BELGIUM

The 1831 Constitution established Belgium as a unitary parliamentary monarchy. However, a process of federalisation started in the 1970s to better take into consideration linguistic, cultural and socio-economic differences, in particular between the regions of Flanders and Wallonia. Six constitutional reforms took place between 1970, 2001 (Revision of the Constitution Special Act and Lambermont Agreement) and 2011, the latter taking effect since 2012-2014.

The country’s federal structure of government has gradually but significantly evolved over the past decades towards a greater devolution of decision-making power to the six federated entities, made up of three regions (the Flemish Region, the Walloon Region and the Brussels-Capital Region) and three communities (the Flemish Community, the French Community and the German-speaking community). The determining characteristic of a region is its geographical area while that of a community is its culture and language.

At the federal level, the legislative power is exercised by the Federal Parliament, composed of two assemblies: the Chamber of the Representatives and the Senate. Following the 6th State Reform, members of the Senate (the upper house which serves as a chamber of the communities and regions) are designated by the federated entities (50/60) or co-opted (10/60), and no longer elected (Art. 67 of the Constitution). Senators have no veto powers over federal legislation.

At the regional level, there are five main legislatures, elected for a five-year term, and five governments, elected by the Parliament, which in turn elects a president: (i) the Flemish Parliament and Government (which represent both the region of Flanders and the Flemish community), (ii) the Walloon Parliament and Government, (iii) the French Community Parliament and Government, (iv) the Brussels Capital Region Parliament and Government and (v) the German-speaking Community Parliament and Government. In addition to the five legislatures, there are also the French Community Commission (Cocof) and the Common Community Commission (COCOM) with legislative power.

At the local level, provinces and municipalities have been governed by regional legislation since the federalisation of the country. The 1831 Constitution grants the principle of local and provincial autonomy but did not list provincial responsibilities. The law of 1836 (the Provinciewet) and its subsequent revisions enshrined powers in economic affairs, secondary education, culture, roads and social protection to provinces (see section below). They are also responsible for the implementation of national laws and of communal and regional decrees in their territory. Regional decrees (Flemish and Walloon regions) and ordonnances in the Brussels-Capital region (for municipalities) determine and create regional differences in the organisation, responsibilities and finance of provinces and municipalities.

Belgium federalism is different from most other federal countries as it relies on the principle of no hierarchy between the federal government and the subnational governments. This means that no authority has precedence over another and no authority can impose requirements (including regulatory requirements) on another. Legislative texts issued by each authority are thus on an equal footing. The Constitutional Amendment of 1993 also includes the principle of “in foro interno, in foro externo” (art. 167), meaning that all governments have control over domestic issues as well as over foreign issues in areas they have internal jurisdiction (e.g. economy, environment, culture, health policy). Subnational governments have the constitutional right to conclude internationally-binding treaties in these areas and can appoint diplomatic representatives abroad.

The distribution of responsibilities between the regions and communities and the federal level is subject to judicial control, exercised by the Constitutional Court of Belgium, which can annul legislative acts that contravene the division of powers, and by the Council of State, which has the same competence regarding administrative acts contravening the division of powers. The 6th state reform transferred additional responsibilities to regions and communities.

There are a number of inter-governmental coordination mechanisms. A Concertation Committee, which includes representatives from the federal government and federated entities, plays a key role in the concertation, co-operation and co-ordination between the federal government, regions and communities to achieve common or individual objectives with respect to the their own competencies. The local governments (municipalities, provinces) are represented by their associations in their respective region (a "united" national association also exists) and participate in committees at the federal level, although no formal consultation mechanism is in place.

TERRITORIAL ORGANISATION
MUNICIPAL LEVEL	INTERMEDIATE LEVEL	STATE LEVEL	TOTAL NUMBER OF SNGs (2021)
581 municipalities (communes, gemeenten)	10 provinces (provinces, provincies)	3 regions (regions, gewesten) and 3 communities (communautés, gemeenschappen)
Average municipal size: 19 890 inhabitants
581	10	6	597

OVERALL DESCRIPTION: Belgium has three tiers of subnational governments: six federated entities (including three regions and three communities), 10 provinces and 581 municipalities.

