Nova workboard

a blog from young economists at Nova SBE

‘Tax shift’ in Belgium

‘Tax shift’ in Belgium

Back in 2011, the labour cost in Belgium was the highest of all European countries. It suffered a tax burden 36% higher than those of the average employee in the EU.

In Belgium, employers must transfer an average of 2.34 euros per euro of employee labour. It was crystal clear that this situation wasn’t sustainable and the Belgian government needed to take measures.

Naamloos

But at that moment, Belgium suffered from the largest political crisis in the country’s history. The world record for a country without an elected government is held by Belgium, which lasted 589 days starting in 2010. This was all because of the fact that the opposing language districts (Flemish & Walloons) were unable to agree on policy issues.

In 2014, new elections were organised and a stable government was formed. This government consisted of Liberals & Social-Democrats. During the formation meetings, all the parties agreed on the need of a ‘Tax-Shift’.

The ultimate goal of the ‘Tax-Shift’ was to lower labour cost while maintaining a decent level of tax income. Let’s have a look at the most prominent expedients in the ‘Tax-shift’.

• Additional tax reduction of 3.7 billion euros

• Employer’s contribution will be reduced from 33 to 25 percent

• VAT on electricity is increased from six to 21 percent

• Excise duty on diesel, tobacco and beverages increased

• Withholding tax raised from 25 to 27 percent.

• Speculation tax when buying and selling shares within 6 months

In present times, the ‘Tax-shift’ yields results. The labour cost per unit of output decreased in Belgium in the first three months of the year by 1.1 percent compared to the last three months of last year. This caused Belgium to have the highest reduction in all OECD countries.

The decrease is a result of declining labour costs caused mostly by the tax shift and increased productivity in the first quarter. However, the biggest impact comes from the wage restraint.

For the Federation of Enterprises in Belgium falling labour costs figures represent positive news. “It is a first step in the right direction to eliminate the wage handicap[1],” said chief economist Edward Roosen. “However, the road is still long,” said the chief economist, referring to the historical handicap of 15.5 percent.

I share the same critical as Edward Roosen. Belgium still has a long way to go but is on the right track. If the government can maintain the same drive and spirit to guarantee lower labour costs, Belgium would be once again an attractive country to invest in as a multinational. If we keep this in mind, Belgian economy will flourish once more.

This blog post was written by Laurens Maximus, student at Nova SBE.

[1] a term which refers to the fact that labour in Belgium is more expensive than in its neighbouring countries

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Author: studentnovasbe

Master student in Nova Sbe

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