerable potential for growth, particularly in rooftop solar power. To encourage this, the VAT for solar panel installations in houses less than 10 years old was reduced to 6% until the end of 2023.
Estelle Cantillon, a Belgian economist specializing in sustainability and energy, suggests that Belgium is far from achieving carbon neutrality and lacks adequate preparation. The country’s infrastructure is insufficient for technological change and electrification, particularly in terms of smart meters. Behavioral change is also lagging (Paquay 2023).
According to Cantillon, priorities include ending fossil fuel subsidies, setting a higher carbon price, and decarbonizing energy use as much as possible. Currently, fossil fuels still account for more than 70% of energy consumption (see data from our world in data). She advocates for the development of wind power, solar energy, biomass, geothermal energy, and nuclear power. She also emphasizes the need to decarbonize heat, improve energy efficiency, and promote energy sobriety. Reducing fossil fuel usage in buildings is a significant challenge, as heating buildings accounted for 11% of oil demand and 37% of gas consumption in 2020. A large portion of Belgium’s buildings are old, with about 80% still lacking energy efficiency. Regional authorities have implemented or are considering strategies to enhance energy efficiency in buildings. These include prohibiting the use of fossil fuels in new constructions, enforcing energy-saving renovations, gradually eliminating financial aid for heating based on fossil fuels, and promoting incentives for low-carbon heating solutions (European Commission 2023). Cantillon further stresses that while progress has been made in decarbonizing electricity, challenges remain in the industrial sector. In 2020, oil and natural gas accounted for nearly 70% of the sector’s energy demand. Encouraging electrification and the use of industrial heat pumps in factories with low heat demand could help increase efficiency (European Commission 2023). In terms of transport, significant work is needed, especially in modal shift. The price difference between electricity and gas and fuel oil in Belgium is too small.
Further policy reforms and investments to reduce greenhouse gas emissions in the energy, building, and transport sectors are necessary. These actions will also help reduce Belgium’s high dependency on fossil fuel imports and ensure supply security. The war in Ukraine might have acted as a wake-up call, as Belgium made significant progress in reducing its dependency on Russian gas and is expected to continue its diversification efforts.
According to a McKinsey report, achieving carbon neutrality in Belgium would cost 415 billion euros in cumulative investments by 2050, equivalent to 2-3% of the country’s GDP each year.
Citations:
https://www.lesoir.be/552932/article/2023-12-01/cop28-comment-la-belgique-peut-atteindre-la-neutralite-en-2050
https://ourworldindata.org/energy/country/belgium#
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Paquay, Maxime. 2023. “415 Milliards D’euros Pour Une Belgique Zéro Emission En 2050.” https://www.lecho.be/entreprises/yaka/415-milliards-d-euros-pour-une-belgique-zero-emission-en-2050/10475601.html
The country is a leader in offshore wind power development, but onshore wind power development faces hurdles due to public acceptance and permit issues. Belgium’s renewable energy consumption was only 13% in 2021, and there is considerable potential for growth, particularly in rooftop solar power. To encourage this, the VAT for solar panel installations in houses less than 10 years old was reduced to 6% until the end of 2023.
Estelle Cantillon, a Belgian economist specializing in sustainability and energy, suggests that Belgium is far from achieving carbon neutrality and lacks adequate preparation. The country’s infrastructure is insufficient for technological change and electrification, particularly in terms of smart meters. Behavioral change is also lagging (Paquay 2023).
According to Cantillon, priorities include ending fossil fuel subsidies, setting a higher carbon price, and decarbonizing energy use as much as possible. Currently, fossil fuels still account for more than 70% of energy consumption (see data from our world in data). She advocates for the development of wind power, solar energy, biomass, geothermal energy, and nuclear power. She also emphasizes the need to decarbonize heat, improve energy efficiency, and promote energy sobriety. Reducing fossil fuel usage in buildings is a significant challenge, as heating buildings accounted for 11% of oil demand and 37% of gas consumption in 2020. A large portion of Belgium’s buildings are old, with about 80% still lacking energy efficiency. Regional authorities have implemented or are considering strategies to enhance energy efficiency in buildings. These include prohibiting the use of fossil fuels in new constructions, enforcing energy-saving renovations, gradually eliminating financial aid for heating based on fossil fuels, and promoting incentives for low-carbon heating solutions (European Commission 2023). Cantillon further stresses that while progress has been made in decarbonizing electricity, challenges remain in the industrial sector. In 2020, oil and natural gas accounted for nearly 70% of the sector’s energy demand. Encouraging electrification and the use of industrial heat pumps in factories with low heat demand could help increase efficiency (European Commission 2023). In terms of transport, significant work is needed, especially in modal shift. The price difference between electricity and gas and fuel oil in Belgium is too small.
Further policy reforms and investments to reduce greenhouse gas emissions in the energy, building, and transport sectors are necessary. These actions will also help reduce Belgium’s high dependency on fossil fuel imports and ensure supply security. The war in Ukraine might have acted as a wake-up call, as Belgium made significant progress in reducing its dependency on Russian gas and is expected to continue its diversification efforts.
According to a McKinsey report, achieving carbon neutrality in Belgium would cost 415 billion euros in cumulative investments by 2050, equivalent to 2-3% of the country’s GDP each year.
Citations:
https://www.lesoir.be/552932/article/2023-12-01/cop28-comment-la-belgique-peut-atteindre-la-neutralite-en-2050
https://ourworldindata.org/energy/country/belgium#
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Paquay, Maxime. 2023. “415 Milliards D’euros Pour Une Belgique Zéro Emission En 2050.” https://www.lecho.be/entreprises/yaka/415-milliards-d-euros-pour-une-belgique-zero-emission-en-2050/10475601.html
Graph View
To what extent do existing labor market institutions support or hinder the transition to an adaptive labor market?
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Labor market institutions are fully aligned with the goal of an adaptable labor market.
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7
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Labor market institutions are largely aligned with the goal of an adaptable labor market.
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3
4
3
Labor market institutions are only somewhat aligned with the goal of an adaptable labor market.
