Belgium may face hefty new budget cuts to meet deficit target

Fri Mar 8, 2013 5:42am EST

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* Belgium aims for budget deficit of 2.15 percent in 2013

* Slower growth means additional savings need to be found

* Economist says government needs to focus on structural reforms

By Robert-Jan Bartunek

BRUSSELS, March 8 (Reuters) - Belgium is facing budget cuts some 80 percent greater than planned if it is to reach its deficit target this year, a committee advising the government has estimated.

The committee of high-ranking civil servants said an additional 2.8 billion euros ($3.66 billion) in savings had to be found if Belgium was to end 2013 with a deficit of 2.15 percent of gross domestic product.

That is on top of the 3.4 billion euros in cuts already pledged by the government.

Weakening economic growth is the reason.

The budget is currently based on a growth estimate of 0.7 percent for the year, but the state forecasting agency cut its growth outlook last month to 0.2 percent for 2013.

The 2.15 percent target is below that demanded by the European Union and by no means problematic compared with some countries. Spain, for example, is struggling to get its deficit to GDP down to 4.5 percent, although this is expected to rise.

The Belgian government estimates its deficit last year was 2.96 percent of GDP.

Budget minister Olivier Chastel said in a radio interview last week the deficit target still stands, though some within the ruling coalition have called for it to be eased.

Some Belgian economists argue that too much focus on cutting the deficit could stifle economic growth while doing little to improve the underlying economy.

"Rather than wasting time with an arbitrary deficit target we should focus on long-term structural reform," Petercam economist Bart Van Craeynest said.

Reforming Belgium's pension system to address early retirement and abandoning the automatic adjustment of wages for inflation could be two such measures, he said.

The official retirement age in Belgium is 65, but Belgian men on average retire shortly before the age of 60 and women at the age of 59, some of the lowest levels in industrialised nations.

Negotiations between the government coalition partners over where the budget cuts will be made start on Friday but there is no deadline yet for agreement, a spokesman for the budget ministry said.

In 2012 Belgium met European deficit rules, which mandate a maximum deficit of 3 percent of annual output, after making spending cuts of 14.5 billion euros.

The coming negotiations are the first for newly appointed finance minister Koen Geens, who was sworn in on Tuesday when Steven Vanackere stepped down in a dispute over bank loans to a labour union linked to his political party.

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