In 2011, the sixth Belgian state reform was the culmination of the 541 days crisis without a government in Belgium. The goal of this reform is to produce “a more efficient federal state and a larger autonomy for the federated entities” and started to become effective on the 1st of July 2014. The list of the competences transferred to the entities is long and diversified; it affects for example economics, health, environmental or employment competences. This new reform, also called the Butterfly Agreement, also includes more fiscal autonomy for the 3 regions of Belgium.
To give more fiscal autonomy to the regions, the Special Finance Act had to be revised. The Special Finance Act had its origin back in 1989 following the third state reform and established that the regions and communities were to be financed mainly through allocated parts, or dotations, by the federal personal income tax, corporate tax and the value-added tax. The newly revised Special Finance Act came into effect on the 1st of January 2015 and includes a 20€ billion budget transfer from the federal state to the regions. The regions can allocate this budget for whatever new competences they want.
How does this work concretely?
“The expansion of regional fiscal autonomy in the sixth state reform is accomplished through the power to impose unlimited “extensive surcharges” (a certain percentage on top of the standard tax) regarding the personal income tax. This autonomy replaces the previous dotation from the personal income taxes. Furthermore, the regions can impose tax increases or decreases, as well as reductions on the federal personal income tax concerning matters for which they are competent (e.g. the renowned “living bonus” to acquire or keep your own property). The sum of the surcharges, reductions, tax increases and decreases is called the “regional personal income tax”. Nevertheless, the powers transferred in the sixth state reform to the regions are financed with new dotations instead of increased fiscal autonomy”.
Now, that the regions can levy their own taxes, it means that they will be able to increase their accountability and have a greater incentive to perform economically. However, this transfer will probably have a negative impact on foreign executives who benefit from the Belgian expatriate tax regime.
To make the transfers really effective, the regions have to work extra so that all the changes can be made in a smooth way and ensure that it does not increase the administrative burden for citizens and companies. Regions will have to levy many more taxes than before and they need experts to do so but there is currently a lack of resources. The Belgian Tax Authorities also have extra work since, for the first time this year, they had to modify their software according to the new regional taxes already in place following the sixth state reform.
It is the task of the future governments, federal as well as regional, to make sure that this new reform, and probably not the last, will indeed promote efficiency as it was announced by the previous government that committed to this reform.
 BelConLawBlog, (2015), http://belgianconstitutionallawblog.com/2014/12/08/special-finance-act/
- AMCHAM Belgium, (2014), The Sixth State Reform: Devolution à la belge, http://www.amcham.be/blog/2014/06/sixth-state-reform-devolution-%C3%A0-la-belge
- BelConLawBlog, (2014), Reform of Special Finance Act and regional fiscal autonomy, http://belgianconstitutionallawblog.com/2014/12/08/special-finance-act/
- Hermans, R., (2015), La Wallonie (di)gère progressivement ses nouvelles compétences, RTBF, http://www.rtbf.be/info/belgique/detail_la-wallonie-di-gere-progressivement-ses-nouvelles-competences?id=9082615
- MoneyTalk, Le Vif, (2015), Les premiers avertissements-extraits de rôle bientôt dans les boîtes aux lettres, http://moneytalk.levif.be/finance-et-bourse/fiscalite/les-premiers-avertissements-extraits-de-role-bientot-dans-les-boites-aux-lettres/article-normal-418677.html
- Van Parijs, P., (2015), Fiscal federalism and solidarity: In search of an ideal formula, http://www.uclouvain.be/cps/ucl/doc/etes/documents/Van_Parijs_Fiscal_Federalism.pdf
- Winkel, J., (2015), Sixième réforme de l’État: « Il ne se trouve plus personne en mesure de tout maitriser », Alteréchos, http://www.alterechos.be/fil-infos/sixieme-reforme-de-letat-il-ne-se-trouve-plus-personne-en-mesure-de-tout-maitriser