The Belgian Finance Bill

The Finance Bill – officially the Special Act of 16 January 1989 – determines how money is distributed between the Federal State, the Regions and Communities in Belgium.

The Federal Government (Belgium) allocates part of its income in the form of grants to the Federated States, namely three Regions (Flanders, Wallonia and the Brussels Capital Region) and three Communities (the Flemish Community, the French Community and the small German-speaking Community). The law can only be amended by a two-thirds majority in the Federal Parliament.

How does the apportionment work?

• The Regions receive a pre-determined amount of income from personal income taxes. This amount is linked to the evolution of the Consumer price index The index figure for consumer prices has been calculated monthly since 1920. This reflects the evolution of the price level of the indexation bundle. That is a commodity bundle of goods and services that is representative of household expenditures. Since 2013, the composition has been tested annually against any changes in the household consumer patterns. This way, the bundle remains representative. consumer price index (lifespan) and economic growth. However Regions that have less and are therefore poorer can count on a solidarity contribution.
• The Communities also receive part of the income from personal income taxes and part of the returns from VAT, value added tax. The latter is linked to the index as well but also to the increase or reduction in the population. The distribution of the total amount between the Flemish and French Communities is made on the basis of the number of pupils (6 to 17 year olds) in each community. Allocations from the Federal Government make up about 80 percent of the Communities’ and Regions’ financial resources.

Strange consequences

This Finance Bill has had some strange consequences. For example, the solidarity mechanism: if Wallonia and/or Brussels would perform economically better than Flanders then the contributions they receive from the Federal Government would fall. This does not really provide an incentive for them to work towards improved performance. The system of grants financing also leads to a sort of consumption federalism. The federal states can spend money without being responsible for income from taxation. They receive the money anyway.

Fiscal autonomy

This is why the N-VA has been pleading for a different system for a long time with much more fiscal autonomy for the Regions. The system should also work the other way around. Then the federated states will be responsible for income and expenditure and for paying a contribution to the Federal Government for the tasks that still fall under the Government’s responsibility. The solidarity contribution will not be scrapped altogether but must become a lot more transparent and provide an incentive to encourage responsibility.