Belgium

Improving business dynamism will be key to revive productivity growth and job creation in recovery. Reforms are hence needed to lower barriers to entry but also smooth the restructuring of firms and exit of non-viable ones. A more flexible labour market and activation policies will ensure the conditions for productive firms to grow and increase inclusiveness.

Performance prior to the COVID-19 crisis

Economy: Percentage gap with respect to the population-weighted average of the highest 18 OECD countries in terms of GDP per capita (in constant 2015 PPPs).

Inequality: The Gini coefficient for disposable income measures the extent to which the distribution of disposable income among households deviates from perfect equal distribution. A value of zero represents perfect equality and a value of 100 extreme inequality.

Environment: Greenhouse gas (GHG) emissions include emissions or removals from land-use, land-use change and forestry (LULUCF). A high exposure to air pollution refers to above 10 μg/m3 of PM2.5.

Source: Economy: OECD, National Accounts, Productivity and Labour Force Statistics Databases; Inequality: OECD, Income Distribution Database and World Bank, World Development Indicators Database; Environment: OECD, Environment Database and United Nations Framework Convention on Climate Change (UNFCCC) Database.

Business dynamism is key for a stronger and more inclusive recovery

Firm entry is going to be crucial for job creation in the recovery. However, despite a number of recent reforms, the complex permit and licence system continues to create administrative burdens on start-ups, while stringent regulations remain in several professions, such as accountancy, legal and architecture services, in particular those relating to barriers to entry and licencing requirements. The stringency of product market regulation should be reduced further, notably by further simplifying administrative procedures and licence requirements to start a business or enter certain professional services, and lifting restrictions in retail, such as those on large outlets and shop opening hours.

To deal with the legacy of the pandemic, the insolvency regime needs to ensure rapid, successful restructuring of viable firms while allowing for smooth exit of non-viable ones. While the insolvency moratorium introduced during the pandemic has saved distressed firms temporarily, the insolvency regime should be reformed further (Panel A) to allow for smoother reallocation of resources. In particular, creditors should be allowed to begin restructuring proceedings. As planned, simplified and pre- packaged special schemes should be adopted, which would help small businesses in particular as they usually lack necessary resources to deal with complex proceedings.

Impact of the pandemic’s on firms in hospitality and retail, in particular SMEs, risks compounding the low overall employment rates and particularly weak employment outcomes of those from disadvantaged socio- economic backgrounds. Up-skilling and re-skilling of workers will be increasingly relevant after the crisis. To this end, functioning of public employment services and training programmes should be enhanced, for instance by extending the use of tools for profiling of individualised risks across the country to identify jobseekers at a higher risk of becoming long-term unemployed. Funding allocated to training in activation policy should be increased, focusing on skills in high demand such as digital skills (Panel B). Such training programmes can be promoted by providing tax exemptions for jobseekers on their replacement income, as has been done in the recent “Jobs Deal” programme.

Vulnerabilities and areas for reform

1. The 2018 update for Belgium is not an official update of the OECD indicator and has been calculated by the OECD Secretariat, based on the 2018 reform. This composite indicator aggregates 13 insolvency indicators across 4 dimensions: treatment of failed entrepreneurs, prevention and streamlining, restructuring tools and other factors. Calculations are based on the OECD questionnaire on insolvency regimes which collected specific information about personal and corporate insolvency regimes.

A high degree of both wage centralisation across firms and wage coordination across sectors coupled with the rigidity of the indexation system makes it difficult to contain wages in line with productivity developments. Making the wage bargaining system more flexible should enable firms to better align wages with their productivity growth, which can be achieved by, for instance, allowing firms to opt-out from collective agreements more easily. It would be particularly welcome in an uneven COVID-19 recovery across firms. Also, labour taxation should be decreased further. In particular, in the aftermath of COVID- 19, social security contributions for low wages workers should be further lowered to increase their employability. These tax wedge reductions should gradually decrease with increases in salaries to avoid a risk of low-wage trap.

Belgium: Summary of Going for Growth priorities and recommendations

Recent progress on structural reforms

There has been limited progress, as the May 2019 election resulted in a caretaker government. A minority government was formed in March 2020 but lasted only until October last year, when the current government took office.

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