Why does Belgium have such high government spending? This week it was about the sad Flemish budget, about hundreds of unnecessary Flemish expenditures and about a remarkable loan from the poor federal government to the even poorer Wallonia. Knack editor Ewald Pironet looks back.
1st study
‘In 2019, government expenditure in Belgium was 4.5 percentage points of GDP higher than the average of the main neighboring countries.’
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The most interesting publication of the past week can be read for free on the site of the National Bank. We know that the Belgian government is in the European top three when it comes to spending money. Only France and Finland spend even more cents. Belgian public expenditure amounts to 52 percent of GDP (gross domestic product, the value of everything we produce in goods and services, ed.), while the average in the euro area is 47 percent. What does our government spend so much money on? The National Bank investigated it and delivered a 25-page study entitled: Which public expenditure in Belgium is high? A comparison with neighboring countries. The study is written in English, but contains a Dutch summary of seven pages. We cannot recommend it highly enough: the study is essential for anyone who wants to have a say in the situation and future of our country. Belgium spends almost 5 percentage points more than its neighboring countries. This gap has only increased since the beginning of the century: in 2001 the difference with our neighboring countries was ‘only’ 2 percent. We are therefore talking about more than a doubling in two decades. What does Belgium spend so much more money on compared to its neighboring countries? Three categories stand out: we spend more government money on general administration, economic affairs and education. We look at them one by one. Our governments, cabinets and parliaments are more expensive than those of our neighboring countries. Every year we spend 1.8 percentage points of GDP, which is roughly 8 billion, more on general management. “We are spending more money on the legislative and executive bodies that encompass the general functioning of the state, the administrations of foreign affairs, internal affairs and finance, as well as the functioning of parliaments and ministerial cabinets,” reads the study. also spend more government money on wage subsidies for companies, such as exemptions from withholding tax and the system of service vouchers. Expenditure on public transport (De Lijn, STIB, TEC and subsidies to the NMBS) also appears to be relatively higher than in our neighboring countries. We spend 2.3 percentage points of GDP more on all these things. That is roughly 10 billion euros every year. And then we also spend even more money on education, about 1.3 percentage points of GDP or almost 6 billion euros per year. Again, it is the wages that explain the bulk of the extra expenditure. It is striking: in the three categories on which Belgium clearly spends more tax money than our neighboring countries, wages play a crucial role. ‘Wage subsidies in particular are high in Belgium. They have experienced strong growth over the past 20 years and were often introduced to compensate for the high wage costs and the high tax burden on labour, in particular. (…) In the case of wage subsidies, it is advisable to reform the high and complex tax on labour, rather than correct it through subsidies,” reads the study by the National Bank. very high, especially because taxes on labor are so high. And they are so high because our government spends so much money. In order to temper those high wage costs, we invented subsidies and discounts on wages and social contributions. As a result, the government receives less revenue. You can see what a remarkable carousel we have thus become. As the study of the National Bank writes: it would indeed be much better to tackle wage costs and especially the taxes on labor in a general and thorough way, instead of here subsidy and a discount and to create an escape route there for the social security contributions. And it would also help if the government spent less money, and therefore needed less taxes. Our government must bring its spending policy more in line with that of our neighboring countries, which are not poverty-stricken after all, but countries with a good standard of living and prosperity. In some ways even better than ours. Read more under the photoThe federal government gives the Walloon Region a loan of 1.2 billion to repair the damage after the flood of July. The loan is intended for major infrastructure works such as the reconstruction of bridges and schools and must be repaid between 2025 and 2035. This loan is remarkable for several reasons. State Secretary for Relance Thomas Dermine (PS) argued two weeks ago for a solidarity fund of 1.2 billion to repair flood damage to critical infrastructure. He wanted half of that to be paid by the federal government, as we wrote in the Chronicle last week. But that is not possible, since the Disaster Fund has been part of the competences of the regions since 2014, since the sixth state reform. The special financing law that was agreed at the time does not allow deviating