STATE LEVEL: The federated level is composed of the three regions and the three communities. The Flemish Region (Vlaams Gewest) represents 44% of the Belgian territory and 57.7% of its population, while the Walloon Region (Région Wallonne) accounts for 55% of the area and 31.8% of the population. The Brussels capital region (Région de Bruxelles-Capitale) accounted for 0.53% of Belgian territory but 10.6% of the total population in 2020. The three communities cut across the regions. In particular, the Flemish Community comprises all the inhabitants of Flanders and Brussels-based Flemings (i.e. around 6.6 million inhabitants). The French Community comprises all the residents of Wallonia as well as Brussels-based French-speaking inhabitants (around 4.5 million inhabitants). The German-speaking Community comprises all the inhabitants of the nine German-speaking municipalities in the east of Belgium (i.e. around 77 800 inhabitants).

INTERMEDIATE LEVEL: The intermediary layer of government includes 10 provinces, with five provinces in the Flemish region and five others in the Walloon region. Regions are very diverse in terms of population size and land mass. Provinces have existed for a long time in their current boundaries, except for the province of Limburg, the province of Brabant and the Brussels-Capital Region. The Brussels capital region directly exercises provincial responsibilities. The provincial government consists of three main institutions: (i) the provincial council which is the deliberative body elected every six years by direct universal suffrage and chaired by a president (elected among its members); (ii) the permanent deputation (in Flanders) or provincial college (in Wallonia), which is the executive body (its representatives are appointed by the provincial council among their own members); and (iii) the Governor, who is appointed by the regional government. Provinces are themselves sub-divided into administrative districts.

The role of the provinces is the subject of much debate. In December 2018, the Walloon Government agreed to transfer a range of powers from the provinces to the region "to improve the institutional readability, to make more effective the exercise of regional powers and strengthen support for municipalities”. In Flanders, provinces will focus more on “territory-related powers”, losing the “person-based powers”, as well as part of their resources (tax and grants).

MUNICIPAL LEVEL: The municipal tier of government comprises 581 municipalities, which have been governed by regional legislation since 1988. The deliberative body is the municipal council whose representatives are elected every six years by direct universal suffrage. The executive body is the college of burgomaster and aldermen (known as the college communal in the Walloon region). Aldermen are elected by the municipal council, while the burgomaster is nominated according to different rules depending on the region.

The number of municipalities has been stable for around 45 years, following a process of compulsory mergers between 1975 and 1983. In particular, the 1975 royal decree reduced the number of municipalities from 2 359 to 596. In 2020, the Flemish region had 300 municipalities (from 308 following mergers in 2019), while the Walloon region has 262 and Brussels-capital 19. In its 2017 regional policy statement, the new Walloon government announced its willingness to encourage municipal mergers on a voluntary basis both by financial and regulatory incentives, as well as by administrative and technical support. The Flemish government also supports voluntary mergers through the Flemish Coalition Agreement 2019-2024. The region supports the local councils that take the decision to merge and guides them in their implementation. The average municipal size in Belgium is almost twice the OECD average municipal size (around 10 250 inhabitants). There are very few small municipalities (1% of less than 2 000 inhabitants) as the majority (72%) have below 20 000 inhabitants.

HORIZONTAL COOPERATION: The Flemish and Walloon Regions are currently encouraging “supra-municipalities”. In Flanders, there are five legal forms of inter-municipal cooperation: “interlocal association”, “project association”, “service providing association”, “association with a clear assignment”, and “association with a clear assignment and private sector participation”. The first form consists in a basic contract while the other four forms result in establishing a separate judicial entity. Intermunicipal cooperation is widespread, taking place in various sectors, such as drinking water provision, waste water management, waste management, management of crematoria, distribution of gas and electricity, communication (internet, TV), economic development, etc.

One common form of inter-municipal cooperation is inter-municipal companies (intercommunales), which are public law entities that are subject to both private and public law. Intercommunales can be limited companies, cooperative companies with limited responsibility (SC or CV) or non-profit associations (ASBL). If they have only municipalities as shareholders, they are “pure” inter-municipal companies. If they bring together public and private shareholders, they are “mixed” inter-municipal companies. There were 323 intercommunales in 2015 in Belgium, accounting for around 38 000 jobs.

The government of Flanders also aims to bring more coherence to these intermediary structures through subregionalisation. Reference subregions are, on the one hand, a consultation model where agreements can be made on subregional policy, and on the other hand, the reference for the operating range of forms of inter- and supra-municipal cooperation. They are not a new layer of government: they have no powers of their own, no bodies of their own and no funding of their own. As of February 2022, Flanders was divided into 15 reference subregions. The local authorities will align the operation range of their forms of cooperation with these reference subregions. The government of Flanders may grant in exceptional cases a temporary postponement or permanent derogation.

