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An assessment of Belgian NRP macroeconomic objectives in a medium term framework Francis Bossier and Igor Lebrun 38 th

An assessment of Belgian NRP macroeconomic objectives in a medium term framework Francis Bossier and Igor Lebrun 38 th CMTEA, Kranjska Gora,14-15 June 2007. The economic outlook for the Belgian economy. Detailed macroeconomic projection Forecast for current year based on a economic budget

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An assessment of Belgian NRP macroeconomic objectives in a medium term framework Francis Bossier and Igor Lebrun 38 th

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  1. An assessment of Belgian NRP macroeconomic objectives in a medium term frameworkFrancis Bossier and Igor Lebrun38th CMTEA, Kranjska Gora,14-15 June 2007

  2. The economic outlook for the Belgian economy • Detailed macroeconomic projection • Forecast for current year based on a economic budget • Simulation with five year horizon using the HERMES model • Unchanged policy scenario with regard to fiscal and social policies • International scenario produced by international organizations • Exogenous variables generated outside the core model Starting point for variants: impact of higher crude oil prices, effects of various tax policies, effects of labour market reforms,…

  3. Key macroeconomic results for the medium-term outlookDemand-side

  4. Key macroeconomic results for the medium-term outlookSupply-side

  5. Output gapin % of potential GDP

  6. Are effects of structural reforms introduced in the baseline? Yes, when data and methodology available (analysis of micro data, survey, single-equation or satellite model). Examples: • Labour market reforms: • Impact of restrictive access conditions to early retirement • Impact of pension bonus on employment • Reforms of Network industries (telecom, energy): • Impact of liberalisation on production structures • Impact of increased competition on prices and trade When considered too uncertain, no impact is introduced

  7. Major quantitative objectives of the Belgian NRP • Objective 1: continue fiscal consolidation • debt ratio under 60% in 2014 • budget surplus of at least 1.0% in 2010 • Objective 2: reduce labour costs • decrease tax wedge on wages by 2.2% of GDP between 2005 and 2010 • Objective 3: reform labour market • participation rate of older workers increasing faster than the average (EU15) by 2010 • an employment rate verging on 70% • Objective 4: boost R&D and continue reforms in network industries • 3% GDP investment in R&D by 2010 • Objective 5: reduce environmental nuisance • reducing CO2 emissions by 7.5% for the 2008-2012 period compared with 1990

  8. Some key results of the medium term projection in relation with the NRP objectives

  9. General government financing capacityBillion of euros and % of GDP Billion of euros % of GDP

  10. Primary surplus and interest paymentsin % of GDP

  11. Primary surplus and interest paymentsin % of GDP

  12. Belgian Stability Programme in % of GDP

  13. Primary surplus required to stabilise the public debtin % of GDP

  14. Public debt In billion of euros In % of GDP

  15. Taxes on labour and total tax burdenin % of GDP

  16. Employment evolution and employment rate

  17. Employment evolution and employment rate

  18. Older worker labour market participation

  19. Older worker labour market participation

  20. Registered and structural unemployment

  21. Registered and structural unemployment

  22. Energy intensity of GDPindex 2000 = 100

  23. Greenhouse Gas emissionsin million of tons of CO2 equivalent

  24. Greenhouse Gas emissionsin million of tons of CO2 equivalent Kyoto objective

  25. Easing the fiscal and parafiscal pressure on labour • NRP objective: reduction by 2.2 of GDP between 2005 and 2010 • Projection 2007-2012: reduction by only 0.75% of GDP • Additional effort- equal to 1.45% of GDP- to be planned. • Consequences of this additional effort simulated with a macroeconomic model • Actions simulated: a cut in indirect labour costs (reduction of employers and employees social security contributions) Option 1: General reduction; Option 2: Employers’ social security contributions reductions concentrated on low wages

  26. Simulation results: effects of the variant on the main macroeconomic indicatorsdifferences, in %, w.r.t. the baseline Option I

  27. Simulation results: effects of the variant on the main macroeconomic indicatorsdifferences, in %, w.r.t. the baseline Option II

  28. Conclusions • Sizable efforts still to be made in order to comply with the Belgian NRP objectives; • Contradictory objectives to be reconciled; • Targeted reductions in labour costs more efficient to meet labour market objectives; • Further budgetary choices to be made; • But higher growth through structural reforms could ease the process.

  29. END

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