Last year, the blueprint for a tax reform was announced. Some of the recommendations could be considered disruptive, but the basic principles were sound: simplicity, transparency and tax neutrality.
A hit-and-miss: the idea of budget neutrality. Not incomprehensible given the budgetary problems of our country, but it ignores the fact that our fiscal complexity is due to the excessive (para)fiscal pressure. After all, many exceptions and deductions have been created to mitigate the high rates and not prevent activities such as investments in growth companies, pension savings or research.
This reduces the blueprint to a plan for a second tax shift. If we want to move towards a healthier fiscal framework, the total (para)fiscal pressure on labor and capital must decrease. Only then will tax complexity no longer be necessary to maintain an economically viable landscape. This requires that fiscal reform go hand in hand with other necessary reforms, such as those of the labor market and the consolidation of public finances.
After working out a blueprint, the concrete realization of the plan follows. There are a number of challenges in this regard. Firstly, the tax burden in Belgium is very high compared to our neighboring countries. This complicates our competitive position, lowers our attractiveness as an investment country and makes it more difficult to attract talent. Our fiscal autonomy is therefore limited by what happens in neighboring countries in terms of taxation. Second, our fiscal complexity has existed for so long that it has become part of our economic fabric. Major changes to the fiscal framework can therefore damage this fabric. Third, the importance of predictability should not be underestimated. Developing a sustainable economic activity requires confidence in the fiscal and regulatory framework and its predictability. It is important to pursue this stability and predictability.
The first phase of the broader tax reform has now been proposed and is in line with the blueprint. However, it is a missed opportunity that the proposed reform does not address the main challenges. The necessary reduction in the tax burden on labor is offset by an increase in other expenses. The global problem of too high a tax burden remains and the need for tax exemption mechanisms to be economically viable has not been removed. Does it make sense to work out a reform of the tax system without touching on this core problem?
Inadvertently changing the tax burden also affects the profitability of certain activities. This causes actors to change their behaviour, by moving activities abroad or spending less. It creates economic damage and inhibits economic development. There is a good chance that the hoped-for budgetary neutrality will not be achieved, but that the budget will be further burdened. The measures proposed with regard to wealth risk generating these negative consequences. The doubling of the securities tax, the tax treatment of private privaks and the FDI regime are far-reaching enough to allow funds and securities portfolios to flow abroad. This also undermines the attractiveness of our country as a financial center to the benefit of Luxembourg and the Netherlands.
The proposed reform also does not provide legal certainty or a predictable framework. Some recent measures are being reversed, others are particularly unexpected. The abolition of long-term savings is an example. In view of the pension problem, measures that encourage saving are recommended. Nevertheless, the tax deduction for this long-term savings will be abolished. Who can understand this? The proposed reform is based on the right principles to redesign our fiscal framework. At the same time, it illustrates how difficult it is to achieve such a reform without being embedded in other essential reform measures. In its current form it does not provide an answer to the existing problems and gives rise to changing market behavior that will cause capital to leave the country. This is detrimental to our economy. This does not paint a rosy picture for the future budget either.