Exclusive competences are assigned to the regions and communities and the remaining ones are assigned to the federal government: foreign affairs, national defence, the main parts of justice and national security, citizenship and immigration, fiscal and monetary policy, social security, parts of national health and domestic affairs. The in foro interno, in foro externo principle also prescribes that subnational governments can conduct an external policy for those policy issues that lie within their competences. They can engage proactively in foreign policy at multiple levels: the European level, the bilateral level (in relation to individual states or federated states and at the multilateral level.

Regions and communities are responsible for the legal framework of municipalities, including their political and administrative structure, policies for local police, firefighting and social protection remain federal competences. Regions are also responsible for territorial matters (economic affairs, transports, environment protection, spatial planning, housing, etc.) and employment, while communities are responsible for person-related matters (culture, health policy, social protection, education, etc.). The 6th State Reform transferred additional responsibilities to regions on labour market policies and mobility (but they remain shared responsibilities) and to communities (family allowance, long-term care).

Provincial and municipal responsibilities are not clearly defined in the legislation and they often overlap. They also differ from one region to another. Provinces are usually responsible for general provincial affairs, the maintenance of infrastructure, urban planning, and initiatives in sport, education, culture and social policy. Provincial responsibilities are being reduced. In the Flemish region, the provinces are only to exercise non person-related powers since 2014. In January 2018, the list of their tasks was shortened further and all person-related powers, which were still exercised by the provinces, were transferred to the Flemish Community or to the municipalities. In the Walloon region, some provincial responsibilities were transferred to the regional level (e.g. provincial roads, housing and energy policies). Municipal responsibilities are very extensive. Their tasks comprise those attributed by higher levels of government and those of “municipal interest”.

It is important to note that the responsibilities in the below table are presented for subnational governments at the regional, intermediate and municipal levels on a general basis, but differences may arise among individual subnational governments given their differences in size, policy choices, etc.

Main responsibility sectors and sub-sectors
SECTORS AND SUB-SECTORS	State level	Intermediate level	Municipal level
1. General public services (administration)	Regions: supervision of provincial and municipal law and local utility companies; Research, development & innovation	Provincial administration; Implementation of federal and regional regulations	Municipal general affairs; Administrative functions delegated by the region/province e.g. public registry office (delegated by the federal state)
2. Public order and safety	Communities; justice homes		Public order (delegated); Local polices; Participation to Fire and Rescue Services Zones
3. Economic affairs / transports	Regions: transport (except railway and aviation policy); Roads, ports and inland waterways infrastructure; Regional airports; Alternative Fuels Infrastructure; Public transport (except rail); Maritime and road policy (shared with the federal government); External trade; Energy (except for national facilities and nuclear energy); Agriculture and fisheries; Economic policy (including direct support, guarantees, business sites and cluster policy); Employment; Industrial restructuring	Public works	Local economic development; municipal road infrastructures; Tourism
4. Environment protection	Regions: environment policy; Nature conservation	Interventions in some areas	Green areas
5. Housing and community amenities	Regions: urban policy and spatial planning; Rural development; Public works and infrastructure; Public housing; Social housing subsidies; Water policy	Urban planning	Town planning and building permits; Water distribution; Sewerage; Waste management
6. Health	Communities: sanitary education; Preventive medicine	Medical prevention
7. Culture & Recreation	Communities: museums and art; Theatres; Libraries; Audio-visual media; Use of languages; Tourism	Some intervention in the cultural and recreational sector	Sports; Culture
8. Education	Communities: education and training (pre-primary to higher and adult education); Scientific research	Some interventions in secondary and higher education	Pre-schools; Primary education; Secondary and higher education for large cities
9. Social Welfare	Regions: minor aspects of social security (such as reduction of social security contributions for targeted groups). Communities: social welfare (excluding social security); Hospitals; Aid to families; Protection of youth; Immigrant assistance services	Some interventions in the area of social policy	Social welfare via public social welfare centres (CPAS in Walloon region, OCMW in the Flemish region and CPAS/OCMW in the Brussels Capital Region)

Scope of fiscal data: state government level: six regions and communities and related entities; local government level: provinces, municipalities, local police zones, local rescue zones and public social assistance centres (OCMW/CPAS), Metropolitan Brussels, water boards, fire departments and other local public entities (municipal syndicates).

