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On 1 February 2006, the Belgian Federal Planning Bureau (FPB) and CPB Netherlands Bureau for Economic Policy Analysis jointly organised a seminar entitled “Economic and fiscal forecasts and the budgetary process within the framework of the Stability and Growth Pact (SGP)”. The joint seminar brought together speakers from European and international organisations as well as representatives of the FPB and CPB. During these presentations the emphasis was put on countries’ ownership of the SGP and the responsibility of the Member States for their fiscal framework. Several principles of good governance were evoked and the function that national institutions could have in these regards was highlighted. In this special study we describe the role of Fiscal Councils in the budgetary planning process in Belgium and underline the part taken by the FPB in producing independent macroeconomic forecasts.
Based on the model of independent central banks, a number of economists have recently suggested that fiscal policy should be entrusted to a new Independent Fiscal Authority (IFA) to avoid the injudicious use of discretion by politicians. A less drastic and more realistic option lies in the setup of Fiscal Councils (FC), defined by the IMF as institutions which “would not receive any specific authority over fiscal policy but would undertake analysis and assessment of fiscal developments and policies”1 . In particular they would provide:
The first three items are in the domain of what has been called ‘positive economics’. It requires sound statistical and econometric expertise. It also entails large investment in methods, data collection and computer programs. The last two items are in the domain of ‘normative economics’. It requires other types of resources: especially, experts in economics and public finances, who also have a very good knowledge of politics. They have to take into account not only the political options and preferences but also what is feasible as first best or second best solutions. This is a complicated and subtle task, which includes the capacity to convince the government and public opinion. Positive and normative economics are closely related, with normative economics requesting information and analysis from positive economics, but they have very different roles.
The complex institutional framework of the Belgian state and the dramatic deterioration of the fiscal stance in the seventies and eighties forced the country to put in place FC-type institutions.
There are two main institutions which have to be considered in the Belgian budgetary process: the High Council of Finance (HCF) and the National Accounts Institute (NAI). They are the result of a progressive and maturing process. The starting point was the regionalisation of the Belgian State at the end of the eighties, when the country became a federal state with three Regions and three Communities. Most of Belgium’s sources of revenue are nevertheless still collected at the federal level, and part of these tax receipts is then transferred to the regional level. With a very high public debt, Belgium could not afford to run the risk of further government overspending arising from independent regional governments. In 1989, the HCF was reformed in depth. One of its new tasks was to follow the fiscal policy of the regional governments and to recommend, each year, a coordinated fiscal plan for each government.
At the beginning of the nineties, the entry into the European Monetary Union was another challenge: in 1993 Belgium had a deficit at 7.5% of GDP and a debt ratio at 137%. As the Maastricht targets were set in national accounts concepts, the NAI was created in order to improve the quality of these statistics and of the macroeconomic forecasts upon which the budget was based. The issue of the long-term sustainability of public finances emerged in the public debate in the nineties which followed various reports on the impacts of the ageing population. In 2001, a Study Committee on Ageing was created within the HCF in order to analyse the budgetary and social consequences of ageing. [More in the publication ...]
STU 1-06 was finalised on 13 March 2006
Macroeconomic forecasts and analyses