Miss Romanis, economist in the Special Studies Division, is a graduate of Cambridge University. She was formerly on the staff of the Oxford University Institute of Statistics; the Programmes and Plans Division, Ministry of Production, London; the Economic Directorate, Organization for European Economic Cooperation, Paris; and the Economic Survey Division, United Nations, New York. She has published several articles on economic subjects.
The present paper describes developments in the Belgian economy up to October 1963.
Sénat de Belgique, 1962-63 session, Projet de loi portant approbation du premier programme d’expansion économique (December 13, 1962); hereafter referred to as the Economic Program for 1962-65.
Commission gouvernementale pour l’étude des problèmes de financement de l’expansion économique, Rapport, March 31, 1962 (Brussels). Generally referred to as the De Voghel Commission Report, after its chairman.
A recently published study by A. Lamfalussy (The United Kingdom and the Six, London, 1963) lays stress on the fact that even more striking than the difference between the ratios of total gross fixed investment to GNP in the United Kingdom and Belgium, on the one hand, and in the remaining EEC countries as a group, on the other, was the much higher marginal gross capital/output ratio in the United Kingdom and Belgium than in the other EEC countries. However, in Belgium this high capital/output ratio seems to have been strongly influenced by cyclical factors affecting the ratio during the period that he chose, the ratio being considerably lower in preceding and subsequent periods. (The figures used by Lamfalussy relate gross fixed capital formation during 1955-59 to the increase in gross domestic product from 1955 to 1960.) It is clear that the marginal gross capital/output ratio in Belgium during the later 1950’s was also inflated by the large proportion of total fixed investment devoted to residential construction (houses being a long-lived asset have a high cost relative to their annual output). It is noteworthy that during this period, the capital/output ratio in Belgium as defined was not dissimilar from that in the Netherlands.
With the sole exception of France, where industrial production fell very slightly from 1951 to 1952.
The expansion in gross private fixed investment had slowed down to 3.7 per cent from 1960 to 1961, after a very sharp increase of 12.7 per cent from 1959 to 1960.
In 1960 the proportion of all women aged 15-64 gainfully occupied was 48 per cent in the United Kingdom, 45 per cent in France, and 42 per cent in Germany, but only 36 per cent in Belgium, and less in the Netherlands and Italy. Thus, it seems clear that the latter three countries still possessed potential reserves of women workers.
A simple input-output matrix distinguishing the relations between 21 sectors in 1959 served as the starting point for estimating output by broad sectors in 1965, with modifications to take account of the most probable developments of industrial technique, changes in sources of supply, or in forms of energy consumed. A more complex matrix distinguishing 69 sectors, also for the year 1959, has recently been drawn up by experts of each of the EEC countries.
The average annual increases in the output of metal working industries in various countries, as given in the Economic Program for 1962-65, Table 29, were as follows:
|Germany, Fed. Rep.||11.9||9.8|
|Germany, Fed. Rep.||11.9||9.8|
Ibid., Table 31.
According to a study by the Twentsche Bank cited in Cahiers Economiques, October 1961, p. 505, both the proportion of industrial establishments employing less than 50 persons and the proportion of total industrial employment provided by plants employing less than 100 persons are higher in Belgium than in other industrial countries. According to the Economic Program, 50 per cent of all establishments in the metal fabricating industry, and more than 90 per cent of construction firms, employed less than 20 workers in 1959. Establishments employing more than 100 workers accounted for less than 15 per cent of all concerns in metal fabricating and 1 per cent of those in construction.
The Decisive Factors in Investment Decisions by Professor M. Woitrin of the University of Louvain, summarized in Bruce R. Williams, International Report on Factors in Investment Behavior (Organization for Economic Cooperation and Development, 1962).
See pages 45-48 below.
Economic Program for 1962-65, p. 200.
The Commission recognized the possibility that, in the past, substantial borrowing by the public authorities might not have deprived private industry of funds but might have absorbed savings which otherwise would not have been utilized. Nevertheless, it concluded (Commission Report, p. 22) that by borrowing to support consumption the Government and the local authorities had reduced national savings by a corresponding amount—which, of course, would only be true if the sums borrowed would otherwise have been utilized for consumption or investment—so that the national income would not have been significantly lower. It is implicitly assumed both here and in the Economic Program that, in the future, effective investment demands will be at least equal to savings becoming available for investment.
See above, page 32.
Agence Economique et Financière (Brussels), July 14, 1963.
The Treasury’s short-term debt in foreign currencies (including foreign currency borrowing from Belgian banks), which had been reduced from BF 22 billion at the end of December 1961 to BF 11.9 billion in November 1962, had once again risen to BF 17 billion at the end of June 1963; short-term debt denominated in Belgian francs, which had declined by BF 8.7 billion in the second half of 1962, rose by about BF 11 billion during the first half of 1963 (Banque Nationale de Belgique, Bulletin d’Information et de Documentation, June 1963, p. 564).
Changes in company taxation are discussed below (pp. 47 and 48).
The existing five taxes (four on different types of income and one on total income) are being replaced by a single progressive tax with an exemption that varies from BF 25,000 ($500) for taxpayers without dependents to BF 60,000 ($1,200) for taxpayers with four dependents, with an increase of BF 30,000 for each dependent beyond the fourth. The tax will be progressive up to 55 per cent for the tranche of income exceeding BF 5.0 million, but the total will never exceed 50 per cent of taxable income.
