2009 Index of Economic Freedom

Quick Facts

Population:

• 10.5 million

GDP (PPP):

• $353.6 billion
• 2.9% growth
• 2.0% 5-year compound annual growth
• $33543 per capita

Unemployment:

• 7.5%

Inflation (CPI):

• 1.8%

FDI Inflow:

• $72.0 billion

Belgium's economic freedom score is 72.1, making its economy the 20th freest in the 2009 Index. This is a half-point improvement from last year, primarily due to a slight reduction in government spending as a percentage of GDP. Belgium is ranked 10th freest among the 43 countries in the Europe region, and its overall score is above the regional and global averages.

Belgium scores very high in investment freedom, property rights, monetary freedom, and business freedom and is above the world average in eight areas. A member of the European Union, it has a standardized monetary policy and relatively low inflation despite some government distortion in agriculture. Its established rule of law protects property and encourages confidence among foreign investors. Regulation is transparent, and laws are enforced effectively.

Belgium's extensive welfare state is supported by exceptionally high government spending and income tax rates. The overall tax burden remains very high, and Belgium's government size score is about 40 points worse than the world average. High labor costs are sustainable for high-value-added processes, but labor market rigidities remain a considerable barrier to generating employment and productivity growth.

Background Back to the top

Belgium is a federal state consisting of three culturally different regions: Flanders, Wallonia, and the capital city of Brussels, which houses the headquarters of NATO and the European Union and is at the forefront of the supranationalization of power within the EU. The traditional economic distinctions between Flanders (agriculture) and Wallonia (industry) have faded somewhat, and 75 percent of economic activity is now in services. Leading exports are electrical equipment, vehicles, diamonds, and chemicals. After eight years in office, Guy Verhofstadt and his Liberal Party lost the 2007 general election, although they remained in office until March 2008 because of political deadlock. Verhofstadt's interim government negotiated the 2008 budget and generally eased political tensions. Christian Democrat Yves Leterme took over as premier in March 2008.

Business Freedom 93.2 Back to the top

The overall freedom to start, operate, and close a business is strongly protected under Belgium's efficient regulatory environment. Starting a business takes an average of four days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures and 225 days.

Trade Freedom 85.8 Back to the top

Belgium's trade policy is the same as that of other members of the European Union. The common EU weighted average tariff rate was 2.1 percent in 2005. Non-tariff barriers reflected in EU and Belgian policy include agricultural and manufacturing subsidies, import restrictions for some goods and services, market access restrictions in some service sectors, non-transparent and restrictive regulations and standards, and inconsistent customs administration across EU members. Enforcement of intellectual property rights remains problematic. Ten points were deducted from Belgium's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 41.5 Back to the top

Belgium's income tax rate is one of the world's highest, and its corporate tax rate is also high. The top income tax rate is 50 percent, and the top corporate tax rate is effectively 34 percent (33 percent plus a 3 percent austerity tax charged on the income tax due). Other taxes include a value-added tax (VAT), a transport tax, and an estate tax. In the most recent year, overall tax revenue as a percentage of GDP was 46.8 percent.

Government Size 28.3 Back to the top

Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 48.9 percent of GDP. Better fiscal governance could alleviate imbalances among levels of government and the effects of rising expenditures on an aging population.

Monetary Freedom81.0 Back to the top

Belgium is a member of the euro zone. Between 2005 and 2007, its weighted average annual rate of inflation was 2.0 percent. As a participant in the EU's Common Agricultural Policy, the government subsidizes agricultural production, distorting the prices of agricultural products. Price-control policies affect water supply, waste handling, homes for the elderly, medicines and implantable medical devices, certain cars, compulsory insurance, fire insurance, petroleum products, cable television, and certain types of bread. Ten points were deducted from Belgium's monetary freedom score to account for these policies.

Investment Freedom90.0 Back to the top

Most restrictions on foreign investment also apply to domestic investment. Permits and licenses needed for certain industries are not hard to obtain. The investment code is transparent, but bureaucracy can be cumbersome. Investment performance requirements, when present, are linked to job creation. EU regulations require some restrictions on non-EU investment in public works. There are no restrictions on the purchase of real estate, residents' and non-residents' foreign exchange accounts, repatriation of profit, or transfer of capital. When the government uses eminent domain to acquire property for a public purpose, adequate compensation is paid to the property owners.

Financial Freedom80.0 Back to the top

Belgium's highly developed financial sector, supervised by an independent commission, provides a wide range of financial services to savers and investors. Four large “bancassurance” conglomerates dominate the system, but numerous domestic and foreign banks operate in a very competitive environment. The private banking sector has been growing by more than 15 percent per year. Credit is allocated at market terms to foreign and domestic investors. Regional authorities may subsidize medium- and long-term borrowing. The insurance sector is smaller and less robust than the banking sector. The world's first stock market was organized in Antwerp, and Belgium's capital markets are integrated into Euronext, a broader European exchange that gives firms in Belgium access to the most sophisticated financial products.

Property Rights80.0 Back to the top

Property ownership is well protected, and contracts are secure. The laws are codified, and the judiciary and civil service, while often slow, are of high quality. Intellectual property rights are protected, but implementation of relevant EU directives has been slow.

Freedom From Corruption71.0 Back to the top

Corruption is perceived as minimal. Belgium ranks 21st out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Belgium outlaws both active bribery and 'passive bribery,' whereby officials request or accept benefits for themselves or others in exchange for certain behavior.

Labor Freedom70.5 Back to the top

Employment regulations are relatively flexible, but further reform is needed to foster job creation and productivity growth. The non-salary cost of employing a worker can be very high, and dismissing a redundant employee is relatively costly.