In 2024, the European Union reached an agreement on a new European fiscal framework. This was essential given that risks to the sustainability of public finances have increased significantly in several European countries, including Belgium. The previous fiscal framework was suspended from 2020 to 2023 due to the Covid-19 and energy crises and, according to the European Commission (EC), was in need of revision.

Tight fiscal policy targets for Belgium

Under the new fiscal framework, Belgium should aim for a structural deficit of 1.6 % of GDP by 2028 or 1.3 % of GDP by 2031, assuming adequate structural reforms and investments are agreed upon. Expressed in terms of an expenditure benchmark, nominal net primary expenditure should grow by no more than 2.0 % or 2.5 % per year on average, under the four-year and seven-year adjustment periods, respectively.

The new European fiscal framework tightens up Belgium’s fiscal policy targets. This is urgently required. Indeed, according to the Federal Planning Bureau (FPB), were fiscal policy to remain unchanged, the structural deficit would rise to 5.5 % of GDP in 2028 and nominal expenditure would increase on average by 3.2 % per year. As a result, an already high debt ratio would continue to grow.

Substantial fiscal consolidation is needed to meet the new fiscal target. The European Commission will assess Belgium solely on compliance with the expenditure benchmark. Any potential (negative or positive) feedback effects stemming from fiscal consolidation measures or reforms will not affect the net primary expenditure growth rate benchmark or compliance with it.

All government entities will have to save, but some more than others

The expenditure benchmark should be allocated across the various levels of government in Belgium. In the absence of a hierarchy between them, a negotiated agreement will be required. The High Council of Finance made a proposal for allocation of the expenditure benchmark in an advice issued in July.

If we compare the proposed expenditure growth rate per entity in the seven-year scenario with that projected by the FPB under a scenario in which fiscal policy remains unchanged, the Brussels-Capital Region will have to reduce expenditure growth by ten percentage points over the next five years, and the federal government by eight percentage points. The French Community will also have to make a significant reduction of five percentage points. For the Walloon Region and the Flemish Community, the realisation, by the end of the legislative term, of savings already agreed upon would be sufficient (according to the FPB’s estimates).