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How to Reform the Belgian Tax System to Enhance Economic Growth

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  • Jens Høj
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    Abstract

    Individual elements in Belgian tax system affect the growth process through different channels and to a varying degree. Consumption taxes are among the least distortive for growth, and there is considerable scope to increase the reliance on this tax source in Belgium. The Belgian differential taxation of saving vehicles distorts investment decisions, hampering the reallocation of capital towards its most productive use. However, the most distortive Belgian taxes are on labour through their effects on workers’ labour market decisions. Recognising the latter, the authorities have aimed at reducing taxation on labour. However, its level remains internationally high, reflecting numerous exemptions, which reduce tax bases and thus require higher tax rates than otherwise. To promote labour market prospects for individual groups on the labour market, wage subsidies and social security contribution reductions have been used extensively, leading to a complex system, often poorly targeted and at times subject to conflicting objectives. The end result is that the interaction between the personal income tax, the social security contributions, and the generous benefit systems has created a multitude of labour market traps which hold back employment. New tax reforms are constrained by the large and growing fiscal sustainability problem, implying that, unless substantial expenditure cuts are implemented, new tax reforms must be self-financed. This can be achieved by shifting the reliance of the tax system towards the least distortive sources and by broadening tax bases to allow lower tax rates. This Working Paper relates to the 2009 OECD Economic Survey of Belgium (www.oecd.org/eco/surveys/belgium). Comment réformer le système fiscal belge afin de renforcer l'expansion économique Les éléments constitutifs des systèmes fiscaux influent sur le processus de croissance par des canaux différents et à des degrés divers. Les impôts sur la consommation sont parmi ceux qui faussent le moins la croissance et il est tout à fait possible, en Belgique, d’exploiter davantage cette source de recettes fiscales. La taxation différenciée des instruments l’épargne fausse les décisions d’investissement, entravant le redéploiement des capitaux vers leur emploi le plus productif. Cependant, les impôts qui occasionnent le plus de distorsions sont ceux qui frappent le revenu du travail, en raison de leur impact sur les décisions des travailleurs en matière d'emploi. Conscientes de cela, les autorités belges ont cherché à alléger la fiscalité du travail. Cette dernière demeure cependant lourde en comparaison des autres pays, en raison de nombreuses exonérations, qui réduisent les bases d’imposition et nécessitent donc, pour compenser, des taux d’impôt plus élevés. Afin d’améliorer les perspectives des différents groupes sur le marché du travail, on a recouru largement à des subventions salariales et des réductions de cotisations de sécurité sociale, créant ainsi un système complexe, souvent mal ciblé et visant parfois des objectifs contradictoires. En fin de compte, l’interaction entre l’impôt sur le revenu des personnes physiques, les cotisations de sécurité sociale et le généreux système de prestations a créé une multitude de pièges du marché du travail qui brident l’emploi. Les nouvelles réformes fiscales sont limitées par les problèmes importants et grandissants de viabilité des finances publiques, ce qui signifie que, à moins de procéder à de fortes compressions de dépenses, ces réformes devront s’autofinancer. Pour ce faire, il faut déplacer la charge fiscale vers les sources qui créent le moins de distorsions et élargir les bases d’imposition afin de pouvoir appliquer des taux plus bas. Ce document de travail se rapporte à l’Étude économique de l’OCDE de la Belgique, 2009 (www.oecd.org/eco/etudes/belgique).

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    Bibliographic Info

    Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 741.

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    Date of creation: 18 Dec 2009
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    Handle: RePEc:oec:ecoaaa:741-en

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    Keywords: Belgium; fiscal sustainability; social security; tax bases; tax rates; contribution; consumption tax; labour market decisions; taxation of savings vehicles; tax and growth;

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