5 points of interest for the federal negotiations

Now that the local elections are behind us, talks about a new federal government are being restarted (with a possible delay of a few days to finalize the local coalitions). That is still with the Arizona parties (N-VA, Vooruit, CD&V, MR, Les Engagés) around the table, as there is no viable alternative (unless the PS comes back on board, which is very unlikely) . And perhaps the beginning of these discussions was the ‘super memo’ earlier, which contained a lot about reforms in the labor market, pension reform and tax reform. Below are five points of interest for these federal negotiations:

1. Much larger budget effort

To get the budget back in order, the super memo assumed about 12 billion in savings and counted on more than 19 billion in payback effects from the proposed reforms (each one in 2029 euros). The National Bank has now published a comprehensive analysis of what the new European budget rules mean for Belgium. In short, it means that at the federal level almost twice as many savings are needed and that the government cannot consider itself rich with payback effects. At least according to the National Bank, the budget picture must be renewed, with a much heavier budget effort than has been on the table so far.

2. Strengthening growth potential

The excellent memo was very much aimed at getting more people to work. This has been a weak point in our country for some time, but in order to structurally strengthen the growth potential in the long term, much more attention must be paid to increasing productivity growth. Whether we succeed or not will be the deciding factor for our prosperity in the decades to come. There are many levers for this productivity at regional level (including innovation, education, infrastructure), but federal policy can also contribute to this. This includes more productive government investments, a more favorable business environment (with fewer regulatory and administrative burdens) and more tax incentives for innovation, training and digitalisation.

3. International career

A third of economic activity in Belgium is linked to international trade (in Flanders this is even more), but the international political climate has been turning against globalization for some time. The big economic blocs are focusing more on themselves and the number of international trade barriers has increased significantly in recent years. A new presidential term of Donald Trump would exacerbate this dynamic. Belgium should position itself as a major supporter of international trade, through further development of the European single market and through free trade agreements with other countries and regions. Even in a more fragmented world, there are still opportunities to strengthen international trade through these channels.

4. Competitiveness

The competitiveness of our companies has been under pressure in recent years due to high wage costs, high energy costs, administrative burdens, uncertainty about permits, difficulties in finding suitable workers… There are different options of the new federal government to contribute to the restoration of competitiveness, including lower responsibilities for employers, limiting possible new index shocks through changing the index mechanism objectives, underlining a poor European approach to energy policy… Not all the keys to competitiveness are in federal hands, but enough to make a difference.

5. A coordinated approach to traffic jams

As traffic problems has recently recorded record after record, leading to massive economic damage. And that trend will not be reversed anytime soon. Transfer authority is largely in regional hands, but a coordinated approach is needed. In recent years, the different levels of politics in our country have been constantly working against each other. With a competent view of the regional governments at the federal level (Brussels is still difficult to achieve), a much better cooperation is possible in the coming years. The different policy levels and departments in our country are interested in strengthening each other as much as possible. In this way, the potential impact of the policy becomes much greater. Mobility is an important example where better collaboration can make a big difference (of course there are others too).

It should be clear by now that we are facing a number of major changes that will put significant pressure on our economic model and welfare state: the aging of the population, the sustainable movement, the digital movement, geopolitical trends, migration, mobility away. from globalization… Business as usual over the next five years will not get us there. In this legislature we must finally take a series of steps to adopt these changes. We have largely failed to do so in recent years. We can’t afford that anymore. The new coalition agreements in Wallonia and Flanders do not seem to be taking the necessary big steps. For this we must now look specifically to the federal level. We hope that there is now enough awareness around the negotiating table.

By the author Bart Van Craynest chief economist at Voka and author of ‘Belgium can be better’