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1
Labor market institutions are not at all aligned with the goal of an adaptable labor market.
The Belgian labor market is often described as rigid, partly due to its neo-corporatist structure. The tradition of social dialogue, strong labor market institutions, and a generous social model contribute to a notable lack of flexibility, according to employers’ associations. The OECD, in its 2023 recommendations, criticizes the wage-setting mechanism, asserting that while it reduces wage inequality, it may impede job reallocation. The OECD advocates for using sector-level agreements to align wages more effectively with productivity at the firm level (OECD 2023). The European Semester points to low labor market participation and regional disparities as ongoing structural challenges (European Commission 2023). According to Eurostat data, Belgium’s unemployment and labor market slack figures are below European averages, while employment rates lag behind at around 72%.
The previous right-wing government implemented measures aimed at stimulating labor market participation. These measures included gradually increasing the retirement age, restricting access to unemployment benefits, and reducing labor costs. Studies at the time, such as those by Bodart, Dejemeppe, and Fontenay (2019), suggested that the impact of these measures was relatively modest. Additionally, the efficacy of these reforms might be diminished, as unemployment insurance reforms tend to correlate with an increase in the number of individuals receiving disability benefits, as evidenced by De Brouwer and Tojerow (2023).
The advent of the COVID-19 crisis prompted a shift in the government’s approach, leading to the implementation of measures designed to safeguard specific job categories. Workers were given government allowances or temporary unemployment benefits, similar to measures used during the 2008 crisis, which appeared effective both times. These actions demonstrate the state’s capacity to preserve the labor market from short- to medium-term economic shocks.
The current government, formed at the end of 2020, articulated in its government agreement the ambition to achieve an employment rate of 80% without explicitly outlining specific reforms. The agreement underscored a commitment to ongoing training initiatives, particularly through tax breaks for companies investing in employee training. Belgium’s performance is mixed in this regard: on one hand, it consistently performs decently in continuing vocational training (which is a legal obligation), with 50.7% of employees reporting that their employer contributes to financing some training. However, only 10% of the adult population reports having participated in a continuing education program over the last four weeks, which is close to the EU average but significantly lower than figures in Sweden (34.7%), the Netherlands (26.6%), or Slovenia (18.9%). The European Semester stresses that current adult learning incentives may not effectively reach those who need upskilling the most, such as less-educated individuals and older workers (European Commission 2023).
Citations:
https://www.lalibre.be/belgique/politique-belge/2023/09/30/pieter-timmermans-ce-quon-a-gagne-en-reformant-les-pensions-de-2010-a-2019-a-ete-largement-neutralise-par-tout-ce-qui-a-ete-decide-par-la-vivaldi-HGZEWS7MPFHLLMMR2VWHRYXWUQ/
OECD. 2023. “Belgium.” In Economic Policy Reforms 2023: Going for Growth. Paris: OECD Publishing. DOI: https://doi.org/10.1787/b5f1297c-en
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Bodart, V., Dejemeppe, M., and Fontenay, S. 2019. “Évolution de l’emploi en Belgique : tentons d’y voir plus clair.” Regards Economiques 146.
De Brouwer, O., and Tojerow, I. 2023. “The Growth of Disability Insurance in Belgium: Determinants and Policy Implications.” IZA Discussion Paper No. 16376. http://dx.doi.org/10.2139/ssrn.4541358
Eurostata – Participants in continuous vocational training (CVT) courses by sex and size class – % of persons employed in all enterprises: https://ec.europa.eu/eurostat/databrowser/view/trng_cvt_12s/default/table?lang=en
Participation rate in education and training (last 4 weeks): https://ec.europa.eu/eurostat/databrowser/view/TRNG_LFSE_01__custom_4665066/bookmark/table?lang=en&bookmarkId=d88f7aa3-5cfa-4bfa-a913-3e92a647ee06
Data on the unemployment and employment rate in Belgium:
https://ec.europa.eu/eurostat/cache/recovery-dashboard/
The previous right-wing government implemented measures aimed at stimulating labor market participation. These measures included gradually increasing the retirement age, restricting access to unemployment benefits, and reducing labor costs. Studies at the time, such as those by Bodart, Dejemeppe, and Fontenay (2019), suggested that the impact of these measures was relatively modest. Additionally, the efficacy of these reforms might be diminished, as unemployment insurance reforms tend to correlate with an increase in the number of individuals receiving disability benefits, as evidenced by De Brouwer and Tojerow (2023).
The advent of the COVID-19 crisis prompted a shift in the government’s approach, leading to the implementation of measures designed to safeguard specific job categories. Workers were given government allowances or temporary unemployment benefits, similar to measures used during the 2008 crisis, which appeared effective both times. These actions demonstrate the state’s capacity to preserve the labor market from short- to medium-term economic shocks.
The current government, formed at the end of 2020, articulated in its government agreement the ambition to achieve an employment rate of 80% without explicitly outlining specific reforms. The agreement underscored a commitment to ongoing training initiatives, particularly through tax breaks for companies investing in employee training. Belgium’s performance is mixed in this regard: on one hand, it consistently performs decently in continuing vocational training (which is a legal obligation), with 50.7% of employees reporting that their employer contributes to financing some training. However, only 10% of the adult population reports having participated in a continuing education program over the last four weeks, which is close to the EU average but significantly lower than figures in Sweden (34.7%), the Netherlands (26.6%), or Slovenia (18.9%). The European Semester stresses that current adult learning incentives may not effectively reach those who need upskilling the most, such as less-educated individuals and older workers (European Commission 2023).
Citations:
https://www.lalibre.be/belgique/politique-belge/2023/09/30/pieter-timmermans-ce-quon-a-gagne-en-reformant-les-pensions-de-2010-a-2019-a-ete-largement-neutralise-par-tout-ce-qui-a-ete-decide-par-la-vivaldi-HGZEWS7MPFHLLMMR2VWHRYXWUQ/
OECD. 2023. “Belgium.” In Economic Policy Reforms 2023: Going for Growth. Paris: OECD Publishing. DOI: https://doi.org/10.1787/b5f1297c-en
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Bodart, V., Dejemeppe, M., and Fontenay, S. 2019. “Évolution de l’emploi en Belgique : tentons d’y voir plus clair.” Regards Economiques 146.
