Analysis of policies for restoring sound Belgian public finances

The article compares the fiscal consolidation effort currently being made in Belgium with two other periods of consolidation : the first in the 1980s and a second one in the 1990s. In the first part, the periods of budget restructuring are determined on the basis of changes in the structural financing balance. The second part compares the economic and politico-institutional context in which fiscal consolidation measures were adopted. The third part gives a brief overview of the main measures. The fourth part takes a closer look at the various instruments used for implementing the fiscal consolidation policy and describes the impact they have had. The fifth part explains the consequences of budget restructuring policies on public debt and on interest rates. The first period, which started in 1982 and lasted until 1987, is noteworthy for having begun at a time of recession and major imbalances in the Belgian economy, including a substantial government borrowing requirement. The rigorous restructuring effort made at the time was based on deep cuts in public expenditure and a limited increase in government revenues. The second period, which ran from 1993 to 1998, also started with a recession. The consolidation that took place during this period was achieved mainly through an increase in revenues, but also helped by a reduction in interest charges. The third consolidation period came in the wake of the economic and financial crisis and began back in 2011. This consolidation period was initially characterised by an increase in government revenues, but since 2015 the emphasis has shifted onto cutting expenditure. Moreover, interest charges have continued to shrink thanks to the fall in interest rates. The analysis of the restructuring policies followed since the early 1980s shows that fiscal consolidations have always begun in periods of low economic activity. Likewise, they are always accompanied by structural reforms. Competitiveness has thus recovered and employment has been boosted. Particular attention has also been paid to the financial sustainability of the social security system, not least through the adoption of pension reforms. As regards the current consolidation period, the major restructuring efforts underway are still relatively limited compared with efforts made during the previous two restructuring periods. However, the present fiscal consolidation programme is taking place in more difficult conditions, taking account of lower potential growth, high fiscal and parafiscal pressure, low public sector investment and rising costs of population ageing. So, extra measures still need to be taken as part of the ongoing fiscal consolidation in order to restore a structural budget balance.