4. Summary and conclusions: what does the methodology tell us about the
quality of tax revenue in Belgium?
Belgium has a high tax./GDP ratio. This means that the assessment of the quality of tax revenue is
particularly relevant. Examining the tax mix, we note that most of the taxation of primary income
procures 70% of the tax while consumption taxes are responsible for 25% of tax revenue. ITR confirms
that taxation is concentrated on primary incomes. Among them, labour is heavily taxed and tax reforms
have not been able to reduce the taxation of labour in a significant way. Taxation of capital increased
over the pas 5-10 years but part of the upward is due to a cyclical effect and might not be structural.
The heavy tax burden on labour is questionable for a country that faces high long-term unemployment.
Effective tax rates on wages indicate that the tax cuts that have been introduced and that are targeted on
low-wages significantly reduce the ETR at the left-hand side of the wage scale.
Effective tax rates on income from capital and on savings indicate that taxation is far from being neutral.
On the corporate side, the recent introduction of the allowance for corporate equity reduces most of the
distortions but the non taxation of capital gains still favours retained profits compared to new equity.
Taxation of savings is far from being neutral across assets and we may presume that these distortions
have strong effects on the composition of savings, what is confirmed by recent evidence on household’s
portfolio. These non-neutralities raise questions on the quality of tax revenue. The tax privilege for
housing is questionable. Tax incentives for pension savings are common in OECD countries, but the tax
privileges that result from the non-taxation of capital gains do not seem to have any obvious policy
rationale that could justify the departure from neutrality.
The indicators we use indicate that the trade-off between equity and efficiency could have been reversed
recently. During the nineties, the increased taxation of income resulted in more redistribution through the
tax system but the recent tax reform seems to have reduced the redistributive effect of PIT. Further work
is however required to explain why the outcome differs from ex-ante simulations, that indicated that the
tax reform was neutral from a distributional point of view.
The revenue forgone from tax expenditures indicates room for base broadening. A significant part of the
revenue forgone just confirms the preferential tax treatment of specific forms of household’s savings.
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