De Brouwer, O., and Tojerow, I. 2023. “The Growth of Disability Insurance in Belgium: Determinants and Policy Implications.” IZA Discussion Paper No. 16376. http://dx.doi.org/10.2139/ssrn.4541358
Eurostata – Participants in continuous vocational training (CVT) courses by sex and size class – % of persons employed in all enterprises: https://ec.europa.eu/eurostat/databrowser/view/trng_cvt_12s/default/table?lang=en
Participation rate in education and training (last 4 weeks): https://ec.europa.eu/eurostat/databrowser/view/TRNG_LFSE_01__custom_4665066/bookmark/table?lang=en&bookmarkId=d88f7aa3-5cfa-4bfa-a913-3e92a647ee06
Data on the unemployment and employment rate in Belgium:
https://ec.europa.eu/eurostat/cache/recovery-dashboard/
To what extent do existing labor market institutions support or hinder the transition to an inclusive labor market?
10
9
9
Labor market institutions are fully aligned with the goal of an inclusive labor market.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of an inclusive labor market.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of an inclusive labor market.
2
1
1
Labor market institutions are not at all aligned with the goal of an inclusive labor market.
Belgian workers enjoy favorable working conditions, with average annual earnings per full-time employee ranking among the top 10 in OECD countries, according to the OECD Better Life Index initiative (OECD n.d.). During the recent inflationary crisis, workers’ purchasing power was maintained through a system of automatic wage indexation, which helped avoid an inflationary spiral. Consequently, inflation in Belgium remained in line with the OECD average (OECD 2024).
Belgium is also the only remaining EU member state to offer potentially unlimited unemployment benefits. While previous governments have tightened these benefits and implemented mechanisms aligned with active labor market programs, these measures may not have been sufficiently tailored, as some adverse consequences have been noted (De Brouwer et al. 2023).
A significant weakness of the Belgian labor market is its poor performance in integrating non-native and second-generation migrants. One main issue is the need for extensive linguistic skills: Belgium has three official languages, and a good command of English is also a major requirement in and around Brussels due to the presence of international institutions.
According to Eurostat, Belgium exhibits lower income inequality, reflected in a Gini coefficient below 0.25, and a lower risk of poverty or social exclusion (18.7%) compared to the EU average (around 0.3 and 21.6%, respectively) in 2022. The extensive redistribution and social safety net in Belgium rank the country among the top five OECD performers in terms of the lowest poverty gap after taxes and transfers, redistribution strength, and cash minimum-income benefits (OECD 2023).
Despite these achievements, challenges persist in the labor market performance of women and immigrants. High implicit tax rates on low-wage earners pose barriers for low-skilled second earners, who are typically women. Additionally, the OECD highlights limited participation in lifelong learning among low-educated, low-income groups, and individuals with disabilities, contributing to low employment rates and labor mobility (OECD 2023).
Citations:
- OECD. n.d. “OECD Better Life Index: Belgium.” https://www.oecdbetterlifeindex.org/countries/belgium/
- OECD. 2024. “Inflation (CPI) (Indicator).” doi: 10.1787/eee82e6e-en
De Brouwer, O., E. Leduc, and I. Tojerow. 2023. “The Consequences of Job Search Monitoring for the Long-Term Unemployed: Disability Instead of Employment?” Journal of Public Economics 224: 104,929.
Gini coefficients : https://ec.europa.eu/eurostat/databrowser/view/ilc_di12/default/table?lang=en
Persons at risk of poverty or social exclusion by age and sex: https://ec.europa.eu/eurostat/databrowser/view/ILC_PEPS01N__custom_9025298/default/table?lang=en
OECD. 2023. “Belgium.” In Economic Policy Reforms 2023: Going for Growth. Paris: OECD Publishing.
DOI: https://doi.org/10.1787/b5f1297c-en
Graph on the public expenditure, as a percentage of GDP, on active and passive labor market policies in 2020: https://www.oecd.org/employment/activation.htm
Belgium is also the only remaining EU member state to offer potentially unlimited unemployment benefits. While previous governments have tightened these benefits and implemented mechanisms aligned with active labor market programs, these measures may not have been sufficiently tailored, as some adverse consequences have been noted (De Brouwer et al. 2023).
A significant weakness of the Belgian labor market is its poor performance in integrating non-native and second-generation migrants. One main issue is the need for extensive linguistic skills: Belgium has three official languages, and a good command of English is also a major requirement in and around Brussels due to the presence of international institutions.
According to Eurostat, Belgium exhibits lower income inequality, reflected in a Gini coefficient below 0.25, and a lower risk of poverty or social exclusion (18.7%) compared to the EU average (around 0.3 and 21.6%, respectively) in 2022. The extensive redistribution and social safety net in Belgium rank the country among the top five OECD performers in terms of the lowest poverty gap after taxes and transfers, redistribution strength, and cash minimum-income benefits (OECD 2023).
Despite these achievements, challenges persist in the labor market performance of women and immigrants. High implicit tax rates on low-wage earners pose barriers for low-skilled second earners, who are typically women. Additionally, the OECD highlights limited participation in lifelong learning among low-educated, low-income groups, and individuals with disabilities, contributing to low employment rates and labor mobility (OECD 2023).
Citations:
- OECD. n.d. “OECD Better Life Index: Belgium.” https://www.oecdbetterlifeindex.org/countries/belgium/
- OECD. 2024. “Inflation (CPI) (Indicator).” doi: 10.1787/eee82e6e-en
De Brouwer, O., E. Leduc, and I. Tojerow. 2023. “The Consequences of Job Search Monitoring for the Long-Term Unemployed: Disability Instead of Employment?” Journal of Public Economics 224: 104,929.
