A thinking exercise by the High Finance Council to reduce taxes on work by 6.5 billion has been politically torpedoed before any advice is given. PS does not want to know about a VAT rate of 22 percent and more expensive food stamps.
As part of the major tax reform that the federal government wants to put on paper by 2024, Finance Minister Vincent Van Peteghem (CD&V) instructed Professor Mark Delanote (UGent) to work out a proposal with the administration. At the same time, the Danish Bankers Association, a team of politically appointed experts, was asked to investigate how taxes on labor could be reduced without causing public finances to run amok.
There is a feeling that the leak is part of a damage operation. The mandates for the members of the Supreme Court expire in September, and a new round of appointments follows.
The Supreme Court has now almost finished that exercise, but before it is completed, it has been leaked to the French-language newspaper La Libre. The memo does not have the status of an advisory to the government. There is still no agreement in the Supreme Court, and the leak shows that it will not be there. This is a consensus proposal from President Herman Matthijs, which is still nominated by the N-VA. It is suspected that the leak is part of a damage operation carried out by those members of the council who want a new mandate. All mandates expire in September and new appointments must be made.
Only three more plates
The exercise set up is certainly something for discussion. For example, the Supreme Court assumes that the number of tax levels can be limited to three: 25, 40 and 50 percent, which means a reduction in progressivity. By moving the threshold amounts, in this model you will only fall in the highest bracket from an income of 100,000 euros. Today it is from 42,000 euros a year. That operation already costs 5.7 billion.
In order to also give the lowest incomes a serious tax relief, it is proposed to distribute the work bonus to a much larger group. The economic consequences of this are still being calculated. But various members of the Supreme Court assume that the whole picture will cost 6.5 to 7 billion.
Given the state of our public finances, such loss of revenue must be compensated. The Supreme Court’s note is based on the idea of a partial tax shift, where a third of the expenditure is sought in savings on state expenditure.
Tax deduction for pension savings
For the remaining two-thirds, the Supreme Court brings out the evergreens, which it has previously mapped out in a major plan for a tax reform from 2020. That note was also leaked prematurely and killed politically. The ideas are therefore more than toxic politically. However, there is some balance in the list, which is reflected in the consensus proposal. ‘We agreed in advance that we would go for a basket that hurts a little on any trend,’ says one member.
The most debated proposal is the abolition of the tax deduction for pension savings or the so-called third pillar. The basic principle is that the tax treatment is already very favorable even without this deduction.
80 percent rule
There is also the idea of adjusting the so-called 80 percent rule for the second pension pillar. A self-employed business manager can now deduct his contributions to the second pillar of tax, provided that his statutory pension and his supplementary pension together do not exceed 80 percent of final salary. This rule leads to abuse, where company directors give themselves a significant pay rise just before retirement. From now on, the Supreme Court proposes to take as a starting point the average salary for the last ten years.
This leak shows once again how difficult the government’s intention is to draft a fiscal reform at a time when ruling parties are fighting extremes or for their survival.
To prevent joint ventures, it is proposed to raise the minimum remuneration of the company manager from 45,000 to 70,000 euros.
Food vouchers and fuel cards
As expected, food stamps are also in the crosshairs. For years, there has been a broad political demand to pay people more in euros and less in alternative forms of remuneration. The idea is to tax food stamps more so that they de facto disappear. The abolition of payroll cars is no longer in the Supreme Court’s ideas because the federal government has only recently chosen to make the system greener. However, it is proposed to introduce a benefit in kind on fuel cards.
VAT to 22 per cent
Another sensitive but logical shift is from labor to consumption. Therefore, it is proposed to increase the rate from 21 percent to 22 percent.
The list also includes a tax on real rental income, the abolition of the housing bonus on the second dwelling and the abolition of favorable schemes for professional athletes and copyrights. One sensitive to CD&V is the extinction of the marriage quotient. According to the Supreme Court, a form of environmental impact must also be investigated.
What the note does not mention is the entire wealth taxes with a tax on the stock gain as a classic. It is heard in the Supreme Court that there was no time to address that part as well. ‘It’s very complex and it does not pay much,’ says one member.
Although the memorandum has no statute, PS immediately shattered it in light of the leak in La Libre. According to party leader Ahmed Laaouej, the proposals smell of austerity policies. ‘Raise VAT, abolish food stamps and save on public services at a time when families are facing sky-high inflation, we should really refinance the health service and the judiciary: On what planet do the members of the Supreme Court live.’ This is remarkable because there is also a representative of the PS in the Supreme Court. “It’s been on the brakes for weeks,” says another member.
“This is a nightmare for those like us who are in favor of tax justice and the biggest burden on the broadest shoulders.”
The Socialists also point to the measures that are missing in the note, such as the tax on capital income. “This is a nightmare for those like us who are in favor of tax justice and the biggest burden on the broadest shoulders.”
The French-speaking Liberals also do not like the note, which leads some members to conclude that the proposal is precisely balanced. It shows once again how difficult it is for the government to formulate a fiscal reform at a time when the governing parties are fighting extremes or for their survival.
Finance Minister Vincent Van Peteghem (CD&V) did not comment on the leaked memorandum. ‘There is no suggestion, so there is nothing to answer. We continue to work. ‘ Politically, the text is without object. President Herman Matthijs of the Supreme Court also emphasizes that the exercise has not been completed and that there is no agreement.
Tax professor Michel Maus, who is not a member of the Supreme Court, responds on Twitter that progressiveness should be increased if one wants to use the principle of ‘strongest shoulders, highest burdens’.