On the 23rd of July, after 4 days of discussions and just one day before the parliamentary recess, the Belgian government reached a deal on the much-awaited tax shift. From the trade unions to the government, everyone agrees on the fact that the taxes on labour in Belgium are too heavy. Belgium has indeed the highest tax wedge on labour in the OECD as shown on the graph below.
With this tax shift, the goal of the government is to decrease the tax burden on labour, so that the competitiveness of Belgian companies could be improved and that new jobs could be created. This reduction on labour taxes will be compensated by raising taxes on other incomes. The tax shift should represent 7.2€ billion by 2018 but how will the Belgian businesses and individuals be affected by this tax reform ?
According to the government, the tax shift will be beneficial for both the employers and the average working Belgian. The reform will reduce gradually the employers’ social security contribution from 33% to 25% which means that it will become cheaper to hire new people. Thanks to that, the wage burden will be reduced and the so-called wage handicap alongside. Belgian companies will therefore improve their competitiveness compared to the firms in the neighbouring countries. The tax shift is not only good news for the employers though. For once since the new government is in place, the workers could also benefit from the reform together with their employers. According to the numbers provided by the government, the low and middle income worker will welcome 100€ more per month after tax.
Although this may look like a win-win situation, the increased taxes on other incomes as counterpart should not be forgotten. The agreement concluded end of July involves several new tax measures that will affect the average Belgian in their daily consumption. They may get 100€ more on their paycheck each month but these will likely serve to pay the tax increases on some goods. Some of these new measures are the following; the VAT on electricity will rise from 6% to 21% (the previous government had actually decreased it from 21% to 6% in 2014), the excise duties on alcohol, tobacco and diesel will go up, the withholding tax rate on dividends, interest and royalties will go through an increase from 25% to 27% and a “speculation tax” will be introduced for the investors that will sell shares on the stock market within six months. All these measures, and others that were not mentioned here, should be implemented by the end of 2016.
A tax reform in Belgium had been awaited for some time and we must wait for the outcomes of the implementation to see whether it will be truly beneficial for the workers and if reducing the employers’ social security contributions will actually create more jobs. Nonetheless, this tax shift is already a first step forward, whatever the future effects. For Mr Vanden Houte, chief economist at ING Belgium, “the tax shift is less big than one could have expected” and “there is room for more agreements in the coming year”.
- Demeyere, K., Faes, P., (2015), Belgian tax reform: the tax shift, NautaDutilh, http://www.lexology.com/library/detail.aspx?g=17c164d5-5ee1-47ce-b0b9-e56cf29c3a97
- Expatica, (2015), Tax shift deal reached: how will this impact on you?, http://www.expatica.com/be/news/country-news/Flanders-Tax-shift-deal-reached-how-will-this-impact-on-you_480087.html
- Jeunehomme, M.-P., (2014), Concertation sociale: le tax shift, un concept qui reste à préciser, RTBF, http://www.rtbf.be/info/belgique/detail_concertation-sociale-le-tax-shift-un-concept-qui-reste-a-preciser?id=8451813
- New Europe, (2015), Belgium pushes tax reforms to boost employment, http://neurope.eu/article/belgium-pushes-tax-reforms-to-boost-employment/
- Robinson, D., (2015), Belgians aim to get economy moving with €7.2bn tax changes, Financial Times, http://www.ft.com/intl/cms/s/0/7f911c40-351c-11e5-bdbb-35e55cbae175.html#axzz3m0Zz8C00
- Vistra, (2015), Belgian government reaches agreement on tax-shift plan, http://www.vistra.com/insights/Belgian-government-reaches-agreement-on-tax-shift-plan?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original