The National Bank of Belgium published research on how to measure Belgium’s fiscal stance and concludes that, over the past twenty years, the underlying orientation of fiscal policy has tended to look looser once data are revised than it did in real time. The analysis argues that assessing fiscal policy should consider both changes in discretionary support and the level of support, and it highlights how reliance on structural balance metrics can be distorted by revisions to output-gap estimates. The paper contrasts top-down estimates based on the structural primary balance with broader measures such as the primary budget balance that also reflects automatic stabilisers, which are particularly important in Belgium given the size of government relative to GDP. Using budgetary semi-elasticities and the output gap to proxy the cyclical component, it finds that in 2020 the Belgian primary deficit reached 7% of GDP, indicating an exceptionally loose stance, with roughly half of the support stemming from the cyclical component; exceptional Covid-19 measures exceeded 3% of GDP in 2020 and, although crisis measures were later withdrawn, significant primary deficits meant the level of support remained loose. To address instability in top-down structural balances driven by output-gap revisions, the research reviews bottom-up measurement of discretionary measures and finds it can miss structural spending pressures such as ageing-related costs. It therefore favours a hybrid approach combining a bottom-up method for revenues with a top-down approach for spending, noting that this type of indicator aligns with the European Commission’s shift in the new European fiscal framework toward an expenditure growth benchmark, while also observing that the average gap between hybrid and top-down structural indicators is relatively small for Belgium.
National Bank of Belgium 2025-05-19
National Bank of Belgium research finds Belgium’s underlying fiscal stance has been looser ex post than real-time estimates and supports a hybrid indicator
Research by the National Bank of Belgium shows that Belgium's fiscal policy has been looser over the past two decades when data are revised. In 2020, the primary deficit reached 7% of GDP, driven by the cyclical component and Covid-19 measures. The study advocates a hybrid fiscal assessment approach, combining bottom-up revenue and top-down spending methods, aligning with the European Commission's new fiscal framework.