Federal budget under pressure - Belgium still needs to cut €4.9 billion

According to reports from the Monitoring Committee, the National Bank of Belgium, and the Federal Planning Bureau, Belgium’s federal government still faces a massive budgetary problem and still needs to cut billions.

Since the new government led by Prime Minister Bart De Wever took office, serious efforts have been made for the first time to reduce the government deficit and cut the federal budget of Belgium with billions. However, rising defense spending threatens to derail the budget again. Belgium has been living beyond its means for decades, with excessively high spending on government operations, social benefits, and healthcare.

National Bank of Belgium

The government has taken an initial step by limiting social spending, including shortening the duration of unemployment benefits. This is an important step in the right direction. Nevertheless, budget deficits remain structurally too high and are increasing again. This year, the deficit stands at 3.8%, and without structural reforms it is expected to rise to 4.9% by 2029, amounting to nearly €36 billion.

Defense spending has finally been raised by Minister Theo Francken to the agreed NATO target of 2%. At the same time, these expenditures will need to increase significantly and even double to meet future targets. This is not an unnecessary luxury. The war in Ukraine is costly, and a new conflict has also erupted in the Middle East.

The United States has pointed out that keeping the Strait of Hormuz open is not only in its own interest, but especially in that of Asia and Europe. Europe will have to defend its strategic interests. The United States cannot indefinitely guarantee our freedom and security. Even under previous presidents, Europe was urged to take its own security more seriously. Geopolitical tensions are rising, and the costs of defense and security will continue to increase.

To comply with European budget rules, Belgium will need to cut nearly €5 billion in the coming years of the federal budget. This is separate from the fact that Belgian public debt, at over 109% of national income in 2026, is almost double the European limit of 60%.

The current coalition appears unable to implement further cuts. The Flemish N-VA is the largest coalition party, but even among coalition partner MR in Wallonia, sound public finances are not a priority. As a result, the government has little room to maneuver. Raising taxes is politically difficult, and further cuts to social security and healthcare seem unfeasible during this legislative term.

The only structural solution is to shrink the size of government. In a federal country like Belgium, with multiple governments and a large civil service, it is particularly complex to streamline the state efficiently and cut the federal budget with billions.

The war in the Middle East also highlights Europe’s significant strategic dependence on energy supply. The Netherlands has stopped extracting its gas reserves, and Belgium and Germany have closed nuclear power plants. At the same time, gas imports from the Middle East are under pressure. The only European country benefiting from this situation is Norway, which exports oil and gas.

A comparison with Argentina—where President Javier Milei has structurally reduced the size of government since his election in 2023—suggests that rapid debt reduction is possible. Within a few years, public debt there reportedly fell from 155% of national income to 58% in 2026. In a country like Belgium, with a diverse and developed economy, it should therefore be possible to bring debt below 60%, and preferably even lower.

Countries with low public debt generally also have lower taxes. High debt leads to higher taxes, which in turn weigh on economic growth. Under Milei, Argentina’s economy has grown strongly, leading to reduced spending on social security and cut billions of their federal budget.

It is time for Belgium to make a shift. The federal system appears insufficiently capable of keeping spending under control. In the future, it may be possible, together with the Walloon liberals of MR, to work toward a confederal model similar to Switzerland. There, cantons compete with each other, resulting in structurally lower public spending and a higher level of prosperity than in Belgium.

Looking again at Argentina, where President Javier Milei has drastically reduced the size of government since 2023 and cut billions of federal spending, it is often noted that public debt has dropped very rapidly, from well above 150% to below 60% of GDP, although exact figures vary. Even if this evolution is only partially accurate, it demonstrates that significant and rapid debt reduction is indeed possible. In that light, it should also be feasible for a country like Belgium, with a strong and developed economy, to substantially reduce its public debt.

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