A unique tax system for all capital gains, including capital gains, abolition of the marriage quotient, reduction of the third pension pillar, reduction of flex jobs, fewer deductions and reduction of labor tax. These are just a few outlines of the vision paper for a tax reform that experts are proposing today.
At a study day for Federal Public Service Finance in Brussels this afternoon, a new step was taken towards a major tax reform. According to the coalition agreement, Finance Minister Vincent Van Peteghem (CD&V) must prepare it by 2024. The various teams of experts and academics that Van Peteghem launched last year represent the result of months of thinking. The texts have just been published on the tax authorities’ website.
The investigation work does not oblige the government to do anything, the minister’s cabinet emphasizes. Now that the vision statement from a team of tax specialists and economists led by Professor Mark Delanote (UGent) and the reports from the High Council of Finance and FPS Finance are ready, Van Peteghem will draw up a plan based on this input with his political accents in it. . The East Flemish wants to present its plans for the summer holidays to the government.
The Delanote expert group’s vision statement does not set any tariffs. It is up to the policy makers to make that choice.
Academics still give politicians a lot of work and freedom. The Delanote Group’s vision paper shows what a simpler, fairer and financially less harmful tax system could look like, but does not mention rates. ‘The specification of tariffs will rather be the last part of a reform’, it reads. It is further emphasized that any decision will require calculations of impact and transition periods.
The vision is based on the concept of a tax change, where a reduction in taxes on labor is financed by removing or limiting exemption schemes and deductions and taxing other bases. The task of academics was to devise a budget-neutral reform. Emphasis should be placed on increasing the employment rate, combating poverty, making entrepreneurship and investment more rewarding and supporting climate ambitions.
Added value and minus value
The most obvious proposal is to create a uniform tax system for all property income. Capital gains, which today are largely exempt, would also be taxed. However, the experts suggest that capital losses be charged at the same time and that costs can be deducted.
The experts propose a uniform tax system for capital income with some reduced rates, for example for capital gains on shares.
It is proposed to work with one basic rate (eg 30 percent) for all capital income and clearly justified reduced rates. For capital gains on shares and dividends, a reduced rate seems justified to avoid double taxation. A previous advice from the High Finance Council shows that a tax on capital gains of 15 percent can provide 1.8 billion euros in cruising speed.
Real rental income
The proposal must state all capital income. This means that the liberating withholding tax disappears. For real estate, experts suggest bringing the current taxation based on cadastral income more in line with the real rental value. For homes that are rented out, the tax base must coincide with the actual rental income. For houses that are not rented out, the expected return must be estimated.
It is noteworthy that the exemption from owner-occupied housing is also being questioned. This will make it possible for costs in connection with the owner-occupied home to also be deductible. To avoid undesirable effects, the size of the general tax exemption for capital gains must be sufficiently high so that an average family is not effectively taxed.
The experts are also aware of the differences in family forms. The tax calculation is based as far as possible on the individual, and the deductions for dependents should be reformed with emphasis on the individual child’s real needs. The tax-free allowance takes greater account of the situation of single and single parents.
According to the experts, the marriage quotient disappears and is replaced by a surcharge on the allowance for those who have a partner with insufficient income. Depending on the divorced families, the allowances on the allowance are also awarded to the partner with whom the children do not live. According to experts, it is more neutral than the current system of maintenance benefits, which provides a higher benefit to the highest earnings.
Fewer VAT rates
To reduce tax evasion, experts suggest merging the 6 and 12 percent reduced VAT rates into one reduced rate. With regard to pensions, it is proposed to limit the third pillar – individual pension savings – by at least excluding persons who are no longer required to build up a supplementary pension, such as pensioners. However, it is proposed to take the third pillar into account when setting the 80 per cent rule for company directors (the sum of statutory and supplementary pension must not exceed 80% of the last gross annual salary).
Re-evaluation of second pillar benefits
For the second pillar – such as group insurance – the experts state that it is difficult to justify that benefits in capital are more tax-stimulated than benefits in interest. They decide that this tax scheme needs to be reconsidered.
Professor Mark Delanote urges the political and economic world to read his vision paper with the right stance and stresses that it can not be the intention to change tax regimes from one day to the next.