Gini coefficients : https://ec.europa.eu/eurostat/databrowser/view/ilc_di12/default/table?lang=en
Persons at risk of poverty or social exclusion by age and sex: https://ec.europa.eu/eurostat/databrowser/view/ILC_PEPS01N__custom_9025298/default/table?lang=en
OECD. 2023. “Belgium.” In Economic Policy Reforms 2023: Going for Growth. Paris: OECD Publishing.
DOI: https://doi.org/10.1787/b5f1297c-en
Graph on the public expenditure, as a percentage of GDP, on active and passive labor market policies in 2020: https://www.oecd.org/employment/activation.htm
To what extent do existing labor market institutions support or hinder the mitigation of labor market risks?
10
9
9
Labor market institutions are fully aligned with the goal of protecting individuals against labor market risks.
8
7
6
7
6
Labor market institutions are largely aligned with the goal of protecting individuals against labor market risks.
5
4
3
4
3
Labor market institutions are only somewhat aligned with the goal of protecting individuals against labor market risks.
2
1
1
Labor market institutions are not at all aligned with the goal of protecting individuals against labor market risks.
As mentioned previously the Belgian social welfare system is overall rather generous and extensive. However, the gig economy and its increased importance raise new difficulties for the workers involved and their access to social security. The government following actions by the unions and the concerned workers themselves is trying to legislate on the matter. In October 2022, it adopted new legislation ensuring a presumption of salaried status for delivery drivers of certain platforms and the introduction of an obligation for platforms working with self-employed workers to insure them for work-related accidents. However, these two advances have yet to materialize in concrete achievements. What’s more, these advances are meeting with considerable resistance from the platforms concerned. Deliveroo and Uber Eats, among others, consider that the presumption of salaried status does not apply to them. They have also already gone before the labor court several times, which has so far ruled in their favor each time.
These workers are nonetheless fairly well represented by unions who are at the front battle on these questions. As mentioned previously, unionization rates in Belgium are among the highest in Europe. Nonetheless, the evolution of the labor market makes it sometimes hard for workers to organize. At the same time, unions blame the government of somehow complicating their work by taking steps against them. A recent example of this trend is linked to the decision by Delhaize (a Belgian supermarket group that was created in 1867) to franchise the majority of its stores making collective bargaining more difficult by splitting the workforce. Moreover, when unions acted against this decision, politicians sometimes broke up picket lines with the help of bailiffs, and the courts issued orders banning strikes and even gatherings in the vicinity of the supermarkets concerned.
Citations:
A press article on the overall problem faced by the government with platform companies: https://www.lecho.be/economie-politique/belgique/general/a-l-aube-du-proces-deliveroo-l-etat-toujours-empetre-face-aux-plateformes-de-livraison/10506265.html
Uber contre un chauffeur: https://www.lecho.be/dossier/mobilite/uber-obtient-gain-de-cause-son-chauffeur-n-est-pas-un-salarie/10436529.html
A press article on the Delhaize case: https://www.lesoir.be/530986/article/2023-08-13/delhaize-pourquoi-la-strategie-syndicale-se-radicalise
These workers are nonetheless fairly well represented by unions who are at the front battle on these questions. As mentioned previously, unionization rates in Belgium are among the highest in Europe. Nonetheless, the evolution of the labor market makes it sometimes hard for workers to organize. At the same time, unions blame the government of somehow complicating their work by taking steps against them. A recent example of this trend is linked to the decision by Delhaize (a Belgian supermarket group that was created in 1867) to franchise the majority of its stores making collective bargaining more difficult by splitting the workforce. Moreover, when unions acted against this decision, politicians sometimes broke up picket lines with the help of bailiffs, and the courts issued orders banning strikes and even gatherings in the vicinity of the supermarkets concerned.
Citations:
A press article on the overall problem faced by the government with platform companies: https://www.lecho.be/economie-politique/belgique/general/a-l-aube-du-proces-deliveroo-l-etat-toujours-empetre-face-aux-plateformes-de-livraison/10506265.html
Uber contre un chauffeur: https://www.lecho.be/dossier/mobilite/uber-obtient-gain-de-cause-son-chauffeur-n-est-pas-un-salarie/10436529.html
A press article on the Delhaize case: https://www.lesoir.be/530986/article/2023-08-13/delhaize-pourquoi-la-strategie-syndicale-se-radicalise
Graph View
To what extent do existing tax institutions and procedures support or hinder adequate tax revenue flows?
10
9
9
The tax system is fully aligned with the goals of ensuring adequate tax revenues.
8
7
6
7
6
The tax system is largely aligned with the goals of ensuring adequate tax revenues.
5
4
3
4
3
The tax system is only somewhat aligned with the goals of ensuring adequate tax revenues.
2
1
1
The tax system is not at all aligned with the goals of ensuring adequate tax revenues.
Taxation in Belgium involves the collection of taxes at both the national and local levels. Major federal taxes encompass income tax, social security, corporate taxes, and value-added tax, while local levels involve property and communal taxes. Tax revenue stood at 45.6% of GDP in 2022, the second-highest share following France of the EU according to Eurostat.
The European Semester highlights that high labor taxes discourage work, with the tax burden exceeding the EU average for most wage levels. Some initiatives aim to boost low-wage earners’ net income, but they inadvertently increase the tax rate for lower-middle-income earners, creating a “low-wage trap.” The High Council of Finance suggests a general employment bonus could alleviate this. However, the “low-wage trap” might deter lifelong learning and working longer hours (European Commission 2023).
Belgium, as a small open economy, faces concerns about potential capital outflow if it opts for taxation. In the pursuit of attracting capital and fostering investment, the country maintains numerous tax loopholes and exemptions to reduce distortionary incentives or to stimulate entrepreneurship. Notably, Belgium ranks 16th in the 2021 Corporate Tax Haven Index by the Tax Justice Network, citing issues in Tax Court Transparency and the existence of loopholes, contributing to corporate taxation avoidance for both income and capital. The European Semester also stresses the complexity of capital taxation leading to distortions in investment behavior (European Commission 2023).