Time deposits, which had risen by nearly 15 per cent between December 1961 and June 1962, declined by nearly 9 per cent between September 1962 and September 1963 (Kredietbank, Weekly Bulletin, September 28, 1963).
Since an important element in this investment seems to have been an increase in security holdings in Luxembourg, the balance of payments figures for Belgium-Luxembourg combined may understate its importance. As recorded there, the negative balance of transactions in securities increased sharply from BF 0.8 billion in the first half of 1962 to BF 1.4 billion in the second half and to BF 1.6 billion in the first quarter of 1963.
The Tranche A certificates, yielding
The Fonds des Rentes was established in 1945 to smooth the market for government bonds, using for the purpose money borrowed in the short-term market, or as a last resort from the National Bank. A series of measures taken since 1957 has enlarged the scope of its activities to include purchases and sales of short-term Treasury bills, with the object of providing an instrument for open market operations. In fact, it has been an important supporter of the bond market in recent years. Borrowing by the Fonds from the National Bank is included under the ceiling of BF 10 billion on Treasury borrowing from the Bank.
The effective rate declined from a peak of 4.75 per cent in July 1961 to 3.30 per cent in December 1962, but increased slightly in the first half of 1963.
Kredietbank, Weekly Bulletin, November 2, 1963.
The reforms introduced in November 1962 provide for a slight reduction in the rate of tax on distributed profits, and a rather more marked increase in taxes on undistributed profits, arising in part from the fact that the possibility of deducting from taxable income direct taxes paid during the year is to be abolished. The revised system tends to discriminate somewhat in favor of self-financing by smaller firms.
The basic rate of tax on corporate profits is 30 per cent; undistributed profits exceeding BF 5 million ($100,000) are subject to an additional levy of 5 per cent, and undistributed profits below BF 1 million are taxed at 25 per cent. Thus, for companies with large profits, the taxation on the part of profits exceeding BF 5 million will be increased from about 28.6-29.6 per cent in the former regime to 35 per cent in the new; and for small and medium-sized enterprises earning less than BF 5 million, the new 25-29 per cent tax rate compares with 23-25 per cent under the former regime. On the other hand, the fiscal reform will result in a reduction of the rate of taxation on dividends paid to private persons (whose total incomes do not exceed a certain level) from about 45-47 per cent in the former regime to 42.75 per cent in the new. Taxation on capital gains is reduced as the progressive tax on business earnings applied in the former system is replaced by a 15 per cent tax.
Under the new regime, all interest income (apart from interest on very small savings deposits) is subject to a uniform tax of 15 per cent. Formerly, the tax on private bonds was generally 11 per cent, but interest on public securities and interest at the rate of less than 2 per cent per annum on bank deposits were in practice tax exempt.
Taxes payable by private credit institutions (including banks) are substantially increased by the suppression of certain deductions from taxable income hitherto allowed. Public credit institutions which were formerly exempt from taxes now become subject to taxation.
Op. cit., p. 30.
See in particular the discussion of “defensive” investment in A. Lamfalussy, Investment and Growth in Mature Economies: The Case of Belgium (London, 1961).
See page 39 (fn. 12).
The inquiry did not cover any firms in the steel industry.
Williams, op. cit., Ch. IV, p. 13.
The more rapid growth in private consumption from 1961 to 1962 than in recent years or than forecast in the Economic Program (shown in Table 6, above) was associated with an increase of nearly 9 per cent in average gross hourly earnings during 1962.
Figures given by A. Lamfalussy in The United Kingdom and the Six (London, 1963), Tables 13 and 20, show that average unit labor costs, in dollars, in Belgian manufacturing industry remained unchanged from 1953 to 1960, whereas those of the United States, the United Kingdom, and other EEC countries (apart from France, which devalued considerably during the period) rose by about 10-25 per cent. Although wages have recently tended to rise more rapidly in Belgium, there has been further improvement in the position versus the major European countries (but not the United States) since 1960. Between 1960 and the latter part of 1962, average unit labor costs in Belgium probably increased by not more than 5 per cent, compared with increases of well over 10 per cent for the majority of other EEC countries and the United Kingdom, and of over 25 per cent for Germany.
Belgian exports and imports cannot feasibly be separated from those of Belgium-Luxembourg shown in Table 13.
The value of intra-EEC countries’ trade rose by 25 per cent from 1959 to 1960, by 16 per cent from 1960 to 1961, and by 14 per cent from 1961 to 1962.
The decline in the export share of basic industries would fall on coal and crude steel exports; nonferrous metals and semifinished products are expected to maintain their share in the value of merchandise exports (at constant prices), i.e., to rise by about 40 per cent in volume (Table 11, p. 36).
Considerable shifts have already taken place in the composition of exports of machineiy and transport equipment (for example, a decline in the export of railway equipment); a remarkable provision in this field is the sharp increase called for in exports of motor vehicles.
The maintenance of the share of consumer goods industries in exports appears to depend on a further rise in the share of food processing industries and diamonds, offsetting a further decline in the share of textiles (which reflects a continued reduction in the share of the cotton and jute industries).
See page 39 (fn. 12), above.