SNA 2008

Availability of fiscal data: High

Quality/reliability of fiscal data: High

GENERAL INTRODUCTION: The 1989 Special Financing Act (last amended in January 2014) has been crucial for fiscal decentralisation in Belgium as it covers the refinancing of communities and the extension of fiscal powers for regions. The aforementioned 6th State Reform also strengthened the financial autonomy of federated entities, by increasing their own-source tax revenue. Due to the complex political and institutional setting of subnational governments in Belgium, fiscal and structural reforms are difficult to achieve. The federated entities decide on the financing arrangements of the municipalities and provinces in their respective territories, leading to different local finance systems depending on the region.

Subnational, state and local government expenditure by economic classification
	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure	15 275	11 403	3 872	29.0%	21.7%	7.4%	49.0%	36.6%	12.4%	100.0%	100.0%	100.0%
Inc. current expenditure	13 766	10 328	3 438	26.2%	19.6%	6.5%	47.1%	35.3%	11.8%	90.1%	90.6%	88.8%
Compensation of employees	5 538	3 304	2 233	10.5%	6.3%	4.2%	79.7%	47.5%	32.1%	36.3%	29.0%	57.7%
Intermediate consumption	1 645	1 038	607	3.1%	2.0%	1.2%	72.2%	45.5%	26.6%	10.8%	9.1%	15.7%
Social expenditure	3 192	2 775	417	6.1%	5.3%	0.8%	21.6%	18.7%	2.8%	20.9%	24.3%	10.8%
Subsidies and current transfers	3 251	3 079	172	6.2%	5.9%	0.3%	77.8%	73.7%	4.1%	21.3%	27.0%	4.4%
Financial charges	135	131	4	0.3%	0.3%	0.0%	13.2%	12.8%	0.4%	0.9%	1.2%	0.1%
Others	6	1	5	0.0%	0.0%	0.0%	100.0%	1.5%	98.5%	0.0%	0.0%	0.1%
Incl. capital expenditure	1509	1 075	433	2.9%	2.0%	0.8%	79.5%	56.7%	22.8%	9.9%	9.4%	11.2%
Capital transfers	361	339	22	0.7%	0.6%	0.0%	83.3%	78.3%	5.0%	2.4%	3.0%	0.6%
Direct investment (or GFCF)	1 148	736	412	2.2%	1.4%	0.8%	78.4%	50.3%	28.1%	7.5%	6.5%	10.6%

EXPENDITURE: Belgian subnational governments play a significant role in public spending as they are responsible for almost half of public spending at the national level in 2020, corresponding to 29% of GDP. This reflects a significant increase of 9 percentage points since 2013, partly due to the implementation of the 6th State Reform. As a result of this increase, subnational government shares in public spending and in GDP are above the OECD average of the nine federal countries (43.5% and 20.6% respectively in 2020). Subnational governments are key public employers, accounting for 79.7% of all public staff spending (against 76.5% in OECD federal countries).

Regions and communities make the bulk of subnational government expenditure, accounting for 74.7% of subnational government expenditure and 36.6% of total public expenditure, respectively. By contrast, local government expenditure represents a relatively small share of subnational government expenditure (25.3%) and total public expenditure (12.4%). Municipalities and provinces are also large employers. They spend more than half of their total budget on staff expenditure and account for 40.3% of subnational government staff expenditure. The weight of staff spending is also linked to increased cost of financing of their statutory officials’ pensions, which represent a financial challenge.

DIRECT INVESTMENT: In Belgium, public investment is mainly carried out by subnational governments (79.5%), although the share has decreased over the recent years (88.7% in 2016). The share of subnational government investment in GDP is also above the average of OECD federal countries in 2020 (2.0%). The role of regions and communities is particularly significant, as they represented 50.3% of total subnational government direct investment in 2020, against 28.1% for local governments. Subnational governments invest primarily in general public services (32.3% of subnational government investment in 2019) and economic affairs/transportation (32.0%), followed by education, and recreation, culture and religion.

Regional and federal authorities have taken steps to enhance investment in clean transport infrastructure through multiannual investment plans. The Walloon region established an Investment Plan in 2018, as part of the National Strategic Investment Pact, to increase investment expenditure by EUR 5 billion between 2019 and 2024 in order to meet regional infrastructure needs in the domains of mobility, energy, digitalisation, research and innovation. The Brussels-Capital region has established a 2015-2025 Multiannual Plan for Public Transport, which includes more than EUR 6 billion for metro, tram and bus improvements. Similarly, the Flemish region adopted an integrated EUR 2.23 billion investment programme in 2022 for mobility and public works.