The current government aims to address benefit fraud and tax evasion (the first one, as often, being smaller by a sizable amount), but these efforts are considered inadequate by a prominent judge. The judge advocates for bolstering resources in administration and the judiciary, simplifying rules, and eliminating potential gaps and loopholes (see press article).
Finally, the current government was planning a significant tax reform to mitigate the discouraging effects of labor taxation. However, disagreements among the diverse partners in the (broad) government coalition have resulted in a deferral of the reform to the next legislature or, possibly, indefinitely.
Citations:
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_revenue_statistics#Tax_revenue-to-GDP_ratio:_France.2C_Belgium_and_Austria_show_the_highest_ratios
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Belgium’s report for the Corporate Tax Haven Index by the Tax Justice Network: https://cthi.taxjustice.net/en/cthi/profiles?country=BE
A press article on the measures taken by the government deemed insufficient by a judge: https://www.brusselstimes.com/514132/is-belgium-doing-enough-to-fight-tax-evasion
A press article on the failed tax reform: https://www.lesoir.be/526311/article/2023-07-18/reforme-fiscale-la-vivaldi-renonce
The European Semester highlights that high labor taxes discourage work, with the tax burden exceeding the EU average for most wage levels. Some initiatives aim to boost low-wage earners’ net income, but they inadvertently increase the tax rate for lower-middle-income earners, creating a “low-wage trap.” The High Council of Finance suggests a general employment bonus could alleviate this. However, the “low-wage trap” might deter lifelong learning and working longer hours (European Commission 2023).
Belgium, as a small open economy, faces concerns about potential capital outflow if it opts for taxation. In the pursuit of attracting capital and fostering investment, the country maintains numerous tax loopholes and exemptions to reduce distortionary incentives or to stimulate entrepreneurship. Notably, Belgium ranks 16th in the 2021 Corporate Tax Haven Index by the Tax Justice Network, citing issues in Tax Court Transparency and the existence of loopholes, contributing to corporate taxation avoidance for both income and capital. The European Semester also stresses the complexity of capital taxation leading to distortions in investment behavior (European Commission 2023).
The current government aims to address benefit fraud and tax evasion (the first one, as often, being smaller by a sizable amount), but these efforts are considered inadequate by a prominent judge. The judge advocates for bolstering resources in administration and the judiciary, simplifying rules, and eliminating potential gaps and loopholes (see press article).
Finally, the current government was planning a significant tax reform to mitigate the discouraging effects of labor taxation. However, disagreements among the diverse partners in the (broad) government coalition have resulted in a deferral of the reform to the next legislature or, possibly, indefinitely.
Citations:
https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Tax_revenue_statistics#Tax_revenue-to-GDP_ratio:_France.2C_Belgium_and_Austria_show_the_highest_ratios
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Belgium’s report for the Corporate Tax Haven Index by the Tax Justice Network: https://cthi.taxjustice.net/en/cthi/profiles?country=BE
A press article on the measures taken by the government deemed insufficient by a judge: https://www.brusselstimes.com/514132/is-belgium-doing-enough-to-fight-tax-evasion
A press article on the failed tax reform: https://www.lesoir.be/526311/article/2023-07-18/reforme-fiscale-la-vivaldi-renonce
To what extent do existing tax institutions and procedures consider equity aspects?
10
9
9
The tax system is fully aligned with the goal of ensuring equity.
8
7
6
7
6
The tax system is largely aligned with the goal of ensuring equity.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of ensuring equity.
2
1
1
The tax system is not at all aligned with the goal of ensuring equity.
By OECD standards, Belgium’s tax structure is relatively inequitable. The tax base is too narrow, placing excessive pressure on labor income. For over two decades, Belgium has had the OECD’s highest effective tax and social security wedge on labor, although this is gradually decreasing (see OECD data). This heavy burden on labor income creates incentives for tax avoidance and evasion. Conversely, much capital income (e.g., housing rents, capital gains, and some multinationals’ profits) is either inefficiently taxed or not taxed at all. Additionally, the widespread adoption of tax deductions and specific tax programs results in inefficiencies and distortions. Consequently, while horizontal and vertical equity within each income source (i.e., labor, capital, and corporate income) are theoretically guaranteed, differential treatment and a lack of information undermine this principle in practice.
Citations:
Tax wedge – OECD data: https://data.oecd.org/tax/tax-wedge.htm
Citations:
Tax wedge – OECD data: https://data.oecd.org/tax/tax-wedge.htm
To what extent do existing tax institutions and procedures minimize compliance and collection costs?
10
9
9
The tax system is fully aligned with the goal of minimizing compliance and collection costs.
8
7
6
7
6
The tax system is largely aligned with the goal of minimizing compliance and collection costs.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of minimizing compliance and collection costs.
2
1
1
The tax system is not at all aligned with the goal of minimizing compliance and collection costs.
Tax collection in Belgium is largely automated, with individual tax statements predominantly pre-filled with data from the tax authorities. If this information is accurate, individuals have no further action to take. However, if the data is incorrect or incomplete, the process becomes more complex. Despite efforts by the authorities to simplify tax returns by reducing the number of codes and entries, the total remains high, making tax returns challenging to complete and understand for the average taxpayer.
Additionally, the numerous existing deductions and tax schemes are not only costly for the budget but also tend to create inefficiencies. For example, the extensive use of reduced VAT rates and exemptions heightens the risk of VAT noncompliance.
Citations:
https://www.lecho.be/monargent/impots/declaration-fiscale/comment-remplir-votre-declaration-fiscale-en-2023/10306608.html
https://www.lesoir.be/516131/article/2023-05-29/tout-le-monde-nest-pas-capable-de-verifier-sa-declaration-dimpots
Additionally, the numerous existing deductions and tax schemes are not only costly for the budget but also tend to create inefficiencies. For example, the extensive use of reduced VAT rates and exemptions heightens the risk of VAT noncompliance.
