Presentation of the 2017 Economic Survey of Belgium

2017 OECD ECONOMIC SURVEY OF BELGIUM PROMOTING INCLUSIVE PRODUCTIVITY GROWTH http://www.oecd.org/eco/surveys/economic-survey-belgium.htm

Brussels, 20 June 2017

OECD Economics OECD

Main messages  Belgium has undertaken important reforms  Wage-setting system  Tax shift  Many challenges remain:  Productivity growth has weakened  The population is ageing and public debt is high  Competitiveness is recovering following a period of high wage growth  Inflation is higher than in neighbouring countries  Inequalities in educational outcomes and the labour market threaten inclusiveness

2

The economy has recovered GDP per capita index Index 2000 = 100 125 BEL 120

DEU

FRA

NLD

115 110 105 100 95

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: OECD Productivity Database.

3

Social and economic well-being is high B. OECD Better Life Index1,2 BEL

OECD

Income and wealth Subjective well-being

10

8

Jobs and earnings

6

Personal security

4

Housing

2

Environmental quality Civic engagement and governance Social connections

0

Work-Life balance Health status Education and skills

1. Each well-being dimension is measured using one to three indications from the OECD Better Life Indicator set with equal weights.

2. Indicators are normalised by re-scaling to be from 0 (worst) to 10 (best).

Source: OECD "Better Life Index 2016“.

4

Belgium has been a top reformer Responsiveness rate to OECD Going for Growth recommendations, 2015-16 70 60 50 40 30 20

0

LVA FRA AUT BEL BRA CHL ISR GRC MEX CHN CZE EST IRL ITA DEU DNK NLD JPN ESP NOR IND OCDE COL HUN SWE USA FIN GBR SVK KOR CHE NZL ZAF POL LUX PRT TUR AUS CAN ISL SVN IDN

10

The responsiveness rate measures the share of total policy recommendations formulated in the last issue of Going for Growth on which governments in each country have taken some action. It considers only legislated changes as opposed to announced changes.

Source: OECD Going for Growth 2017.

5

Competitiveness is recovering Unit labour costs are moderating 2005=100

140 135

BEL

DEU

EU

FRA

NLD

130 125 120 115 110 105 100 95

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: OECD, Economic Outlook 101 database, OECD Economics Department database.

6

Inflation has picked up Inflation is higher than in neighbouring countries Y-o-y % changes 7

BEL

6

DEU

FRA

NLD

5 4 3 2 1 0 -1 -2

2007

2008

2009

2010

2011

2012

2013

Source: OECD, Economic Outlook 101 database, OECD Economics Department database.

2014

2015

2016 7

Public debt is falling, but remains high Public debt to GDP ratio1

% 140 130 120 110 100

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

1993

80

1991

90

1. Maastricht criterion.

Source: OECD Economic Outlook 101 database

8

The population is ageing Old age dependency ratio projections Population 65 and over to population 15 to 64 years

% 65

BEL

60

DEU

FRA

NLD

55 50 45 40 35 30 25

2014

2019

2024

2029

2034

2039

2044

2049

2054

2059

Source: Eurostat.

9

Productivity growth has slowed Multifactor productivity

Index 2000=100 125 BEL

120

FRA

DEU

NLD

USA

115 110 105

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

95

2000

100

Source: OECD Productivity Statistics database.

10

Productivity varies widely between firms Real value added per employee, average, latest available data 180

Median

160

90th percentile

10th percentile

Mean

140 120 100 80 60 40 20 0

DNK

FRA

BEL

FIN

ITA

ESP

CRO

SVK

CZE

EST

POL

Source: CompNet, 2016.

11

Youth, seniors and low-skilled workers have low employment rates Employment rate amongst some groups % of population in each group, 2016 80

OECD

70

BEL

60 50 40 30 20 10 0

Total (15-64)

Foreign-born (15-64)

Women (15-64)

Older population (55-64)

Low-skilled (25-64)

Source: OECD, Labour force statistics database; OECD, Migration statistics database; OECD, Education at a glance database; and Eurostat, Labour Force Survey.

