Recovery plans should focus on reducing regulatory and administrative burden

Economic opinion

Various indicators and reports show that the scope and complexity of legal and administrative obligations for businesses and the self-employed remain high in Belgium, also in comparison with many other countries. This damages the business climate and makes Belgium relatively less attractive for investments. In view of the precarious state of public finances, the various Belgian authorities have few resources to steer economic growth strongly in budgetary terms. Hence, the recovery plans must also focus on qualitative measures. A drastic reduction in the regulatory burden and red tape should be an important part of this. Let us hope that already announced ambitions in this area will soon be translated into action.          

Complying with legal and administrative obligations is part and parcel of doing business. After all, government intervention in business through laws, regulations and administrative requirements is necessary to avoid or correct market failures and external effects, such as unfair competition, environmental pollution or noise nuisance. However, due to a rapidly changing society and increasing socio-economic challenges (e.g. mobility, climate change, food safety...), legislation and regulations have become increasingly extensive and complex in Belgium in recent decades. As a result, an significant part of regulation is often a source of irritation and annoyance in practice. According to a UNIZO survey conducted in 2019, half of the entrepreneurs surveyed see red tape as one of their main concerns. Almost one in five would not restart as an entrepreneur because of the high level of red tape. The latest Attractiveness Survey by Ernst & Young (2020) also illustrates the problem: 38% identify ‘political, regulatory and administrative instability’ as the greatest risk to Belgium’s attractiveness.

Size and economic impact

In Belgium, the Federal Planning Bureau, in collaboration with the Service for Administrative Simplification (DAV), carries out every two years an estimate of the administrative burden on businesses and the self-employed. The latest edition relates to the year 2016 (published in 2018, while that of 2020 with figures for 2018 is not yet available). Successive estimates show that the reduction in administrative burdens has come to a halt since 2008. In terms of euros, they have risen slightly since then, to almost 7 billion euros in 2016. But as a percentage of GDP they have remained more or less stable at around 1.6% (Figure 1). The analysis states that smaller enterprises and the self-employed in particular still suffer a great deal from administrative burdens. This is due to the fact that they often have less access to specialised staff positions or lawyers to translate regulations and burdens into their business context.

It is difficult to quantify exactly how large the administrative burden is and whether it is greater than in other countries. This is because the concept covers many loads, ranging from quantitative and qualitative regulatory burdens (e.g. reporting obligations and complex procedures) to inadequate public services (e.g. too little e-government). The fact that there is still a problem in Belgium in many areas and more than in many other countries is reflected in various indicators and reports from international organizations (e.g. EC and OECD country reports, World Competitiveness Report WEF, Ease of Doing Business indicator World Bank, Product Market Regulation indicator OECD). These usually show that Belgium is not only struggling with too many and too complex rules and procedures, but also with other related nuisances. The main pain points are: legislation that changes too often, government that is too slow (long waiting times and procedures), a tax system that is far too complex, too little cooperation between various governments and too few impact analyses of policy implementation.

The still high administrative burden may be partly related to a lack of long-term vision and systemic reforms in Belgian policy making. As a result, measures and regulations from the past are not sufficiently challenged and administrative simplification still too often involves changes on the fringes. Likewise, digitisation in public administration is still too much focused on existing procedures without questioning those procedures themselves. More generally, the public digital service still falls short, despite the many efforts made. For example, Belgium is only 20th in the EU countries in the Digital Economic and Social Index (DESI index) on the digitisation of public services for companies. 

High administrative burdens create an unfavourable business environment and are therefore detrimental to economic growth. In practice, this is reflected in lower efficiency and productivity and in fewer jobs, investments and new entrepreneurship. In particular, the University of Hasselt (see Kevin Poel et al., 2014) conducted research in Belgium into the extent to which administrative simplification would increase macro-economic activity. Using the World Bank’s Doing Business database, it was estimated that a one-quarter reduction in the administrative burden would increase Belgian GDP by 1.12% over a five-year period. To put it another way, this means that potential GDP growth could be boosted by a few tenths of a percentage point over several consecutive years.

Pillar of the recovery policy

The current coronavirus crisis is prompting policymakers to think about the design of a recovery policy that should boost economic growth in the coming years. In view of the precarious public finances, Belgium has little financial means to steer growth strongly in budgetary terms. Hence, the salvation must also be sought in qualitative policy interventions. This includes efforts to drastically reduce the administrative burden on entrepreneurs. In recent years, efforts have been made in this area, but they have not yet been ambitious enough and have not yet yielded enough results.  

Good cooperation with employers’ organizations is important in order to achieve significant gains in administrative simplification. After all, they have a good insight into how their members experience government regulations and administrative obligations. Moreover, rules and obligations must always be tested against quality requirements. This means in the first place that they must be necessary and effective for achieving the intended policy goal, with a minimum of undesirable side-effects. Furthermore, there is a need for simplicity and consistency of regulations, without overlaps and contradictions. This also implies their digital-friendly application. Finally, rules and obligations must apply for a sufficiently long period of time, but at the same time they must be continually evaluated to determine whether they are still up to date and relevant. 

An even firmer commitment to all this must absolutely form part of the recovery policy that the governments in Belgium will pursue in the coming years. Let us hope that ambitions that have already been announced will soon be translated into action. The restrictions imposed as part of the fight against covid-19 have hit businesses and the self-employed very hard over the past six months. In the hope that the virus will not throw another spanner in the works, now is the time to let them do business again smoothly and carefree.

Disclaimer:

Any opinion expressed in this KBC Economic Opinions represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

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