Citations:
https://www.lecho.be/monargent/impots/declaration-fiscale/comment-remplir-votre-declaration-fiscale-en-2023/10306608.html
https://www.lesoir.be/516131/article/2023-05-29/tout-le-monde-nest-pas-capable-de-verifier-sa-declaration-dimpots
To what extent do existing tax institutions and procedures internalize negative and positive externalities?
10
9
9
The tax system is fully aligned with the goal of internalizing externalities.
8
7
6
7
6
The tax system is largely aligned with the goal of internalizing externalities.
5
4
3
4
3
The tax system is only somewhat aligned with the goal of internalizing externalities.
2
1
1
The tax system is not at all aligned with the goal of internalizing externalities.
Belgium performs moderately well in terms of environmental taxes. In 2021, revenues from environmental taxes were above the European average, constituting 2.49% of GDP compared to the EU average of 2.24%. Energy taxes were the primary component, accounting for 1.77% of GDP, closely aligning with the EU average of 1.76%. Transport taxes made up 0.62% of GDP, surpassing the EU average of 0.41%, while taxes on pollution and resources amounted to only 0.11%, slightly exceeding the EU average of 0.08%. Environmental taxes represented 5.72% of total tax revenue, higher than the EU average of 5.52%. Despite this, some significant shortcomings remain. According to a report in the Flemish newspaper De Standaard, Belgium allocated €2.79 billion in subsidies for diesel fuel sales, with a substantial portion benefiting foreign companies. Fossil fuel subsidies are estimated at €13 billion, or 2.8% of GDP, leading one expert to assert that “in Belgium, we subsidize fossil fuels more than we tax them” (see press article). Regarding research and innovation, following the 2002 Barcelona European Council meeting, the Belgian federal government implemented tax incentives to bolster business R&D starting in 2005. These tax benefits, in addition to significant direct support (subsidies) from the three Belgian regions, included partial exemption from withholding tax on R&D personnel wages and tax credits for R&D investment and patent income deduction. The popularity of these incentives grew steadily, resulting in substantial budgetary costs, reaching €2,782 million in 2019 (0.59% of GDP), primarily driven by an increase in corporate income taxation benefits. Dumont (2022) suggests that certain corporate tax incentives may lead firms to reduce their own R&D spending. Given the significant portion of budgetary costs for supporting business R&D, enhancing the efficiency of R&D tax incentives by implementing a cap on total public support is recommended.
Citations:
Share of environmental taxes in total tax revenues: https://ec.europa.eu/eurostat/databrowser/view/SDG_17_50/default/table?lang=en
Environmental tax revenues: https://ec.europa.eu/eurostat/databrowser/view/env_ac_tax/default/table?lang=en
Press article on diesel subsidies: https://www.standaard.be/cnt/dmf20230731_97443573
Press article on environmental taxation:
https://www.lesoir.be/art/d-20230616-H02P2D?referer=%2Farchives%2Frecherche%3Fdatefilter%3Dlastyear%26sort%3Ddate%2Bdesc%26word%3Destelle%2Bcantillon
Dumont, M. 2022. Public Support to Business Research and Development in Belgium-Fourth evaluation. Federal Planning Bureau. https://www.plan.be/publications/publication-2305-en-public_support_to_business_research_development_in_belgium_fourth_evaluation
Citations:
Share of environmental taxes in total tax revenues: https://ec.europa.eu/eurostat/databrowser/view/SDG_17_50/default/table?lang=en
Environmental tax revenues: https://ec.europa.eu/eurostat/databrowser/view/env_ac_tax/default/table?lang=en
Press article on diesel subsidies: https://www.standaard.be/cnt/dmf20230731_97443573
Press article on environmental taxation:
https://www.lesoir.be/art/d-20230616-H02P2D?referer=%2Farchives%2Frecherche%3Fdatefilter%3Dlastyear%26sort%3Ddate%2Bdesc%26word%3Destelle%2Bcantillon
Dumont, M. 2022. Public Support to Business Research and Development in Belgium-Fourth evaluation. Federal Planning Bureau. https://www.plan.be/publications/publication-2305-en-public_support_to_business_research_development_in_belgium_fourth_evaluation
Graph View
To what extent do existing budgetary institutions and procedures support or hinder sustainable budgeting?
10
9
9
Budgetary institutions and policies are fully aligned with the goals of sustainable budgeting.
8
7
6
7
6
Budgetary institutions and policies are largely aligned with the goals of sustainable budgeting.
5
4
3
4
3
Budgetary institutions and policies are only somewhat aligned with the goals of sustainable budgeting.
2
1
1
Budgetary institutions and policies are not at all aligned with the goals of sustainable budgeting.
Belgium’s public debt-to-GDP ratio exhibited improvement post-2016, briefly dipping below 100% before surging to almost 112% in 2020 due to the COVID-19 crisis. Although it has since decreased (estimated at 104.3% in 2022), international institutions, including the European Commission, express high medium- and long-term risks for Belgian public finances. Despite an already elevated debt-to-GDP ratio surpassing the EU average, projections indicate a further increase in the medium term. This anticipated rise prompted Fitch to downgrade Belgium’s rating in March 2023, though the overall rating remains relatively favorable (see Belgian debt agency website).
The European Commission’s debt sustainability analysis emphasizes the necessity for significant structural consolidation efforts to stabilize public debt, particularly addressing challenges linked to population aging (European Commission 2022). The 2022 annual report of the Study Committee on Aging forecasts that the budgetary cost of aging will increase by 5 percentage points of GDP between 2022 and 2070, mainly due to rises in spending on pensions and healthcare of 2.6 and 2.8 percentage points, respectively (Conseil Supérieur des Finances 2023).
The European Semester has noted that the full implementation of the 2013 Cooperation Agreement is still pending, affecting the credibility of the overall fiscal consolidation path. The commission emphasizes that Belgium’s medium-term budgetary framework falls short of the EU average, lacking a comprehensive multiannual fiscal plan at the national level. Current fiscal rules apply to the federal government, social security sector, and local authorities, but not to the regional level, despite their significant expenditure. Flanders is an exception, as its 2022-2027 multiannual budget incorporates a spending norm for the first time (European Commission 2022).