from that financing mechanism. In short: the federal government could not contribute the requested 600 million, because the regions themselves are responsible. Now the financing law is being cleverly adapted: the federal government does not give money, but lends it out. There is a caveat to that. For example, it is no longer 600 million euros from the federal government, as Dermine had requested, but double that, 1.2 billion. It is unclear why that amount was doubled. Unless the federal government wants the PS to say that they received even more money than requested. In addition, it is a loan: Wallonia, which sinks more and more into the financial quagmire every day, borrows money from the Belgian federal government, which is also financially anything but well ahead. This leads to the following reflection: if the Walloon government had kept its budgets in order and the debt somewhat under control over the past decades, it could have borrowed itself from the financial markets at a rate like that of Belgium. In addition, Wallonia will only have to repay the loan from 2025 and spread over ten years. And that, according to the statements of Prime Minister Alexander De Croo (Open VLD) and Walloon Prime Minister Elio Di Rupo (PS), without extra interest. That is particularly generous, especially for a poor lender like the federal government. ‘Note, borrowing money also costs money’, we have been told for years. That slogan is correct, but is now being trampled on by the federal and Walloon governments. The Flemish budget is a sad piece of work, as was analyzed this week in Knack. In its budget, the Flemish government is doing the opposite of what the experts recommend. For example, it halves the annual increase in the basic amount of the Groeipakket (popularly still called child benefit), which makes an important difference for a family living in poverty. The bill for the savings on child benefits will rise to 189 euros for a family with three children by 2022. ‘That saves two pairs of children’s shoes or a pack of school books’, calculated social policy expert Wim Van Lancker (KULeuven). And that for a government that wrote in the coalition agreement that child benefits are ‘an important instrument in the fight against child poverty’. This decision is therefore not only against the proposals of the experts, but also against the coalition agreement of the Jambon government. The job bonus is another story. Experts have repeatedly calculated that the job bonus does not do what it is supposed to do, which is to help more people find work. These resources would therefore be better used for other initiatives, which can ensure that more people get to work. Allocate more money for training or childcare, for example. And what is the Jambon government doing? She will retain the job bonus for starting entrepreneurs. That is not an efficient use of Flemish tax money. Even more astonishing is what the Jambon government is not doing. It does nothing about the over-subsidised service vouchers and the numerous subsidies and superfluous expenses of all kinds. But first an important remark from Koen Algoed, Secretary-General of the Department of Finance and Budget of the Flemish government.Algoed makes firewood of the job bonus on LinkedIn: ‘It goes without saying that the introduction of a job bonus is a waste of money in terms of labor market incentives.’ Even more important is the following: the Flemish budget for 2022 shows a deficit of 1.6 billion euros. The Jambon government wants to reduce this to 900 million euros in 2024. However, Algoed writes, ‘the deficit figure does not take into account the 760 million euros expenditure in 2022 for the Flemish recovery plan that is not covered by the European recovery plan Recovery and Resilience Facility (RRF). financed, nor from capital expenditure’. This comment is very important, because ‘the Flemish debt is rising much faster than the deficit figures suggest. The ballooning of our debt should worry’, according to Algoed, who wrote his contribution in English. The swelling of the Flemish debt should worry us. And the Jambon government is partly responsible for that. We were just talking about the numerous subsidies and unnecessary expenditure that are not addressed in the Flemish budget. A few days after the publication of the budget draft, an investigation by the Flemish Minister of Finance and Budget Matthias Diependaele (N-VA) shows that there are ‘hundreds of superfluous expenditure’. It concerns ‘hundreds of subsidies and support measures that flow to companies, families and civil society’, according to business newspaper De Tijd. 26 billion of the 50 billion euro expenditure were screened. That’s about half. Many expenditures are questioned: their usefulness is questionable or the task is better left to the private sector or to local authorities. Some expenses even lead to administrative nuisance and undesirable side effects, such as service vouchers. The ‘hundreds of unnecessary expenses’ have been listed. Now we have to abolish or adapt them so that they are no longer superfluous. The Jambon government has failed to do that in the past few weeks when drawing up its budget.
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