Fiscal consolidation in federal Belgium

Abstract

This article analyses fiscal consolidation policy in federal Belgium in the period 2009–14, until the initial 2014 budget. It relies on documentary analysis and interviews to examine the intensity, content and decision-making process of this policy. Explanations for this particular fiscal consolidation policy are looked for in the macro-economic context, the political-administrative system, and external influences. We find generally modest budget cutbacks punctuated by an exceptionally significant budget exercise. This pattern is best explained by the tensions within the Belgian political-administration, generating policy continuity, and by external pressure, that allowed policymakers to overcome these tensions. Points for practitioners Beyond providing insight into the specifics of fiscal consolidation in federal Belgium, this article allows a better understanding of why governments engage in fiscal consolidation the way they do. Emphasizing that fiscal consolidation is an essentially political process influenced by national and international factors, our analysis helps practitioners to understand how national and international arguments can be mobilized in national political contexts to trigger policy changes.

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“…However, these automatic savings, which may have acted as a contractive fiscal policy in "regular" times, occurred amid a sharp economic and financial crisis in the EU, which means that limiting fiscal consolidation to these automatic changes served as an expansive fiscal policy, at least in comparative terms. Indeed, it has been widely documented that the government did not implement any structural financial measures (Brans, 2012;Brans et al, 2016;OECD, 2011;Troupin et al, 2015). Furthermore, the government failed even to meet its commitment with the EC to reduce the country's GDP deficit to 3.6% in 2011 (FGB, 2011).…”

“…According to Bouckaert and Brans (2012, p. 174), the caretaker government did, however, have to face a number of pressing matters, such as complying with international defense commitments (i.e., NATO operations in Libya), introducing migration legislation, and contributing to EU measures to support the euro, and so forth. But no major structural policy reforms were implemented (Troupin, Steen, & Stroobants, 2015) that might have affected critical issues in the domain of pension systems, social affairs, energy supply and environment, employment and labor market, and competitiveness (Brans, 2012;Brans et al, 2016).…”

Fiscal Consolidation in Federal Belgium

“…Consequently, deficits and debts remained at alarming levels for several years when economic growth stagnated (Troupin, Steen & Stroobants, 2015). The deficit problem further intensified when Belgium entered the Excessive Deficit Procedure of the European Union, 13 when rating agencies such as Standard & Poor's and Moody's downgraded the country's credit rating (Piron, 2013) and when the bank Dexia requested another bailout (Troupin et al, 2015).…”

“…Furthermore, the sixth state reform decentralized a share of the federal deficit. This constitutes a further budget constraint for the Communities and Regions (Decoster & Sas, 2013;IMF, 2014;Troupin et al, 2015). The Special Finance Act, as amended in 2014, left the constituent units underfinanced, because there was a gap between their new spending responsibilities and their revenues (including federal transfers).…”

“…When Belgium entered the Excessive Deficit Procedure in the 2000s, this external pressure to reduce deficits and debts intensified. Second, the credit downgrading by Standard & Poor's and Moody's was an important factor in the agreement on a sixth state reform, which led to the formation of a new federal coalition government in 2011 (Troupin et al, 2015). Third, that the federal government assumed the largest consolidation burden since fiscal consolidation started has significantly reduced the consolidation pressure on the constituent units.…”