Belgium: New government sworn in, breaking 16 months of political gridlock
September 30, 2020
A new Belgian government was sworn in on 1 October after 16 months of political deadlock. The so-called Vivaldi coalition comprises seven parties with four different political leanings: liberals, greens, socialists and Christian democrats. The development bodes well for the economy and the prospects of an accommodative budget for next year, with the government program agreed between the parties envisaging higher spending in areas such as healthcare and the justice system. However, the challenging fiscal situation could limit room for maneuver, while the lack of concrete reforms could make some targets difficult to meet. Moreover, the divergence of parties makes the coalition fragile, with their ideological differences heightening the risk of collapse.
The government program foresees EUR 5 billion in additional spending through 2024. It sets aside EUR 3.2 billion for structural measures, including investment in railways and the digital transition, as well as an increase in pensions. In addition, the agreement includes an annual increase of 2.5% in spending on healthcare, while it aims to raise public investment to 4% of GDP and bring the activity rate among 25–64 year-olds from 77.2% to 80% by 2030.
On the development, Philippe Ledent, senior economist for Belgium and Luxembourg at ING, commented:
“On the economic front, the will to support the economic recovery through investment is highlighted, with tax reductions for companies that invest, but also with the ambition to increase public investment to 4% of GDP by 2030 (currently 2.6%). […] This being said, the new government's very broad ambitions risk running up against fiscal reality. […] At this stage, the agreement does not detail how the budgetary effort will be carried out within such a spending framework.”
Regarding labour market policy, analysts at KBC added:
“The new federal government […] aims to reach an 80% employment rate by 2030, from 70.5% in 2019. This looks far too ambitious, given the lack of new labour market reforms in the policy agreement.”
Author: Frederico Teixeira de Abreu, Junior Economist