ON CLOSER INSPECTION, money matters are not so complicated. If you earn an income from your work, you can either keep, invest or spend that money. Whatever the option, the State has a finger in every pie. There are taxes at every level. For people who work, there is the sky-high, progressive tax rate on professional income. For people who invest, an equally high rate of withholding tax applies, spiced up with extra toppings such as a tax on securities accounts or the tax on stock exchange transactions. For the consumer, there is the VAT. In Belgium, the VAT rate stands at 6, 12 or 21 percent. The 21 percent rate – on a par with the European average – applies on most products and services.
FRIENDS AND FOES alike agree that the tax burden is incredibly high and that a tax increase is no longer justifiable. On the contrary, in order to protect our competitiveness with regard to foreign countries, the tax on labour must be reduced. This would also boost the employment rate, which would in turn help resolve the pressing crisis in our social security. However, such a tax cut is politically difficult to implement, to say the least. The state treasury needs every euro cent and would rather have taxes rolling into its coffers sooner than later. It may therefore be tempting to conclude that there is no room for a cut in payroll taxes. But let’s not forget the tax shift. The third phase of the tax shift began on January 1st, 2019, thus bringing to its ultimate development the tax shift introduced by the Michel government in 2015. The tax shift has reduced labour taxes while offsetting those losses with taxes on capital.
BUT THERE IS STILL work to be done to make work in this country worthwhile. It is more than likely that the next government will find inspiration in other European countries. The trend there is to tax consumption more heavily and reduce wage costs with these revenues. The Netherlands introduced such a tax shift on January 1st. The VAT rates applied in the Netherlands are 6 and 21 percent. Like in Belgium, the 6 percent rate applies mainly to basic products such as fruit and vegetables. Since the beginning of this year, however, the Dutch are no longer paying 6 but 9 percent VAT on those basic products. Accused of introducing a highly undemocratic measure, the Dutch government argues that while the cost of living for a mid-income family is on average 300 euros dearer over a year, for well-off families it will become more expensive by more than 300 euros. Still according to supporters of this measure, paying more for tomatoes would be a lesser evil, since neighbouring Denmark is applying a 25 percent rate on all products. The VAT increase is expected to yield 2 billion euros annually. This money is injected linearly into the economy, in the form of a wage tax reduction for the lowest income band. This is how the Netherlands has implemented its tax shift.
THE DUTCH TAX SHIFT has other advantages. On the one hand, it reduces the existing confusion in the Netherlands regarding the VAT rate classification of products. The same goes for Belgium. Why is the VAT on butter 6 percent while it is 12 percent on margarine? Where is the logic? Why is a rate of 6 percent applicable on take-away meals while eating the same meal on the spot incurs a 12 percent VAT rate? A VAT increase to benefit a reduction in labour costs is also a protectionist measure, as it makes exporting cheaper and taxes imported products more heavily.
And since 2019 still belongs to the decade in which tax shifts are fashionable, it is likely that a VAT increase to offset labour costs will also be on the table when forming a new government in a few months’ time. How digestible will those dearer tomatoes be in our country, that is the question. There is concern that they will also be used as ammunition to throw at the policymakers.
