In a country with very high taxes, lowering budget deficits should come from spending cuts, not from higher taxes, right-wing parties in Belgium claim. Experts tell a different story: for many people, especially those with higher incomes, those tax levels are little more than theory. In practice, many pay much less than the official rates. So-called ‘managementvennootschappen’ (management services companies) are in the eye of the budget storm at present.
Belgian public finances will show a 5,2 percent of GDP budget deficit this year, and even 5,4 percent in 2027, the EU Commission recently predicted. Belgium is the worst pupil in the eurozone class, and the federal government wants to do something about it. To return to the EU deficit norm of 3 percent of GDP, a budget cut of 15 to 20 billion euros is necessary. The ambitions of the De Wever government are now at 5 to 7 billion for 2027. The search for those billions started yesterday/Friday.
MR, the francophone liberal party of president George Louis Bouchez, is leading the resistance against a solution coming from higher or more taxes. Bouchez, who likes to strike a populist tone, points to the high levels of taxation and public spending to pose a veto.
A recent report from the Belgian Court of Audit sheds a different light on the topic. The federal expenses remained at 32,5 percent of GDP in recent years. The income will drop from 30,8 percent in 2022 to 29,5 percent in 2029.
This drop is partly due to past political choices and partly to tax evasion. Successive governments have given many tax benefits in recent years: for example, lower VAT for the construction sector and for energy, or very generous employment statuses (student jobs, flexi-jobs, special regimes for target groups). In Belgium, there’s a longstanding tradition of granting exceptions to the high tax rates to specific groups.
Belgium also has a tradition of tax evasion. Where in the past this resulted mostly in a large black economy, today the tax evasion uses the above-mentioned exceptions to the general rates.
The ‘managementvennootschappen’ have become very popular amongst people with a high labor income. The basics are simple: instead of working as a highly taxed employee, those people work as their own small company (as independent contractors). Most of their income is then taxed at the much lower corporate tax rates. Newspaper De Standaard recently calculated an example for a company willing to pay a specific person 120.000 euros per year. As an employee, that person would earn 3.806 euros net per month. With a ‘managementvennootschap,’ it would be 5.923 euros. The reality is a bit more complex, but the advantage is not only clear, but also huge.
The De Wever government has already taken a measure to make this system a bit less attractive, but that couldn’t prevent a doubling of their number over five years, to 80.200 now (out of a total of some five million workers in Belgium). These people are taxed at a rate significantly lower than that for people who earn somewhat less (a ‘managementvennootschap’ is only beneficial if the monthly income is sufficiently high).
Professor of economics Paul De Grauwe calculated that the total erosion of the tax base resulted in 21 billion euros less income for the state … or about the amount needed to achieve the 3 percent target.
#FlandersNewsService | Prime minister Bart De Wever and Budget minister Vincent Van Peteghem © \u200b BELGA PHOTO NICOLAS MAETERLINCK
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