Youth (15-24) 12

The labour market integration of immigrants can be improved Employment status by country of origin and gender Employed Men

Unemployed

Inactive Women

Total

67

6

28

58

5

37

Total

Belgium

67

5

28

61

4

35

Belgium

Other EU28

70

60

6

34

Other EU28

Non-EU28 20

28

15

57 0

23

6

40

60

80

38 100

0

20

10 40

Non-EU28

52 60

80

100

Source: OECD, Labour force statistics database; OECD, Migration statistics database; and Eurostat, Labour Force Survey.

13

First challenge: boosting productivity and economic growth

14

The tax mix could be adjusted to support growth The tax mix could still be more growth friendly Relative performance to OECD, latest available data 140

OECD=100

120

BEL

100 80 60 40 20 0

Environmentally related taxes

Recurrent taxes on property

Taxes on capital gains at the individual level

Social Security contributions

Note: Shares of fiscal revenues for a selection of tax categories. These are calculated as a % of total tax revenue and displayed as a percentage of the OECD average which equals 100.

Sources: OECD, Environment Database - Instruments used for environmental policy and; OECD, Revenue Statistics database.

15

More public investment would boost growth Public investment has been declining since the 1980s As a percentage of GDP, 1970-2016 % 8

BEL

7

DEU

FRA

NLD

6 5 4 3 2

2016

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

0

1970

1

Source: OECD Economics Department database.

16

Sustaining R&D expenditure will raise productivity

ISR KOR JPN SWE AUT DNK FIN DEU USA BEL OECD FRA SVN ISL AUS NLD CZE NOR GBR CAN IRL EST HUN ITA LUX PRT ESP SVK NZL TUR POL GRC LVA MEX CHL

% 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

Gross domestic expenditure on R&D As a percentage of GDP, 2015 or latest available

Note: For Australia, Canada, Ireland and Turkey, data refer to 2014.

Source: OECD, Main Science & Technology indicators.

17

Boosting business dynamism would raise productivity Entry and exit in the business sector Latest available data % 25

Death rate of businesses

Birth rate of businesses

20 15 10

Source: European Commission

BEL

IRL

AUT

ITA

DEU

SWE

FIN

NOR

CZE

ESP

EU28

FRA

HUN

LUX

NLD

EST

SVN

DNK

GBR

PRT

LVA

0

SVK

5

18

The business environment is favourable Framework conditions for entrepreneurship Relative to EU average, 2009-15 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0

Regulatory framework

Market conditions

Access to finance

Entrepreneurial capabilities

Entrepreneurship culture

Note: Lower scores indicate lower performance. Scores are expressed relative to EU (unweighted) average equal to zero for each indicator.

Source: De Mulder and Godefroid, 2016.

19

Reducing administrative burdens would boost firm dynamism Barriers to entrepreneurship Administrative burdens on start-ups, latest available data Index 1.4 1.2 1.0 0.8 0.6 0.4 0.0

AUS NZL CHL CHE NLD DNK CAN NOR GBR RUS SWE IRL JPN ZAF USA DEU FIN EST KOR SVN LTU ISL AUT IDN SVK CZE ITA FRA ISR ESP GRC LUX LVA MEX PRT BEL POL HUN HRV BRA TUR IND CHN

0.2

Source: OECD, PMR indicators database.

20

Start-ups would benefit from more venture capital Venture capital As a percentage of GDP, 2015 0.38 0.33 0.12

ISR USA CAN ZAF KOR FIN CHE SWE IRL GBR AUT PRT FRA DNK DEU NZL JPN NLD AUS HUN EST NOR BEL ESP SVK LUX POL RUS SVN ITA CZE GRC

% 0.10 0.09 0.08 0.07 0.06 0.05 0.04 0.03 0.02 0.01 0.00

Note: For Australia, Canada, Ireland and Turkey, data refer to 2014.

Source: OECD, Entrepreneurship at a Glance 2016.

21

Second challenge: making growth more inclusive

22

Further reducing high labour taxes would support job creation % 60

Social security contributions remain high1 As a percentage of gross wage, 2015 Employees

50 40

Employers

* 2021, following the tax shift

30 20

0

NZL DNK AUS CHL ISL CHE MEX ISR IRL USA KOR CAN GBR NOR NLD LUX OECD JPN FIN TUR POL PRT EST ESP SVN SWE DEU GRC BEL* ITA BEL SVK CZE AUT HUN FRA

10

1. Average rates of social security contribution, calculated for a single person, with no children, at 100% of the gross wage.

