Inflation causes Flemish income to rise faster than expenditure, according to an advice from the Flemish social partners.
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Government spending is also not spared the high inflation. For example, salaries in the education or welfare sector are automatically indexed. At the same time, revenues are rising even faster, because the grants received by the Flemish government through the Financing Act, which regulates the financing of the regions and communities, are linked to the consumer price index. It has been on the run for the past few months. In addition, there are expenses that do not or only partially follow inflation and with a delay.
This means that the high inflation is on balance a good thing for the Flemish budget. The Serv, the advisory body of the Flemish social partners, speaks of a ‘very significant effect’. Revenues will increase by 3.6 billion in 2023 and 3.4 billion in 2024, mainly due to inflation. Expenditures are also rising, but inflation is only pushing them up by 2.4 billion.
This is noticeable in the forecasts for the coming budgets. This year’s figure would still be in the red at 3.7 billion euros, a deterioration from the estimate earlier this year. But in 2023 the deficit will fall to 1.7 billion euros and in 2024 to 1.2 billion euros.
The arithmetic of the Flemish government is even more positive. This does not take into account the expenditure for the Oosterweel link or other investments in the context of the Flemish Resilience plan. For example, the deficit will fall to 620 million in 2023 and 263 million in 2024, if policy remains unchanged. If the government makes an effort, a budgetary balance is so achievable. The Flemish budget is therefore doing much better than previous estimates, in which a balance would be something for the next government.
Vulnerable
According to the Serv, the Flemish government must stick to its policy to keep public finances under control and to focus on innovation, competitiveness and the green and digital transition. ‘In today’s great economic uncertainty, a policy of smart and future-oriented investment, in combination with spending screening, is the best recipe for healthier government spending,’ says Hans Maertens, chairman of the Serv.
This also means that the Flemish government cannot use its budget to absorb the negative consequences of inflation. At most, specific support can be provided, the Serv. The Council does not comment on the areas where this is best done.
There is also slightly better news on the debt front. The fear was that it would rise to 45.8 billion euros, or 88.3 percent of receipts. The new forecasts point to a slightly lower amount of 42.7 billion euros. Nevertheless, the Flemish debt has increased considerably during the corona years, which makes Flanders vulnerable to interest rate increases. In the coming years, interest expenditure will take up more and more policy space.
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