The country increasingly relies on PPPs to finance infrastructure investment, with a significant number of PPPs contracted at all levels of government. The federal state and the Flemish region were early movers. Belgium set standardized procedures, detailed guidance and documentations on PPP contracts to reduce tender costs in 2016. At the regional level, Flanders and Wallonia established special PPP units to encourage their use in investment (the Flemish PPP Knowledge Centre and the Wallonian PPP unit, respectively). The Flemish PPP Knowledge Centre was dissolved in 2019 given that PPP is now a well-known method and a great deal of experience has been built up since then. The regions also implemented integrated permit regimes to reduce deadlines and simplify PPP procedures on complex projects. In addition, the Flemish region adopted a decree that provides a framework for major investment projects in 2019, which introduced a safeguard ceiling for availability payments related to PPPs.

Subnational, state and local government expenditure by functional classification
	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total expenditure by economic function	14 468	10 690	3 789	26.4%	19.5%	7.2%	-	-	-	100.0%	100.0%	100.0%
1. General public services	2 455	1 739	718	4.5%	3.2%	1.4%	20.0%	14.2%	5.8%	17.0%	16.3%	18.9%
2. Defence	0	0	0	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
3. Security and public order	497	30	469	0.9%	0.1%	0.9%	45.6%	2.7%	42.9%	3.4%	0.3%	12.4%
4. Economic affairs/transports	2 328	1 951	378	4.2%	3.6%	0.7%	62.0%	51.9%	10.0%	16.1%	18.3%	10.0%
5. Environmental protection	617	398	220	1.1%	0.7%	0.4%	86.8%	56.0%	30.8%	4.3%	3.7%	5.8%
6. Housing and community amenities	199	95	105	0.4%	0.2%	0.2%	100.0%	47.6%	52.4%	1.4%	0.9%	2.8%
7. Health	537	521	15	1.0%	1.0%	0.0%	12.9%	12.6%	0.4%	3.7%	4.9%	0.4%
8. Recreation, culture and religion	667	291	377	1.2%	0.5%	0.7%	94.5%	41.3%	53.3%	4.6%	2.7%	10.0%
9. Education	3 811	3 060	753	6.9%	5.6%	1.4%	100.0%	80.3%	19.7%	26.3%	28.6%	19.9%
10. Social protection	3 359	2 605	756	6.1%	4.7%	1.4%	25.0%	19.4%	5.6%	23.2%	24.4%	20.0%

Consistently with the large array of their responsibilities, subnational governments main expenditure categories include education (26.3% of subnational government expenditure in 2019), social protection, general public services and economic affairs. The increased share of total subnational government spending on healthcare and social assistance results from the devolution of additional responsibilities to regions and communities with the 6th State Reform. At the local level, priority areas are social protection (20.0%) and education (19.9%). Security and public order represent 12.4% of local spending, with the existence of 195 “local police zones”. The growing use of integration allowances and the increased cost of social services pose financial challenges for local governments.

Subnational, state and local government revenue by category
	Dollars PPP / inhabitant			% GDP			% general government			% subnational, state and local government
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total revenue	14 156	10 225	3 931	26.9%	19.4%	7.5%	53.5%	38.7%	14.9%	100.0%	100.0%	100.0%
Tax revenue	3 861	2 699	1 163	7.3%	5.1%	2.2%	24.8%	17.3%	7.5%	27.3%	26.4%	29.6%
Grants and subsidies	7 984	5 920	2 064	15.2%	11.3%	3.9%	-	-	-	56.4%	57.9%	52.5%
Tariffs and fees	1 148	743	405	2.2%	1.4%	0.8%	-	-	-	8.1%	7.3%	10.3%
Income from assets	220	111	109	0.4%	0.2%	0.2%	-	-	-	1.6%	1.1%	2.8%
Other revenues	943	752	191	1.8%	1.4%	0.4%	-	-	-	6.7%	7.4%	4.9%

OVERALL DESCRIPTION: The share of subnational government revenue in total public revenue in 2020 increased by 10 percentage points since 2013, from 43.8% to 53.5%, as a result of the 6th State Reform. The Reform, through the special law of 6 January 2014 on the Financing of the Communities and Regions, led to the strengthening of regional financial autonomy and bolstered the own-source revenue of regions and communities to compensate for the elimination of grants from the federal government.

Almost three quarters of subnational government revenue are attributed to regions and communities, against 27.8% for local governments. The ability to finance expenditure through own-source revenue remains however limited for regions, and almost non-existent for communities whose competences have no clear territorial basis. In 2020, the major part of combined subnational government revenue remains grants and subsidies (56.4%), while taxes accounted for 27.3% of subnational government revenue. Local governments are slightly less reliant on those grants.

