In Belgium, we have the highest government expenditure among the industrialized countries, but we certainly do not get the best policy in return. Our public finances should be much more efficient. Any serious exercise to get public finances back on track has to start there, not with more taxes.
After a nightly negotiation, the federal government was recently able to complete the budget control. In doing so, it even made a larger-than-expected budgetary effort, even though an effort of 0.3% of GDP remains quasi-negligible on a total budget deficit of more than 5% of GDP (expectations were therefore very low). ). Organizations such as the National Bank, the Planning Bureau, the European Commission or the OECD assume that our budget deficit will remain around that 5% in the coming years, and that even without new setbacks such as a new recession or a stronger-than-expected increase in the interest. According to new forecasts from the IF, Belgium will continue to have the highest budget deficit among industrialized countries in the coming years, after the US.
In the coming years, much greater efforts will therefore be necessary in any case. Deputy Prime Minister Dermagne already indicated that any subsequent efforts for the PS must come from extra tax revenue. Other left-wing parties are also on that wavelength, and are constantly launching new ideas for extra taxes. Previously, Ghent doctoral students even made the newspapers with a (unsubstantiated) proposal to raise the highest personal income tax rates to 68% (and that without social security contributions). All these proposals for extra taxes sound very easy in certain corners (they are always extra taxes on ‘others’, such as the companies, the rich…), but they completely ignore the reality of our current government spending.
On to the highest public expenditure in Europe
Belgium today has the second highest public expenditure in Europe, after France. And due to the aging of the population, expenditure on pensions and care will clearly increase more in the coming decades than in France. If we don’t act, we will overtake France in total government spending. According to the IMF, Belgian government expenditure will climb to 57% by 2028, the highest among industrialized countries, under unchanged policies.
Now high government spending in itself need not be a problem. It just depends on what’s in front of it. Belgium today has the second highest public expenditure in Europe, but it is certainly not the case that we get the second best policy for this. The quality of that policy cannot be measured directly. At Voka we do this on the basis of 57 indicators, ranging from business economic indicators, over social indicators, to measures of the quality of healthcare and infrastructure. On the basis of these indicators, Belgium only ranks 17 for the general quality of the policye place in Europe. In Belgium we pay top prices for mediocre policies.
Insufficient value for money
No less than 15 European countries deliver the same or a higher quality of policy for the same or lower government expenditure. For example, the quality of policy in the Scandinavian countries is clearly higher than in Belgium, while government expenditure there is on average 5% of GDP lower. At the Belgian level, this corresponds to about 30 billion in expenditure. This suggests that the government in Belgium should also be able to deliver more quality with lower expenditure.
Against this background, it is bizarre to argue for additional taxes in the context of cleaning up public finances. By the way, if we want to close the current budget deficit in this way, we will have the highest tax burden in Europe, by a large margin. That would undoubtedly have a detrimental effect on our economic potential. The road to healthier public finances runs through many more people at work and, above all, a much more efficient government. Most other European countries succeed in delivering a clearly higher quality policy with lower expenditure. That should also be possible in Belgium. Hence, any serious exercise to get our public finances back on track must start with spending and not with additional taxes. It is urgently time to work on that.
Bart Van Craeynest is chief economist at Voka and author of the book ‘Back to the facts’.