Belgium's tax revenue is expected to rise in 2023 to its highest level in five years, l'Echo and De Tijd have reported.
According to the National Bank of Belgium's (BNB) forecasts, Belgium's tax intake will rise to 44.2% of annual GDP next year, up from 42.8% this year. The BNB also predicts a further increase in tax proceeds to 44.5% of GDP in 2024.
On the face of it, such an increase in tax revenue is somewhat surprising, given that the Belgian Government is scheduled to provide €10 billion — or almost 2% of annual GDP — in emergency funds over the course of 2022 and 2023 to help households and companies cope with the country's burgeoning energy crisis and soaring inflation rate.
Indeed, such fiscal profligacy has led to Belgium being predicted to run a budget shortfall of 5.8% of GDP next year — the joint highest deficit in Europe — and to the IMF openly criticising the Belgian Government's fiscal policy.
Adding to the apparent enigma, the €10 billion in emergency funds comes overwhelmingly through tax cuts, such as the recent decision to permanently reduce the VAT on gas and electricity from 21% to 6%.
The mystery explained
In a recent analysis, the BNB noted at least three key reasons why, despite initial appearances, Belgium's tax revenue will increase over the next couple of years.
The first is an expected windfall tax on energy companies, which, according to Bloomberg News, is predicted to raise more than €3 billion over the next few months, while a second is a new EU-mandated minimum tax on multinational companies.
By far the most important reason for the expected increase in tax revenues, however, is Belgium's almost unique system of government-mandated wage indexations, which will see more than 500,000 Belgian employees enjoy salary increases of 11% from January next year.
In particular, the BNB predicts that, given weak overall household consumption across the EU, companies will not be able to pass on the costs of the increases in employees' salaries onto consumers. Moreover, because labour is generally taxed at a higher rate than companies, this, in turn, will mean that there will be an increase in Belgians' overall tax burden — thus bolstering the Belgian Government's net revenue.
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"Companies' profit margins should decrease because they will not be able to fully pass on the increase in their salary expenses in their prices," explained Stefan Van Parys, a public finance specialist at the BNB. "And since these labour incomes are taxed at a higher rate than the profits of companies, the weight of tax revenues in GDP automatically increases. We cannot therefore strictly speaking talk of an increase in the individual tax burden, but rather of a shift in the overall burden."
The BNB does not, however, foresee that the increase in tax intake will lead to a reduction in the state budget, especially given that the Belgian Government is forecast to significantly increase its spending on social care for the country's ageing population.
