Belgium Deepens Austerity Cuts

Anticipates contraction in economy

Belgium is making a pre-emptive strike on what it sees as a possible forthcoming contraction in its economy: it has boosted austerity cuts as well as measures to raise funds.

Reuters reported Sunday that the actions were taken after a full week of talks. Not only is Belgium deepening cuts already promised to combat its growing deficit, it is increasing taxes and postponing actions that were already planned for a total of 1.82 billion euros ($2.39 billion) in additional savings.

The country has committed to reduce its public sector deficit to 2.8% of GDP in 2012, from its 2011 level of 3.8%. If it fails to cut its deficit to a level of a maximum of 3%, it could face fines imposed by the European Union.

Some of the cost-cutting measures Belgium will impose, on top of the 11.3 billion euro package of measures it agreed to when the current administration took office at the end of 2011, include a 650 million euro freeze on spending that will require postponement of an army helicopter delivery; the promotion of generic medicines; and a cut to aid. It will also boost taxes on tobacco and investment products.

These measures are in addition to an already-planned increase in the retirement age from its present average of 59 and a tax increase on company cars. Belgium intends to balance its public sector budget by 2015.

Instead of relying on a prediction of 0.1% in economic growth in 2012 from the Federal Plan Bureau, which generally provides the estimates used in drafting budgets, Belgium has used its central bank's forecast of a 0.1% contraction. In 2011, Belgium's economy, the sixth largest in the eurozone, grew 1.9%. A contraction would require greater savings than those already planned.

Still, Belgium is by no means badly off with regard to the progress it has made in taming its deficit, as was pointed out by Prime Minister Elio Di Rupo. He was quoted saying, "To show how far we have gone, I offer the following comparison: the budget deficit of the Netherlands is 4.5%, of France 6%. Of the countries that had a budget deficit of greater than 3%, our country is one of the best pupils in the class, if not the best."

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