Economist Gert Peersman believes that regions should contribute to saving the federal budget. The Ghent professor argues for a state reform in which the increasing pension costs are partially shifted to the different regions. “This way, the federal government should cut less in social security and reduce tax hikes.”
Belgium is likely to be reprimanded by the European Commission next week due to its soaring budget deficit. Last year, there was a deficit of over 26 billion euros, which is 4.5 percent of the gross domestic product. If nothing changes, the deficit is projected to increase to 6.3 percent, or 45 billion euros by 2029. These figures from the Monitoring Committee exceed the 3 percent norm set by European institutions. Since Belgium fails to meet this norm, a “procedure for an excessive deficit” is likely to be initiated this week to keep our country in check in terms of budget management.
The budget is an overview of the government’s income (e.g., taxes) and expenses (including those for social security). If more money is spent than what is earned, there is a budget deficit. This deficit is compared to the gross domestic product (GDP), which is the value of all goods and services produced by a country in a year.
The next governments of our country have a lot of work ahead to get the finances back in order. The federal government will have to figure out how to reduce the bills that weigh heavily on the budget during the next term. One of the main causes of the growing budget deficit is the sharp rise in pension costs. The aging population is leading to an increasing allocation of pension payouts, which is taking a bigger chunk out of the government budget. Additionally, rising interest expenses mean that the government now has to pay significantly more interest on state debts.
The issue is that both the aging costs and the current deficit are mainly borne by the federal government, according to UGent professor Gert Peersman. The macro-economist believes that the future government has two options to address this: “Increase taxes – but that’s not ideal – and cut social security.” This includes benefits such as pensions. There are not many spending areas at the federal level where cuts can be made. Peersman sees room for cuts at the regional level because they have been relatively well-off in the previous state reforms. Therefore, the professor suggests a state reform where a portion of the federal bill is shifted to the regions. “This way, the federal government can cut less in social security and reduce fewer taxes.”
Whether such a state reform should also involve transferring powers is a political decision, according to Peersman. “You can determine through the funding law that less money goes to the regions, leaving more at the federal level.” “Or you can transfer certain powers to the regions while keeping the income at the federal level.” The professor suggests looking into healthcare, as it is currently spread across both federal and regional levels. Peersman acknowledges that the regions may not favor this idea. However, if there were mirror governments – where the parties from the federal government also sit in the regional governments – he sees possibilities, as otherwise, significant federal budget cuts would be necessary.
Peersman mainly views the reprimand by the European Commission next week as a signal that our country must adhere to the European agreements to safeguard the euro. He anticipates that Europe may allow us to reduce spending slightly in the short term, provided we take measures that will have a favorable long-term impact on economic growth and our budget. For example, a pension reform may not immediately improve the budget, but it will in the long run. Therefore, Gert Peersman concludes with a call to the politicians to swiftly form a government capable of implementing such structural measures, so that less austerity will be necessary, leaving enough room for continued investments. The professor suggests investing in improving the productivity of our companies and government to boost economic growth.