IMF Tells Belgium More Reform Needed as Strike Halts Country

15/12/2014

By Frances Robinson

Belgium has an unfair tax system, needs to be more competitive, and has too many overlapping, complicated layers of government. Sound familiar? Yes, but this time it’s not the European Union saying it: The International Monetary Fund has just concluded its annual review of the country, after a ten-day visit.

The visit was timed perfectly: There’s a general strike today, meaning the streets of Brussels are unusually quiet, except for flag-waving trade unionists, and the air smells faintly of burning tires.

“We end on a rather special day here in Belgium, a day of strikes which I think really feeds importantly into the debate that is taking place on how to reform the Belgian economy so that it can create more jobs and maintain the financial integrity of the social-security system as the population ages,” said Edward Gardner, the IMF’s mission chief for Belgium.

The strikes are a response to the program of economic reforms set out by Prime Minister Charles Michel’s center-right government. This includes gradually raising the pension age to 67 from 2030, and delaying the next wage increase under the country’s system of wage indexation, which links salary increases to inflation. The IMF approved.

“If the program is implemented as stated I would recognize that as a pretty important step, notably in terms of lengthening career lengths which is real issue for Belgium compared to its partners,” Mr. Gardner said. Plus, he added, welfare benefits should be adapted: “Generous access to social transfers contributes to low employment levels notably by facilitating early exit from the labor force.”

Mr. Michel’s government, which was sworn in in October, got a gold star for the pace of structural adjustment to the country’s budget – well, the IMF called it “appropriate” – and they welcomed “the commitment to achieve it by containing current spending while eschewing increases in the overall tax burden.”

Where those taxes fall, however, could be a lot fairer – as the EU, Organization for Economic Co-operation and Development and others have noted. “Some harmonization would be welcome,” he said. “I wouldn’t focus on any specific tax regime but looking at income from capital in all its forms… It’s important to look at that income more globally.”

There’s scope to go further than the government plans in tax reform. “Property taxes could be rebalanced from transaction taxes to recurrent taxes on immovable property,” he suggested. Belgium could look more broadly to indirect taxation, VAT and environmental taxes. “Revenue gains from such reforms would be available to reduce labor taxes further.”

Finally – and again, a lament the government has heard before – there are too many layers to running Belgium. The federal, regional and local governments need to make sure they coordinate, because devolved policies on labor markets “raises the risks that uncoordinated actions and approaches will complicate rather than simplify economic life.”

Let’s hope he can get back: There are currently no flights, trains or buses.

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