TAX REVENUE: Despite the 6th State Reform, subnational government tax revenue accounted for only 27.3% of subnational government total revenue in 2020, which is well below the average of the OECD federal countries (45.8%). The shares of subnational government tax revenue in GDP and public tax revenue are also much lower than in the OECD federations (9.3% of GDP and 45.8% of public tax revenue on average).

At the regional level, there are major disparities between regions and communities on taxes given that communities enjoy little tax revenue. Regional taxes comprise both shared taxes and own-source taxes. Regions receive a share of the personal income tax (PIT) collected in their territory. Since 2014, the regions can also levy a regional surtax on PIT with an equalisation component and have extended powers on tax bases, rebates and exonerations. In addition, regions perceive around 12 own-source taxes, including property transfer duties, inheritance and gift tax, tax on vehicles, the withholding tax on real estate (property tax levied on owned land, buildings and industrial equipment based on the rental value of the property), taxes on goods and services, excises taxes on tobacco, alcohol and soft drinks, etc. In 2021, the Walloon Region took over the collection services of the withholding tax on real estate for administrative simplification purposes. The region is reforming various property taxes with the aim to modernise them. Several taxes on the environment have also been transferred from the federal level to the regions. Since 2020, they are notably responsible for the management of the road tax as well as the vehicle registration tax in order to reduce car congestion and improve air-quality in their territory. By contrast, the three communities do not have fiscal revenue of their own. They are mainly financed by shared tax mechanisms from the PIT collected in their area and VAT tax, for which they do not have rate-setting power.

At the local level, Belgium’s local taxation system differs from other federal countries since municipalities can create new local taxes and have large leeway over both tax rates and bases. The main local own-taxes are surtaxes on the PIT, on the vehicle tax, on the regional withholding tax on real estate and on other local taxes (e.g. waste and leisure taxes). Provinces also levy taxes under the form of surtaxes on the withholding tax on real estate and other taxes (e.g. tourist tax, tax on second residences, tax on bicycles, taxes on surface water protection and water collection, hunting and fishing licenses). In Flanders, as part of the provincial reform, the additional surtaxes levied on the property tax has been limited since 2018 and provinces lost most of their taxing power.

Overall, PIT levied at the subnational level as shared or own-source tax accounted for 43.4% of subnational government tax revenue in 2020 (46.5% for the state level and 36.2% for the local level) and 11.8% of total subnational government revenue. The recurrent taxes on property, levied both by regions and local governments, accounted for 1.3% of GDP in 2020 (close to the OECD average of 1.0% in 2019), 17.9% of subnational government tax revenue (1.7% for the regions and 55.6% for the local level) and almost 5% of subnational government revenue (and 16.4% of local government revenue).

GRANTS AND SUBSIDIES: Belgium’s decentralisation system has been characterised by strong fiscal imbalances, with a high level of decentralised expenditure compared to a more centralised distribution of revenue. This imbalance remains despite the 6^th State Reform. Grants and subsidies accounted for 55.7% of subnational government revenues in 2020 (57.7% at the state level and 50.5% at the local level). The equalisation mechanism from the federal government to federated entities is called “National Solidarity Intervention” (Dutch: Nationale Solidariteitsbijdrage (NSB); French: Intervention de solidarité nationale (ISN)). Under this scheme, equalisation is carried out at the level of the regions on the basis of PIT collection and unemployment. The Brussels capital region also receives additional grants from the state to cover costs that the region bears in comparison to others related to bilingualism, transportation, training and security.

Local governments receive funds and specific allocations from their regional government, both earmarked and general grants, which in 2020 amounted to half of their total revenue. The Municipal and Provincial Funds, which have been managed by the regions since 1989, are the most important grants. Each region (and the German-speaking community since 2005) applies its own growth rate to its Municipal Fund and allocates its resources among the municipalities according to its own rules. These general-purpose transfers include financial equalisation mechanisms. In each region, the funds are allocated in inverse proportion of the fiscal capacity of the municipality’s residents in terms of the surtax on PIT and property tax. Earmarked funds include subsidies to cover specific current and capital spending responsibilities.

OTHER REVENUE: Subnational governments can generate own revenue from user tariffs and fees (8.1% of subnational government revenue; 7.3% for regions and communities and 10.3% for municipalities and provinces). Proceeds from sales of goods and services include charges paid for various services provided by the CPAS/OCMW (meals, child care or home care), parking fees, waste collections bags or containers. In 2016, regional governments introduced a new toll on heavy trucks. The levy is applied to motorway users, as well as on a number of regional and municipal roads.

