Remarks by Angel Gurría, OECD Secretary-General.
Brussels, 4 February 2015
(As prepared for delivery)
Prime Minister, Ambassador, Ladies and Gentlemen:
It is a great pleasure to be in Brussels to present the latest OECD Economic Survey of Belgium.
Belgium has withstood the crisis relatively well
In these difficult times, Belgium keeps doing well!
Belgium is one of the few euro area countries where GDP has already surpassed pre-crisis levels. Also, general well-being is above the average of OECD countries. When looking at the various dimensions of well-being – economic, social or environmental – Belgium has a strong performance in almost all of them. Remarkably, despite the crisis, income inequality has remained relatively low compared to other OECD countries.
In addition the crisis was not “wasted”: we could even say that the successive governments have taken advantage of the crisis context to undertake important reforms in various areas. Concerning pensions and the labour market, the measures taken in 2012 and those that have been or will be introduced by the new government will limit early retirement and support job search by older unemployed workers. The budget framework has also been improved. Budget reporting has become more complete and transparent, and the independent High Council of Finance will now have a bigger role in monitoring compliance with fiscal targets.
Finally, we are following with great interest the developments on the wage agreement between employers' organisations and some of the unions. Recent plans announced by the government, particularly on expenditure control, and reflections on what you call the "tax shift" are also largely consistent with our recommendations. You have a more favorable economic environment than many other European countries, and this should allow you, with reasonable effort, to quickly become part of the best performers.
Important challenges remain
There is no room for complacency though. Economic growth, foreseen at 1.4% in 2015 and 1.7% in 2016, remains weak and insufficient to significantly lower unemployment. Belgium performs relatively well compared to other euro area countries, with an unemployment rate foreseen at 8.4% in 2015 compared to over 11% for the euro area. However, unemployment remains high relative to the average of OECD countries, which is expected to fall below 7% towards the end of 2015.
Re-establishing sustainable and inclusive growth in the long term requires further progress in a number of areas, since important difficulties remain I think that the Belgian authorities are well aware of this. I believe that the Belgian people are well aware of this too.
First, as public debt has been growing and is now again above 100% of GDP, public debt sustainability is not assured without additional consolidation measures. In particular, ageing costs are a major threat to sustainability. Higher growth than currently expected would improve the situation, but consolidation would nevertheless be unavoidable.
Second, high labour costs hamper the overall competitiveness of Belgian firms. Budget revenues are too reliant on labour taxation. Income tax and social contributions paid on wages are, for many family types, the highest in the OECD. This increases costs for firms and decreases employment, especially among vulnerable groups, such as low-skilled workers. Besides raising costs, labour taxes thus also contribute to inequality by increasing unemployment among the weakest.
Moreover, the fast wage growth before the crisis was not fully justified by productivity gains. Although several measures have been taken recently, the accumulated gap in competitiveness with neighbouring countries remains.
Third, the labour market integration of the foreign-born is poor. Only about half of working-age immigrants have a job. Among women born outside the EU, the employment rate is below 40%. Problems often start at school. The PISA survey conducted by the OECD indicates that the gap in performance between children of natives and children of immigrants is one of the highest in the OECD.
And fourth, the adequacy and affordability of the housing market have deteriorated. Especially people with low incomes are in a difficult position as they face high rents in the private rental market and long waiting lists for social housing.
Ways forward to support growth and equity
What can be done to overcome these challenges? Allow me to highlight a few recommendations contained in our Economic Survey.
To ensure debt sustainability, fiscal consolidation should rely more on spending restraints. In particular, pension reform is essential to contain upcoming spending. The effective retirement age in Belgium needs to increase as it is still among the lowest in the OECD. We recommend to restrict early retirement and other routes for early labour market exit. We also recommend more activation efforts to help older workers stay at work, or return to work.
Employment and growth would benefit from lower labour costs. To this extent, we recommend to give productivity developments in Belgium a greater weight in the wage formation process. Reducing labour taxes would also be beneficial. The lost revenue could be compensated by raising taxes that are less harmful to growth, such as consumption and environmental taxes. Higher taxes on capital income, such as capital gains, could also be considered.
To improve immigrants’ employment prospects, targeted measures are important. An example is expanding diversity plans in firms. But equally important are general reforms, of benefit not only to immigrants but to Belgium as whole. For instance, our recommendations highlight many ways to make the education system more equitable, such as reducing the concentration of disadvantaged students in certain schools or improving the training and incentives for teachers at disadvantaged schools.
Regarding housing, our main recommendation is to increase public support for the private rental market. Rental allowances for low-income tenants should be expanded, while at the same time stimulating the supply of rental housing. These measures can be partially financed by reducing fiscal benefits for homeowners, which are highly regressive. We also recommend making cities denser as people have trouble finding good and affordable housing close to their work. In addition, taxation and rental legislation can be made more supportive of renovations, especially when they improve energy-efficiency.
Prime Minister, Ambassador, Ladies and Gentlemen,
Belgium has achieved high levels of well-being, and managed to preserve them throughout the biggest economic crisis in our lives. Well-being depends on economic growth, but also on the ability to share its fruits equitably, so as to preserve social cohesion. This is the goal of the reforms we recommend in this Survey. This is why the OECD will continue to work together with Belgium to design and deliver ‘Better Policies for Better Lives’.