BELGIUM - Subsidies for early retirement in Belgium should be progressively phased out to increase the employment rate for older workers, according to the Organisation for Economic Cooperation and Development (OECD).
In its Economic Outlook report, the OECD said additional consolidation measures would be required to keep the budget in balance with economic growth expected to slow to 1.3% in 2005 but to rise in 2.4% in 2006 as domestic demand and exports strengthen.
“In view of the economic costs of the already high tax burden, [consolidation measures] should focus on expenditure restraint,” the report noted.
“Further reductions in employers’ and employees’ social security charges are programmed, mostly in 2005, but these are more than compensated by increases in indirect taxes. Personal income tax cuts amounting to 0.6% of GDP are programmed, mostly in 2006. Infrastructure investment is likely to increase strongly but temporarily in 2005-06 ahead of the next municipal elections.
“Based on announced policies and allowing for these factors, the OECD projects that the budget balance will deteriorate to a deficit of 1.2% of GDP in 2006… Additional consolidation measures would be needed and are likely to be taken to realise the government’s objective of maintaining the budget in balance.”
The organisation proposed the phasing out of subsidies for early retirement as a means of encouraging older workers to remain in employment and subsequently ease the burden on government.
In Austria, the OECD said legislated pension harmonisation marks progress towards long-term sustainability of government finances, but further reductions in general government outlays are needed to offset the impact of tax reductions on the deficit and make progress in moving it back to balance.
“While legislation harmonising pension schemes across occupational groups will lower pension spending in the long term, the government deficit will increase substantially this year on account of personal income tax and corporate tax reductions as well as increased spending on childcare cash benefits,” the report stated.
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