Microsoft Word - 00_Title_draft.doc

% GDP) was passed in 2001 and came into force over the period 2002-06. The 2001 PIT reform

seems to have no effect on the ITR on labour, which remains high and stable. Most of the effect of

the tax reform was postponed to the years 2005-06, that are not covered in Figure 2 and Table 1.

We have also to keep in mind that, due to the progressivity of income tax and the targeting of

social security contributions on low wages, a “no change policy” results in an increase in the

taxation of labour. Consequently, stability is the combine result of the tax reform and of the

spontaneous upward trend of the ITR on labour.

• The upward trend of the ITR on capital is partially the consequence of the broadening of the tax
  base that took place in the nineties and partially due to a business cycle effect.


• Taxation of consumption remains low, but increased steadily and slowly over the past ten years.
  Increased excise duties were the main policy changes that explain the slight increase of the ITR on
  consumption.

3.2.2. Effective tax rates on wages

The ITR on labour points out the wages are heavily taxed in Belgium. Figure 3 complements the macro-
economic approach and uses the ETR on wage to illustrate how the taxation of labour varies according to
the wage level for a single worker. The effective tax rate amounts to 55.7% at the average wage level.
The ETR are lower at the left-hand side of the wage scale but the ETR curve exhibits a steep profile
around the minimum wage (roughly 50% of the average wage level).

Figure 3 – Effective tax rates on wages – 2007

0%

10%

20%

30%

40%

50%

60%

70%

0,330,400,500,600,670,700,800,901,001,101,201,301,401,501,601,671,701,801,902,002,102,202,302,402,502,602,702,802,903,003,10

Multiples of the average wage

% of gross labour cost

0%

10%

20%

30%

40%

50%

60%

70%

PIT and employee SSC Employer SSC ETR

Belgium faces high and structural unemployment and the unemployment is highly concentrated in low
qualified workers. This is the reason for the targeted tax cuts that have been introduced over the past
5 years: reductions in employer and employee social security contribution have been targeted to low
wages. This explains the low values of ETR at the left-hand side of the wage scale and the targeting