While the bulk of public debt resides at the federal level, escalating debt ratios at the regional level raise concerns. Revenue autonomy plays a crucial role in debt sustainability, and the federal government possesses more tools in this regard compared to the regions and communities, which lack significant taxation powers. Belgium is also missing green budgetary practices that could improve the budget’s transparency and accountability toward green objectives.
Citations:
Government deficit/surplus, debt and associated data: https://ec.europa.eu/eurostat/databrowser/view/gov_10dd_edpt1__custom_9043607/default/table?lang=en
https://www.debtagency.be/en/datafederalstaterating
European Commission. 2022. Fiscal Sustainability Report 2021 Volume 2 – Country Analysis. Institutional Paper 171. Brussels. doi:10.2765/12529
Conseil Supérieur des Finances. 2023. Comité d’Etude sur le Vieillissement - Rapport annuel 2023. Technical report.
https://trends.levif.be/a-la-une/politique-economique/dans-cinq-ans-la-belgique-pourrait-se-retrouver-dans-le-trio-de-tete-des-pays-de-la-zone-euro-ayant-le-taux-dendettement-le-plus-eleve/
The European Commission’s debt sustainability analysis emphasizes the necessity for significant structural consolidation efforts to stabilize public debt, particularly addressing challenges linked to population aging (European Commission 2022). The 2022 annual report of the Study Committee on Aging forecasts that the budgetary cost of aging will increase by 5 percentage points of GDP between 2022 and 2070, mainly due to rises in spending on pensions and healthcare of 2.6 and 2.8 percentage points, respectively (Conseil Supérieur des Finances 2023).
The European Semester has noted that the full implementation of the 2013 Cooperation Agreement is still pending, affecting the credibility of the overall fiscal consolidation path. The commission emphasizes that Belgium’s medium-term budgetary framework falls short of the EU average, lacking a comprehensive multiannual fiscal plan at the national level. Current fiscal rules apply to the federal government, social security sector, and local authorities, but not to the regional level, despite their significant expenditure. Flanders is an exception, as its 2022-2027 multiannual budget incorporates a spending norm for the first time (European Commission 2022).
While the bulk of public debt resides at the federal level, escalating debt ratios at the regional level raise concerns. Revenue autonomy plays a crucial role in debt sustainability, and the federal government possesses more tools in this regard compared to the regions and communities, which lack significant taxation powers. Belgium is also missing green budgetary practices that could improve the budget’s transparency and accountability toward green objectives.
Citations:
Government deficit/surplus, debt and associated data: https://ec.europa.eu/eurostat/databrowser/view/gov_10dd_edpt1__custom_9043607/default/table?lang=en
https://www.debtagency.be/en/datafederalstaterating
European Commission. 2022. Fiscal Sustainability Report 2021 Volume 2 – Country Analysis. Institutional Paper 171. Brussels. doi:10.2765/12529
Conseil Supérieur des Finances. 2023. Comité d’Etude sur le Vieillissement - Rapport annuel 2023. Technical report.
https://trends.levif.be/a-la-une/politique-economique/dans-cinq-ans-la-belgique-pourrait-se-retrouver-dans-le-trio-de-tete-des-pays-de-la-zone-euro-ayant-le-taux-dendettement-le-plus-eleve/
Graph View
How committed is the government to utilizing research and innovation as drivers for the transition to a sustainable economy and society?
10
9
9
The government is clearly committed to utilizing research and innovation as drivers for the transition to a sustainable economy and society.
8
7
6
7
6
The government is largely committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
5
4
3
4
3
The government is somewhat committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
2
1
1
The government is not at all committed to utilizing research and innovation as drivers for the transition toward a sustainable economy and society.
Belgium’s R&D policy is shared between the central government, which can offer tax incentives, and the subnational (regional and community) governments, which manage European subsidies and support university R&D and related projects. This arrangement increases subnational accountability but hampers coordination and limits economies of scale.
Since the onset of the financial crisis in 2007, general investment levels across the European Union have either declined or remained stable. However, Belgium has comparatively withstood this negative trend. The Gross Domestic Expenditure on R&D (GERD) as a share of GDP in Belgium increased from 1.85% in 2007 to 3.43% in 2022, one of the highest rates alongside Sweden (Eurostat data). Dumont (2022) points out that this increase began in 2005 with the introduction of tax incentives by the federal government, leading to a sustained rise in business enterprise investments in R&D. However, government and higher education expenditures on R&D have remained relatively low. The author concludes that while there has been a clear rise in applied research and experimental development by companies, this has not been matched by an increase in basic research by higher education and government institutes. Despite the chronic underfunding of higher education and government institutes, Belgium performs exceptionally well on the “Attractive Research Systems” dimension of the European Innovation Scoreboard. In 2023, Belgium’s performance was well above the EU average in indicators such as the number of international scientific co-publications, the number of scientific publications among the top 10% most cited, and the number of foreign doctorate students (European Commission DG-R&D, 2023). The report ranks Belgium among the top-performing countries in the European Union in terms of innovation, alongside Denmark, Finland, and Sweden. Other strengths highlighted by the report include “Innovative SMEs collaborating with others,” “Enterprises providing ICT training,” and “Public-private co-publications.” However, the European Semester points to a potentially low contribution of the Belgian private sector in terms of R&D for environmental sustainability. This is evidenced by the low share of environment-related patents in total Belgian patent applications. Additionally, there is a lack of business dynamism in the innovation ecosystem, as indicated by low business creation and destruction rates (European Commission 2023).
