Tax shift: the long-awaited reduction in labour costs

The federal government has finalised the budgetary control and the tax shift. “The outcome is the biggest tax reform since 1963,” says Finance Minister Johan Van Overtveldt. “A reform that benefits citizens and companies. We lower the cost of labour and strengthen purchasing power and Competitiveness The extent to which companies in one country can compete with similar companies in another country. A law came into force in Belgium in 1996 to monitor competitiveness. This stipulates that Belgian salaries may not evolve faster than the average of those in the three neighbouring countries. The Central Economic Council (CEC) performs an annual measurement to see if the objectives have been obtained. competitiveness .”

The tax shift was developed in two phases. Together they represent a historic reduction in the cost of labour of about 8 billion euros from 2015 until 2020. But what does this shift in the cost of labour mean? And why is it necessary? “International organisations such as the OECD The Organisation for Economic Cooperation and Development (OECD), established in 1961 as a result of the Marshall Plan, is a cooperation agreement between 34 countries in order to study and coordinate social and economic policy. The member countries try to solve their problems jointly and to mutually align their international policy. The organisation also collects statistical information to make comparative analyses. These OECD analyses are a valuable basis for the N-VA to test policy against itself or even to give shape to it. OECD , the IMF The International Monetary Fund (IMF), established in 1945, focuses on monetary issues. The global organisation is governed by and accountable to the 188 member countries. In addition to financial stability, monetary cooperation and international trade, the IMF promotes and supports employment, sustainable economic growth and combating poverty. In this regard, it provides loans, technical assistance, specialised training courses and advice to governments. It also monitors financial trends. IMF and the European Commission have cautioned Belgium for years that the cost of labour is far too high here,” the minister explains. “Jobs are taxed heavily and are under threat of becoming unaffordable for employers. The next step is that these jobs are transferred abroad. At the same time, employees’ net salary is too low compared with their gross salary.”

The new federal government is finally trying to remediate this, by shifting the cost. This requires new revenue, otherwise the budget will derail. “We will generate this new revenue from taxes that do not disrupt economic growth, or only to a lesser extent. Just like the international institutions I just mentioned recommended,” Van Overtveldt notes. “At the same time we will take measures for a fairer tax regime: the banks, the diamond sector and large fortunes in legal constructs will contribute to reducing the cost of labour.”

But the government is going one step further. The package of tax cuts is greater than the tax increases for funding the tax shift. The result is a tax cut: the overall tax burden is reduced. This is possible because the government is also saving money, which is used to help finance the tax shift.

Increasing everyone’s purchasing power
Half of the designated eight billion euros will be used to increase people’s purchasing power, especially working people. The other half will be used to increase our companies’ competitiveness. As a result, these companies can create jobs, which in turn increases purchasing power again.

The emphasis is clearly on making work pay off, but the welfare budget will also be spent in full in the following years. The government has earmarked about one billion euros to increase the lowest allowances and the pensions. Moreover, it has set aside an additional budget of 50 million euros for an additional increase of the living wage and the lowest pensions. “We are taking another step to further increase these social minimums in line with the European norm: an important point of our programme which we also had included in the coalition agreement,” Van Overtveldt reminds us.

Capital, consumption and the environment
The key principles for funding the tax shift had already been defined this summer. But the elements that needed to be further developed have now also been finalised. The tax shift includes a number of increases in excise duties, among others for diesel, tobacco, alcohol and soft drinks.

Strengthening competitiveness
The government has also developed a powerful mix of resources and measures to increase the competitiveness of Belgian companies:

• The employer contribution will decrease from 33 to 25 percent.
• 900 million euro reduction in labour costs for low wages and shift work
• Making first hires by SMEs cheaper
• Tax deduction of investments by SMEs
• Fiscal measures to stimulate modern and high-tech technologies

The government’s top priority is to eliminate the Wage handicap The extent to which salaries in a certain country are higher than in one or more competitive countries. As a general rule, a wage handicap has a negative impact on economic growth and on the creation of jobs. This is why there has been a law in force since 1996 which stipulates that we may no longer build up any additional wage handicap. wage handicap , compared with our neighbouring countries and main trade partners.