Source: OECD, Tax-Benefit Models; OECD, Taxing Wages database.

23

Adult education and training is key to improving employment prospects Participation in adult education and training1 As a percentage of the population aged 55-64, latest available data % 60 50 40 30 20 10 0

SWE DNK USA NLD FIN NOR CAN GBR IRL DEU EST JPN KOR BEL CZE ESP FRA SVK POL ITA

1. Participation over the year.

Source: OECD, PIAAC 2013.

24

High seniority wages reduces job mobility Wages of males workers aged 60-64 relative to workers aged 30-35 Latest available data

% 250 200 150 100

FRA

SVN

AUT

LUX

BEL

GRC

ITA

FIN

POL

HUN

ESP

DEU

PRT

NOR

IRE

SVK

DNK

NLD

LVA

CZE

GBR

ISL

SWE

0

EST

50

Note: For Belgium, data refer to Flanders. Relative wages are obtained using HECKIT 2-stage estimation, regressing (log) gross hourly wages on age group, controlling for years of schooling, PIAAC scores and occupational status.

Source: OECD, PIAAC 2013.

25

Growth in tertiary education attainment has slowed Share of individuals aged 25-34 with tertiary education attainment Average number of years of education

% 60

BEL

50

OECD

40 30 20

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

0

2000

10

Source: OECD, Education at a Glance 2016 database.

26

Youth with an immigrant background are less likely to complete tertiary education Share of people aged 25-34 with tertiary education in each population group % 80

2nd generation immigrants

70

Non-immigrants

60 50 40 30 20 10 0

POL KOR NLD FIN SWE GBR CZE FRA ESP IRL NOR AUT BEL DEU USA EST DNK ITA SVK JPN CAN Source: OECD, PIAAC 2013 27

Firms are struggling to fill ICT vacancies ICT skills shortage Share of firms that offered jobs for ICT specialist that were difficult to fill, 2015 % 60 50 40 30 20

Source: Eurostat.

CZE

LUX

AUT

NLD

SVN

EST

IRL

DEU

SWE

HUN

SVK

BEL

LVA

FRA

DNK

GBR

EU28

FIN

GRC

POL

NOR

ISL

ITA

PRT

0

ESP

10

28

Inclusion

Productivity

Macro

Main Findings o

Public investment should be increased to boost potential growth.

o

The tax mix could be altered to support growth and make it more inclusive.

o

Commuting and traffic congestion contribute to air pollution.

o

Regulations are generally business friendly, but productivity growth has slowed.

o

There is scope to improve R&D activity, innovation and transfers of technology.

o

Business dynamism is weak. Start-ups face several barriers.

o

Educational outcomes of socio-economically disadvantaged individuals are comparatively poor.

o

The labour force participation of seniors and low-skilled workers, many of whom are first or second generation immigrants, is low.

o

The current model of financing tertiary education may not be sustainable

29

Recommendations for fiscal and financial policies to support the economy  Shift taxes further away from labour by lowering employer social security contributions on low wages.  Increase less distortionary taxes, such as green, capital gains and recurrent taxes on property.  Finance growth-enhancing public investment by reducing inefficient public spending, considering user fees and private sources of finance.

30

Recommendations to boost productivity  Streamline public support for R&D and innovation within each region. Step up innovation support cooperation across regions and communities.  Reduce administrative burdens on SMEs. Reduce the level of the paid-in minimum capital requirement and increase the VAT threshold.  Strengthen contract enforcement by strengthening court automation and case management More in Chapter 1 of the Economic Survey

31

Recommendations to make growth more inclusive  Improve the employability of seniors by encouraging adult education and training, flexitime and new organisational practices, and work with social partners to reduce seniority wages.  Enhance pre-primary language education for the children of immigrants.

Expand controlled school-choice schemes to reduce the concentration of pupils with an immigrant background in particular schools.  Improve teacher training and incentives to attract teachers to schools with a high concentration of disadvantaged students.  To help sustain spending on tertiary education consider increasing tuition fees, while maintaining grants and waivers along with post-study income-contingent student loans.

More in Chapter 2 of the Economic Survey

32

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