How Belgium's high labour taxes could be a recipe for financial disaster; ✔ Belgium's labour tax rates among the highest in the OECD, discouraging work and job creation ✔ Taxes aren't translating into quality public services ✔ Leading Belgian economist calls for radical change, including shifting taxes from labour to wealth and consumption
A leading economist has denounced Belgium's high labour tax rate, arguing that the current system disincentivises work and is "not commensurate" with the poor state of Belgium's public services.
Speaking to The Brussels Times, Associate Professor of Economics at Ghent University Stijn Baert explained that high labour taxes not only discourage workers from seeking gainful employment but also deter many companies from creating jobs in Belgium in the first place.
"For workers, high labour taxes make employment less interesting because their tax-home pay is lower," Baert noted. "Meanwhile, higher labour taxes encourage employers to automate jobs or move them to other countries."
Credit: Stijn Baert
Baert's analysis follows a recent report by the Organisation for Economic Co-operation and Development (OECD), a group of mostly rich countries, which found that Belgium's labour "tax wedge" – which measures the difference between workers' before-tax and after-tax wages – is the highest among OECD countries.
In particular, the study found that Belgium's labour tax wedge is the largest in the OECD for single people without children and for families with two earners and two children, and the third highest for families with a single earner with two children.
'It's disgraceful'
Baert also pointed out that, despite Belgium's high labour taxes, the country's public services remain extremely poor relative to other Western countries.
"The quality of service is not commensurate with the high tax burden," he said. "Take the situation around Brussels-Midi. We pay so much taxpayers' money to a government which does not even manage to make us feel safe at the railway station. It's disgraceful."
Baert did, however, defend some elements of Belgium's tax scheme. In particular, he described Belgium's "fiscal preference" for families with children (e.g. the fact that single people without children face a tax wedge 15.2 percentage points higher than single earners with children) as a "fairly effective means of combating child poverty".
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Nevertheless, he suggested that such tax benefits should not be provided unconditionally. "I think there could be a bit more quid pro quo," he noted. "For instance, parents should send their children to pre-school education and make efforts to learn the school language in order to be able to guide their children."
When asked about what specific changes he would make to the country's tax code, Baert said he would "tear down" Belgium's "marriage quotient" scheme, which is designed to reduce couples' overall tax burden but which some analysts claim discourages non-working partners from seeking employment. He also argued Belgium's tax system should be restructured so as to protect its poorest workers.
"I would drastically reduce charges on labour, especially at the bottom of the distribution, via a shift to charges on consumption (VAT rate on luxury goods from 21% to 22% and a CO2 tax) and on wealth (higher charges on second homes)," he added.
