Government agrees on budget and tax shift

Prime Minister Michel announced that his Government had reached an agreement on the budget for 2015 and 2016 and on a “tax shift” of €7.2 billion.  The government had to find an additional € 978 million to balance the budget for this year and to reduce the deficit to 2.5 percent as promised to Europe. An additional € 800 million will be needed for 2016, and the government has the intention to get the budget in balance by 2018.

Tax shift

The buzz phrase in Belgian politics for the last months has been “tax shift”. The tax burden is to be shifted away from a tax on labor, the question was how, how much and to where.

PM Michel wanted to find an agreement before the Belgian National Day, but he had to ask his ministers to postpone their holidays until the agreement was found on a tax shift and a correction of the budget of €782 million.  The government wants to gradually reduce the social security charges and increase individuals’ purchasing power. By 2018, it should have shifted about € 7.2 billion euros to other taxes. How does it plan to do that?

In the first place, the government will bring the labour cost down to the level of the neighbouring countries to make Belgian companies more competitive.

  • The employer’s contributions on wages will gradually decrease from 33 to 25 percent in 2018.
  • €430 million will be made available for the economic development of self employed and small and medium enterprises (a subsidy to hire their first three employees, a higher investment deduction, …).
  • The government is looking at measures to promote high technology and labour intensive industries (including the hospitality sector).

The government also wants to increase the purchasing power of the citizens.

  • As of 2016 the tax brackets (and the personal allowance) will be adapted to guarantee an additional € 100 per month for low and middle wage earners (the threshold will probably be around €2,400.
    However, that will only benefit the earners of wages and not those people who are dependent on retirement pensions or unemployment benefit.
  • However, early retirement pensions will become more expensive
  • And the rules that grant exemptions for people who have worked longer, will be toughened.
    New taxes

Where will the money for the tax shift of €7.2 billion come from? The following is a (provisional) overview.

  • The government does not touch the VAT rates, except for electricity.
    A tax measure introduced by the previous government reducing the VAT on electricity for families from 21 to 6 per cent will be abandoned as of 1 September 2015. This was justified by news in the past days that the VAT had been improperly used to benefit business users at a fiscal cost of about €505 million.
  • The excise duty on diesel fuel, tobacco and alcohol will go up and an excise duty will be introduced for soft drinks and other “unhealthy foods”.
  • The withholding tax on dividends and interest will increase from 25 to 27 percent, but the exemption for savings accounts and some reduced withholding tax rates will be maintained.
  • A rather symbolic speculation tax will be introduced, in the form of a capital gains tax for individuals who sell shares of listed companies within six months of buying them. The rate is anticipated to be 25 percent, but it is likely that it will be set at the same rate as the withholding tax on dividends and interest, i.e. 27 percent.
    This is a symbolic tax as is it expected to raise not more than €28 million. Moreover, the opposition parties have already pointed out that these taxpayers would be able to offset capital losses against their capital gains.
  • The transparency tax on overseas legal arrangements (trusts, foundations and offshore companies) that has been adopted on 24 July,is hoped to raise more income and raise another €260 million. This tax is known in Belgium as the Cayman Tax after the Cayman Isles.
    The speculation tax and the Cayman Tax are a careful step in the direction of a wealth tax which the Christian democrat party CD&V had been pushing for.

These mesures will now be implemented over the coming months to enter into force at the latest in 2016. However, it is anticipated that there will be new tax measures in 2017 and 2018 to pay for the tax shift.

Another Tax Amnesty

One of the remarkable measures announced is that there will be a new possibility to regularise undeclared capital and income in the form of a permanent regularisation procedure. Under the previous government, it had been decided that the permanent regularisation procedure would end in 2013 and that it would not be possible to regularise income anymore.

The current government is coming back on that and hopes to raise 250 million euros per year starting in 2017.  The timing coincides with the new rules on international exchange of data on bank accounts. Moreover, Prime Minister Michel threatens to deny tax dodgers their citizen rights, including the right to vote.

The Powerpoint presentation during the press conference can be found here.

Author: Marc Quaghebeur

Marc Quaghebeur is a Belgian tax lawyer with Cabinet DAVID specialising in international tax issues and cross border estate planning. He is a member of the Brussels Bar and the Society of Trust and Estate Practitioners. He

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