Belgium's economy is 74.5 percent free, according to our 2007 assessment, which makes it the world's 17th freest economy. This is a 0.3 percentage point increase, partially reflecting new methodological detail. Belgium is ranked 10th freest among the 41 countries in the European region, and its overall score is above the regional average. Over the past decade, it has almost always scored in the low 70s.As a modern Western economy, Belgium scores highly in many areas. Investment freedom, property rights, monetary freedom, and business freedom are the strongest areas of the economy. As a member of the European Union, Belgium has a standardized monetary policy that yields relatively low inflation despite some government distortion in the agricultural sector. The protection of property by a transparent rule of law encourages confidence among foreign investors, who enjoy excellent market access.
As in many other European social democracies, government spending and income tax rates are exceptionally high in order to support an extensive welfare state. Additional taxes complement the income and corporate levies, bringing overall tax revenue to an uncommonly high 45.6 percent of GDP.
Background:
Belgium is a federal state consisting of three regions: Flanders, Wallonia, and the capital city of Brussels. Brussels also houses the headquarters of NATO and the European Union. Since his re-election in 2003, Prime Minister Guy Verhofstadt and his Socialist–Liberal coalition have sought to ease the income tax burden and balance the budget, yet sluggish growth persists. The services sector accounts for over three-quarters of GDP. Leading exports are electrical equipment, vehicles, diamonds, and chemicals.
Business Freedom - 90.8%
Starting a business takes an average of 27 days, compared to the world average of 48 days. Entrepreneurship should be easier for maximum job creation. Obtaining a business license is relatively simple, and closing a business is very easy. Commercial regulations can hinder entrepreneurial activities, especially for small and medium-size enterprises. The overall freedom to start, operate, and close a business is strongly protected by the national regulatory environment.
Trade Freedom - 76.6%
Belgium's trade policy is the same as those of other members of the European Union. The common EU weighted average tariff rate was 1.7 percent in 2005. Non-tariff barriers reflected in EU and Belgian policy include agricultural and manufacturing subsidies, regulatory and licensing restrictions, and other market access restrictions. Consequently, an additional 20 percent is deducted from Belgium's trade freedom score.
Fiscal Freedom - 62.2%
Belgium's income tax rate is one of the world's highest, but its corporate tax rate is moderate. The top income tax rate is 50 percent, and the top corporate tax rate is 34 percent (composed of a 33 percent tax rate and a 3 percent surcharge). Other taxes include a value-added tax (VAT), a transport tax, and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 45.6 percent.
Freedom from Government - 41.2%
Total government expenditures, including consumption and transfer payments, are very high. In the most recent year, government spending equaled 49.6 percent of GDP, and the government received 4.3 percent of its total revenues from state-owned enterprises and government ownership of property.
Monetary Freedom - 80.0%
Belgium is a member of the euro zone. Between 2003 and 2005, its weighted average annual rate of inflation was 2.5 percent. Relatively low and stable prices explain most of the monetary freedom score. 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, electricity, and gas distribution; waste handling; medicines; automobiles; compulsory insurance; and petroleum products. Consequently, 10 percent is deducted from Belgium's monetary freedom score to account for these policies.
Investment Freedom - 90.0%
Most restrictions on foreign investment also apply to domestic investment. Authorization is required for investment in Belgian flag vessels operated by shipping companies that do not have their main offices in Belgium. There are some restrictions on non–European Union investment in public works as required under EU regulations. There are no restrictions on the purchase of real estate, residents' and non-residents' accounts, repatriation of profit, or transfer of capital.
Financial Freedom - 80.0%
Belgium has one of the world's most developed financial systems. The independent Banking, Finance and Insurance Commission supervises the financial sector. Belgium has over 100 banks, including over 70 foreign banks, and numerous financial service providers. Banks are required to provide a minimum set of services under a "universal service" law. Credit is allocated at market terms and is available to foreign and domestic investors without discrimination. Belgian law differentiates between EU and non-EU banks, financial institutions, and insurance companies, although firms from European Economic Area or World Trade Organization countries may be treated equally. Regional authorities may subsidize medium- and long-term borrowing. The world's first stock market was organized in Antwerp, and capital markets are sound and well-established.
Property Rights - 80.0%
Property is well protected, and contractual agreements are secure. Belgium's laws are codified, and the quality of the judiciary and civil service is high, although the process is often slow.
Freedom from Corruption - 74.0%
Corruption is perceived as minimal. Belgium ranks 19th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005.
Labor Freedom - 70.5%
The labor market operates under relatively flexible employment regulations that hinder employment and productivity growth. The non-salary cost of employing a worker can be very high, and dismissing a redundant employee is relatively costly. Belgium's high labor costs are sustainable for high-value-added processes, but labor market rigidities remain a major barrier to employing a worker. The unemployment insurance system offers benefits that are worth approximately 50 percent of an average worker's annual salary.