Citations:
Eurostat. “Dataset: Intramural R&D expenditure (GERD) by sectors of performance and source of funds [rd_e_gerdfund].” https://ec.europa.eu/eurostat/databrowser/view/rd_e_gerdfund__custom_9137463/default/table?lang=en
Dumont, M. 2022. Public Support to Business Research and Development in Belgium-Fourth Evaluation. Federal Planning Bureau. https://www.plan.be/publications/publication-2305-en-public_support_to_business_research_development_in_belgium_fourth_evaluation
European Commission, Directorate-General for Research and Innovation. 2023. European Innovation Scoreboard 2023. Publications Office of the European Union. https://data.europa.eu/doi/10.2777/119961
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Since the onset of the financial crisis in 2007, general investment levels across the European Union have either declined or remained stable. However, Belgium has comparatively withstood this negative trend. The Gross Domestic Expenditure on R&D (GERD) as a share of GDP in Belgium increased from 1.85% in 2007 to 3.43% in 2022, one of the highest rates alongside Sweden (Eurostat data). Dumont (2022) points out that this increase began in 2005 with the introduction of tax incentives by the federal government, leading to a sustained rise in business enterprise investments in R&D. However, government and higher education expenditures on R&D have remained relatively low. The author concludes that while there has been a clear rise in applied research and experimental development by companies, this has not been matched by an increase in basic research by higher education and government institutes. Despite the chronic underfunding of higher education and government institutes, Belgium performs exceptionally well on the “Attractive Research Systems” dimension of the European Innovation Scoreboard. In 2023, Belgium’s performance was well above the EU average in indicators such as the number of international scientific co-publications, the number of scientific publications among the top 10% most cited, and the number of foreign doctorate students (European Commission DG-R&D, 2023). The report ranks Belgium among the top-performing countries in the European Union in terms of innovation, alongside Denmark, Finland, and Sweden. Other strengths highlighted by the report include “Innovative SMEs collaborating with others,” “Enterprises providing ICT training,” and “Public-private co-publications.” However, the European Semester points to a potentially low contribution of the Belgian private sector in terms of R&D for environmental sustainability. This is evidenced by the low share of environment-related patents in total Belgian patent applications. Additionally, there is a lack of business dynamism in the innovation ecosystem, as indicated by low business creation and destruction rates (European Commission 2023).
Citations:
Eurostat. “Dataset: Intramural R&D expenditure (GERD) by sectors of performance and source of funds [rd_e_gerdfund].” https://ec.europa.eu/eurostat/databrowser/view/rd_e_gerdfund__custom_9137463/default/table?lang=en
Dumont, M. 2022. Public Support to Business Research and Development in Belgium-Fourth Evaluation. Federal Planning Bureau. https://www.plan.be/publications/publication-2305-en-public_support_to_business_research_development_in_belgium_fourth_evaluation
European Commission, Directorate-General for Research and Innovation. 2023. European Innovation Scoreboard 2023. Publications Office of the European Union. https://data.europa.eu/doi/10.2777/119961
European Commission. 2023. “2023 European Semester: Country Report – Belgium.” Brussels. Available at: https://economy-finance.ec.europa.eu/publications/2023-european-semester-country-reports_en#details
Graph View
How committed and credible is the government in its activities to guide the effective regulation and supervision of the international financial architecture?
10
9
9
The government is clearly committed to ensuring the stability of the global financial system.
8
7
6
7
6
The government is largely committed to ensuring the stability of the global financial system.
5
4
3
4
3
The government is somewhat committed to ensuring the stability of the global financial system.
2
1
1
The government is not at all committed to ensuring the stability of the global financial system.
During the global financial and economic Crisis of 2008, Belgian banks suffered extensively. The Belgian government was more proactive than many of its European counterparts in restructuring banks. However, Belgium’s size limits its ability to restore financial stability independently. Some of the largest Belgian banks are structurally linked to other European banks or have become subsidiaries of larger banks headquartered in neighboring countries, such as ING and BNP Paribas. This situation has led the government to promote international efforts to restore financial stability and combat financial fraud and tax evasion. Despite repeated initiatives to recover revenues lost through tax evasion involving banks in countries like Luxembourg, Belgium remains at a disadvantage.
Belgium actively participated in the creation of the so-called banking union in the euro zone and has sought to improve banking supervision domestically. Various scandals, such as the Panama and Paradise papers, have given new impetus to the government’s efforts to improve banking transparency. Belgian investigative journalists played a crucial role in these projects, working alongside peers from other countries.
In October 2018, Belgium’s judiciary was granted comprehensive access to citizens’ financial records to enhance the fight against financial criminal activities. Previously, investigators could only access citizens’ financial information through banks and credit institutions.
However, some limitations persist. The Tax Justice Network, while highlighting Belgium’s tax haven behavior, also ranks Belgium 26th in terms of financial secrecy, just below Saudi Arabia and above Ireland.
Citations:
http://plus.lesoir.be/118686/article/2017-10-11/panama-papers-les-socialistes-maintiennent-la-pression
http://plus.lesoir.be/123189/article/2017-11-08/paradise-papers-meme-letat-belge-senvole-aux-ilesvierges#123186
https://www.lecho.be/economie-politique/belgique/federal/la-justice-aura-desormais-acces-a-toutes-lespistes-financieres/10064659.html
https://fsi.taxjustice.net/
Belgium actively participated in the creation of the so-called banking union in the euro zone and has sought to improve banking supervision domestically. Various scandals, such as the Panama and Paradise papers, have given new impetus to the government’s efforts to improve banking transparency. Belgian investigative journalists played a crucial role in these projects, working alongside peers from other countries.
In October 2018, Belgium’s judiciary was granted comprehensive access to citizens’ financial records to enhance the fight against financial criminal activities. Previously, investigators could only access citizens’ financial information through banks and credit institutions.
However, some limitations persist. The Tax Justice Network, while highlighting Belgium’s tax haven behavior, also ranks Belgium 26th in terms of financial secrecy, just below Saudi Arabia and above Ireland.
Citations:
http://plus.lesoir.be/118686/article/2017-10-11/panama-papers-les-socialistes-maintiennent-la-pression
http://plus.lesoir.be/123189/article/2017-11-08/paradise-papers-meme-letat-belge-senvole-aux-ilesvierges#123186
https://www.lecho.be/economie-politique/belgique/federal/la-justice-aura-desormais-acces-a-toutes-lespistes-financieres/10064659.html
https://fsi.taxjustice.net/