Interregional transfers and solidarity mechanisms via the government budget

The article examines transfers between regions via the central government budget, referring essentially to the regional household accounts published by the National Accounts Institute. It examines only the aspects concerning allocation between the regions of that part of government revenue and expenditure for which there is no direct counter-consideration. The Flemish Region is currently a net contributor to transfers between regions via the central government budget, whereas the Walloon Region is a net recipient. The Brussels Capital Region also makes a net contribution, though only a small one. These transfers between regions are due largely to variations in the contributions of each region to government revenues. In the case of households, the contribution of the Flemish Region exceeds that of the other two regions; for businesses, it is the Brussels Capital Region that makes the largest contribution. In addition, these transfers originate from the regional allocation of social benefits. Thus, unemployment benefits entail transfers from the Flemish Region to the Walloon Region and the Brussels Capital Region. In contrast, transfers between the regions via pensions currently favour the Flemish Region. In regard to health care expenditure, there are hardly any transfers between the regions at present. Projections also show the importance of both the expected demographic trends and labour market developments for the future pattern of transfers between regions. The influence of demographic trends is most favourable for the Brussels Capital Region and least favourable for the Flemish Region. This is likely to increase the net contribution from the former while the latter’s net contribution will decline, even if the current labour market divergences largely persist in the future. In contrast, in the event of full convergence of employment levels, the inter-regional transfers paid by the Flemish Region would actually disappear altogether, and the Brussels Capital Region would become the sole net contributor, though in that case the inter-regional transfers received by the Walloon Region would decline sharply. Finally, international comparison shows that transfers between regions are relatively small in Belgium, compared to what is seen in other EU Member States.