Copyright © BusinessAMBE 2023

In the coming years, spending on pensions in our country will rise faster than in most other Western European countries. If we do nothing to get those rising expenses under control, there is little chance of getting our public finances back on track a bit.

This week, the National Bank once again sounded the alarm about our pensions. Government spending on those pensions will continue to rise in the coming years (and decades). Starting from a government that already has to contend with an unsustainably large budget deficit, a high public debt and a heavy tax burden, this additional pension spending will be a tough sell. The National Bank explicitly states that serious reforms to bring that pension spending under control will be necessary to have any realistic chance of getting our public finances back on track.

Faster rising pension spending

Belgian public spending on pensions today is at an average level in the Eurozone, but that will change in the coming years. Pension spending will increase significantly faster in our country than in the rest of Western Europe in the coming decades. The difference with other countries with high public debts such as Italy, France or Spain is particularly striking. Those other countries with shaky public finances have already brought the increase in their pension spending under control earlier. We haven't yet. By the way, the faster increase in spending is not due to the fact that our population would be aging faster (it is not). The main causes lie in higher average pensions, the relatively low number of people in work and the fact that the average Belgian still stops working early.

Specifically, by the end of the next legislature, annual pension spending will already be 4 billion (in today's euros) higher than today. By 2050, the increase in annual public spending on pensions will reach 15 billion. The pension reform that was so much talked about in this legislature increased that future bill a bit more (mainly by increasing the minimum pension). The real pension reform is yet to come.

Time for real pension reform

In the study, the National Bank also immediately shows a number of avenues that would make it possible to bring future spending growth in pensions under control. The most effective of these are to keep older people in work longer (the employment rate of older people remains remarkably low in Belgium) and to cap higher civil service pensions (pensions in the civil service system are remarkably more generous than those for employees or the self-employed). That kind of intervention becomes quasi-unavoidable for the next government, if it wants to prevent our public finances from being completely derailed.

On the left, the National Bank's analysis is not immediately met with cheers. Current Minister of Pensions Lalieux has so far seemed totally uninterested in the financial sustainability of pensions, or is simply counting on interventions on the income side (read, higher contributions and/or taxes). The latter was also at the heart of the union reaction to this study: they immediately tried to focus on pension contributions. If you always see room to find additional revenue, there is obviously never a need for reform. However, in doing so, they seem to forget that we already have the second heaviest overall tax burden in Europe today.

Severity of the challenge is underestimated

In certain quarters, the severity of the pension challenge is bizarrely still minimized. This conveniently ignores the fact that those pensions are not the only challenge we face. In healthcare, a similar challenge is coming our way. By 2050, annual public spending on care will be some 10 billion (in today's euros) higher. And we also need to start finding several annual billions for the necessary catch-up in public investment, including for the sustainable and digital transition. And if we ever want to meet NATO commitments, which is also only becoming more urgent in today's geopolitical climate, some 5 billion more annually will have to go to defense. And all this while starting from a budget deficit of some 30 billion.

And as if that were not serious enough, the fact remains that the estimate of the future aging bill (for pensions and healthcare) is probably still too optimistic. After all, those estimates already assume a marked acceleration of productivity growth in the coming years. That will probably not happen by itself, and can only be realized with structural reforms in education, the labor market, regulation, support for innovation, and so on. Should this productivity growth disappoint in the coming years, the aging bill will be many billions more.

Real pension reform will be a task for the next government.

Author Bart Van Craeynest is chief economist at Voka and author of "Belgium can do better.

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