Federalisation and fiscal consolidation: the Belgian experience

Since the constitutional reform of 1970, Belgium has evolved from a strictly unitary state into a rather complex federal structure of regions and communities. These regional entities now cover over 20% of all government expenditure. They are financed mainly with transfers from the federal personal income tax and from VAT revenue as well as some regional taxes. Budgetary conventions, largely based on agreements between the federal and regional level, act as internal stability programmes, setting medium-term targets for regions and communities. Clear objectives and an ex-post evaluation by a relatively independent supervisory agency (the High Finance Council), combined with the possibility of limiting the borrowing capacity of non-compliant regions or communities, have created the necessary conditions to turn the historically high deficit into a balanced budget.