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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 frameworkFrancis Bossier and Igor Lebrun38th 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 • 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,…
Key macroeconomic results for the medium-term outlookDemand-side
Key macroeconomic results for the medium-term outlookSupply-side
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
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
Some key results of the medium term projection in relation with the NRP objectives
General government financing capacityBillion of euros and % of GDP Billion of euros % of GDP
Primary surplus required to stabilise the public debtin % of GDP
Public debt In billion of euros In % of GDP
Greenhouse Gas emissionsin million of tons of CO2 equivalent
Greenhouse Gas emissionsin million of tons of CO2 equivalent Kyoto objective
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
Simulation results: effects of the variant on the main macroeconomic indicatorsdifferences, in %, w.r.t. the baseline Option I
Simulation results: effects of the variant on the main macroeconomic indicatorsdifferences, in %, w.r.t. the baseline Option II
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.