Subnational governments also raise minor income from financial and physical assets (rentals, dividends, interests, etc.), which accounted for 1.6% of their revenue in 2020. In the past two decades, income from assets has strongly declined for two main reasons: the sale by local authorities of substantial shareholdings, notably in the energy sector, leading to the disappearance of the dividends; and, the low interest rate that depressed income from assets.

Subnational, state and local government fiscal rules and debt
	Dollars PPP / inh.			% GDP			% general government debt			% SNG debt			% SNG financial debt
-	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local	SNG	State	Local
Total outstanding debt	13 651	10 577	3 074	25.9%	20.1%	5.8%	18.4%	14.3%	4.2%	100.0%	100.0%	100.0%	-	-	-
Financial debt	11 931	9 240	2 691	22.7%	17.6%	5.1%	16.6%	12.9%	3.8%	87.4%	87.4%	87.5%	100.0%	100.0%	100.0%
Currency and deposits	0	0	0	-	-	-	-	-	-	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%
Bonds / debt securities	5 025	4850	175	-	-	-	-	-	-	36.8%	45.9%	5.7%	42.1%	52.5%	6.5%
Loans	6 906	4390	2516	-	-	-	-	-	-	50.6%	41.5%	81.9%	57.9%	47.5%	93.5%
Insurance pensions	16	16	0	-	-	-	-	-	-	0.1%	0.2%	0.0%	-	-	-
Other accounts payable	1 704	1321	383	-	-	-	-	-	-	12.5%	12.5%	12.5%	-	-	-

FISCAL RULES: A Cooperation Agreement on fiscal coordination was concluded between the federal government and the regional and community governments in 2013. It introduced a structural government budget balance rule at general government level. Furthermore, it formalised established coordination practice by officialising the role of the intergovernmental “Consultation Committee” in the decision-making process and by reinforcing the advisory and monitoring role of the High Council of Finance (HCF; Public Borrowing section). The HCF, established in 1936, is an independent fiscal institution whose members are nominated by the federal, community and regional levels. It recommends fiscal targets and provides normative policy assessments. Its new “Public Sector Borrowing Requirements” (PSBR) Section enacts specific competences for intergovernmental fiscal coordination.

At the local level, the equilibrium principle was introduced for municipal finances in the 1990s, eliminating local deficits. Since the federalisation process, regions have taken over responsibility for budgetary supervision of local governments and have made a number of additions and revisions, which have strengthened the budgetary framework, resulting in sound finance at the level of local government.

DEBT: Regions and communities can borrow to cover current and capital expenditure. They are authorised to issue debt on financial markets, although they require authorisation from the Federal Minister of Finance. The 2001 fiscal reform alleviated this rule by authorising regions and communities to borrow in the short-term provided that the Minister of Finance has been notified. Municipalities and provinces are free to borrow without prior approval from higher level of government, but only to fund investment projects (“golden rule”). The Brussel-Capital region has established a Debt Agency in 2014, which is responsible for optimising direct and indirect debt management of the region. Similarly, the Flemish government developed a debt norm to maintain debt under control, which includes the obligation to invest surplus of available funds in the Flemish Government.

In 2020, subnational government debt amounted to 18.4% of the general government debt and represented 25.9% of GDP (an increase of 6 percentage points since 2013), slightly below the OECD average (27.9%). Regional debt represented 77.5% of total subnational government debt in 2020, against 22.5% for local governments. Bond issuance from regions has increased, from 25% of subnational government debt in 2016 to 45.9% in 2020 to finance the pandemic. Their debt is also made up of loans (41.5%) and other accounts payable (12.5%). By contrast, local debt comprises mainly loans (81.9% of outstanding local debt) and recently some share of bonds (5.7%).

TERRITORIAL MANAGEMENT OF THE CRISIS: Contrary to most federal countries, healthcare and social security are managed at the federal level in Belgium. Regions are responsible for minor aspects of social security and communities for preventive medicine, social welfare (excluding social security), aid to families and protection of youth. The governance structure of the country led to complex decision-making processes during the COVID-19 crisis and some overlap. Eight ministries, at the federal and regional levels, are in charge of different aspects of public health, with no clear distinction between responsibilities.

