As debt and borrowing costs rise, interest payments are taking up a growing share of Belgium’s budget. Without action, they will increasingly squeeze the resources available for essential public services and for meeting ageing, defence and climate-related spending needs. A strengthened multi-year fiscal strategy, supported by federal and regional governments, should combine expenditure restraint and efficiency gains with tax reform.
By Caroline Klein, OECD Economics Department
Belgium’s public finances are under pressure. The general government deficit reached 5.2% of GDP in 2025, while public debt climbed to 108% of GDP, the fourth-highest ratio in the European Union (Figure 1, panel A). Since 2019, the debt to GDP ratio has risen by more than 10 percentage points, around four times the EU average. One reason is the growing cost of servicing public debt. Rising interest expenditure is becoming one of the main drivers of fiscal deterioration, alongside ageing and defence spending. The yield on ten-year federal government bonds increased from around zero in 2021 – and among the lowest within the euro area – to approximately 3.8% in the third quarter of 2026, among the highest of the euro area (Figure 1, panel B).
Looking ahead, the outlook is challenging. Without further action, the deficit is projected to widen further and public debt to keep rising as age-related spending, defence needs, and interest costs increasingly weigh on public finances. Illustrative OECD projections suggest public debt could increase to 117% of GDP by 2030 and exceed 190% of GDP by 2050.
Figure 1. High public debt and rising borrowing costs are increasing fiscal pressures
Note: The shaded area in the second panel shows the range for 17 countries that are members of both the OECD and the euro area.
Source: OECD (2026), OECD Economic Outlook: Statistics and Projections (database); and Eurostat.
Strengthening the consolidation strategy
The consolidation effort needs to be frontloaded and strengthened. A new EUR 10 billion consolidation package is being negotiated but has not yet been approved. Even if adopted in full, it would be insufficient to put the debt ratio on a declining path. OECD projections suggest that putting debt on a path towards stabilisation at around 110% of GDP would require a cumulative adjustment of approximately 3.5% of GDP by 2035, in addition to measures already legislated.
Delaying action would make the adjustment more difficult, especially as rising interest costs would absorb an ever larger share of public resources. Interest payments are projected to increase by around one percentage point of GDP by 2030. However, an excessively abrupt adjustment that weakens investment, growth or essential public services could ultimately make debt more difficult to reduce. Belgium therefore needs a stronger multi-year plan, that combines balanced fiscal measures with reforms to raise employment and productivity as set out in the 2026 Economic Survey of Belgium. With the tax burden already among the OECD’s highest, fiscal consolidation should rely mainly on spending measures. But given the scale of the challenge, these measures should be complemented by tax reforms.
Containing spending growth by improving spending efficiency
Where could savings come from? Figure 2 (panel A) points to several areas in which Belgium spends more than comparable countries, including social protection, education and economic affairs, and to particularly high support for private enterprises (panel B). Higher spending does not automatically imply inefficiency. However, these comparisons help identify areas where spending reviews could uncover opportunities to achieve better outcomes at lower cost.
Education spending is high compared with that of other OECD and EU countries, while outcomes have deteriorated and are not commensurate with expenditure. Reforms reducing grade repetition and adjusting the education system to demographic change could improve outcomes while containing costs.
Another area that warrants closer scrutiny is business support. Government expenditure on subsidies for firms are among the highest in the OECD (Figure 2, panel B). Regular evaluations and sunset clauses would help determine whether these measures provide good value for money and remain the most appropriate instruments for achieving their objectives.
Public-sector employment costs also deserve attention. Belgium also has one of the highest public-sector wage bills in the OECD, including compared with countries that provide strong public services. Upcoming retirements create scope to reduce the wage bill, provided that workforce reductions form part of a strategic staffing plan. Digitalisation and artificial intelligence could also generate productivity gains over time, although they will require upfront investment and staff training.
In healthcare and long-term care, a greater focus on prevention, coordination and home-based services could help contain spending growth while maintaining quality and access.
Figure 2. Areas where public spending is particularly high deserve attention
Source: Eurostat (2026), General government expenditure by function; and Expenditure on social protection as percentage of GDP and Social benefits by function- % of total benefits; and OECD (2026), Restoring Public Finances: Enabling Effective Government
Spending reviews can help to identify inefficiencies and potential savings. Belgium has increasingly incorporated them into federal and regional budget processes. To be more effective, however, reviews should cover major expenditure areas, include explicit savings objectives and feed directly into multi-year expenditure ceilings. Transparent monitoring would help ensure that agreed reforms lead to measurable savings.
Since 2025, Belgium has adopted reforms to pensions, unemployment insurance, and sickness and disability benefits to contain social spending growth and strengthen work incentives Their budgetary impact will depend partly on whether they succeed in raising employment and on the extent to which beneficiaries move into other support schemes. Strengthening lifelong learning and incentives for employers to adapt workplaces to an ageing workforce would support longer working lives by helping people remain employable and able to work for longer. Additional reforms could strengthen the long-term sustainability of the pension system, including by linking the statutory retirement age to life expectancy.
Eliminating ineffective tax expenditures and improving the tax mix
Tax reform also has an important role to play in the fiscal consolidation strategy, starting with the reduction of ineffective tax exemptions and preferential tax treatments. Tax expenditures were estimated at around 6.5% of GDP in 2023. A comprehensive review should identify provisions that are ineffective, distortive or poorly targeted.
Belgium could further improve the efficiency of its tax system by shifting taxation towards bases that are less harmful to growth and employment. Property taxation should be based on updated property values or actual rental income rather than cadastral values dating from 1975, with safeguards for low-income homeowners. Environmental and health-related taxes could be used more effectively to discourage environmentally harmful activities and unhealthy behaviours, while temporarily raising revenue.
Finally, there is scope to collect existing taxes more effectively. The VAT compliance gap, meaning the difference between the VAT revenue that should theoretically be collected and the amount actually collected, is estimated at around 14%. Measures such as wider use of digital reporting and AI-enabled risk assessment could help improve compliance and generate significant additional revenue.
Conclusion
Belgium faces difficult fiscal choices, but delaying action would only make those choices harder. A stronger medium-term consolidation strategy based on spending efficiency and targeted tax reforms would help create the fiscal space needed to preserve high-quality public services while addressing future spending pressures linked to ageing, defence and the green transition.
References:
OECD (2026), OECD Economic Surveys: Belgium 2026, OECD Publishing, Paris, https://doi.org/10.1787/e40fe757-en.
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