In March 2020, the federal government was granted ‘special powers’ by the House of Representatives to be able to limit the COVID-19 infection rate and economic consequences through royal decrees. The government used them to implement supportive measures for companies and households. It also created the Economic Risk Management Group (ERMG) in 2020, which was a federal public health agency chaired by the national Bank Governor and composed of diverse stakeholders (employers and workers representatives, public entities, etc.). The group aimed at monitoring the impact of the pandemic on companies and vulnerable sectors of the economy, as well as promoting the coordination of economic and social measures between public authorities.

Despite the central management of the pandemic in Belgium, the central government coordinated with the regions and communities to ensure optimised distribution of sanitary equipment for medical staff. This occurred through regular dialogues between the different levels of government. Vertical coordination was also reinforced through the creation of a coordination committee, comprising representatives of regional health agency, and special coordination bodies to ensure a harmonised implementation of socio-economic measures in the country. The National Security Council, which is the main national decision-making authority during crises, was also extended to include regional representatives. In addition, several task forces were created between federal and regional public entities to coordinate their crisis communication and the implementation of support measures.

EMERGENCY MEASURES TO COPE WITH THE CRISIS AT THE DIFFERENT LEVELS OF GOVERNMENT: Regional governments adopted several measures to support companies, vulnerable households and local authorities during the pandemic. They provided non-refundable subsidies to companies that were forced to close during lockdowns, guaranteed bank loans to support companies’ liquidity and implemented tax deferrals for companies and individuals. Regions also established several funds to support local governments and vulnerable sectors.

Communities also participated in the support of their population during the COVID-19 crisis. A decree adopted in March 2020 granted the government of the French Community with special powers and allowed it to set a EUR 50 million Emergency Fund to guarantee the payment of operators in the domains of culture, education and university hospitals. Similarly, the German-speaking Community adopted direct aid measures for institutions and associations.

IMPACTS OF THE CRISIS ON SUBNATIONAL GOVERNMENT FINANCE: The COVID-19 crisis affected subnational finances with high disparities among the levels of government. Subnational revenue decreased by 2.9% in 2020 compared to 2019 in real terms. This decrease was mostly driven by regions, while municipalities reported a slight increase of revenue in 2020. Regional and municipal tax revenue slightly decreased in 2020, while the decline in tariffs and fees was strong, especially for municipalities (-10.7%). To compensate for their loss of revenue, municipalities received larger transfers from higher levels of government (+6.5%), while they decreased for regions.

Subnational expenditure rose by 3.8% in 2020 compared to 2019. The increase was mostly underpinned by regional spending (+5.1%), as regional transfers increased during this period (+17.6%) to support local economies and municipalities. As a result, subnational debt increased by 15.5% in 2020, especially driven by regions (+21.6% vs. -1.4% for municipalities). New debt was mainly financed by bond issuance for the regions (the total amount of regional bonds increased by 64.7%).

ECONOMIC AND SOCIAL STIMULUS PLANS: Public investment is a key component of the Belgian recovery package. Belgium's recovery plan will be mainly financed by the EU Recovery and Resilience Facility, which is providing EUR 5.9 billion. About half of the national recovery plan will be allocated to climate action and 27% to digitalisation. The plan will be implemented and monitored through the federal state, the regions and the communities, which are all key investors.

Regions have also each drawn their own plans. The Wallonie’s recovery plan amounts to EUR 7.6 billion and lasts until 2024. It mutualises three strategic regional plans: (i) the Regional Policy Statement, which defines the priorities of the region for 2019-2024; (ii) the recovery plan Get-Up Wallonia, which utilizes a wide public consultation started in April 2020 to identify recovery opportunities; and (iii) the EU Recovery and Resilience Plan. The Flemish region implemented a EUR 4.3 billion recovery plan (Vlaams Veerkracht) with a key emphasis on investment, notably for the healthcare and welfare systems. Measures to improve administration effectiveness will be also taken to achieve better coordination and to reduce administrative red tape. The Brussels-Capital Region also implemented recovery measures and key investment projects in response to the pandemic. The region will largely invest in mobility, social housing, employment and environment. It also set an objective of returning to a balanced budget in 2024, which excludes strategic investments, rationalise public spending through the implementation of multi-annual plans and spending reviews.

Despite the drop in revenue due to the crisis, the government of the French Community decided to maintain its education reform, started in 2017, the “Pact of Excellence”, which will be key for long-term growth. The government also aims to increase investment expenditure in infrastructure and digital transition by EUR50 million, as part of the national Recovery and Resilience Plan. Similarly, the government of the German Community launched a EUR 600 million investment programme, which focuses on climate, healthcare and digitalisation.