3.2.3. Taxation of savings
Figure 4 – Effective tax rate on savings 2001-03-60,0% -40,0% -20,0% 0,0% 20,0% 40,0% 60,0% 80,0%Savings accountsShort term depositsOne Year depositsPublic bondsSharePension savings, tax credit=30%Pension savings, tax credit=35%Pension savings, tax credit=40%Owner occupied housingOwner occupied housing, constructionOther real estate investmentsSource: VALENDUC (2003)Figure 4 illustrates how effective tax rates vary across assets. Pension savings enjoy negative tax rates,
due to their EET treatment. Compared with the ETR on public bonds, that could be considered as the
benchmark^17 , investment in the owner-occupied housing also enjoys a preferential tax treatment: imputed
income and capital gains are not subject to tax and capital repayments of mortgages are deductible, up to
a limit, against earned income. Most of the positive taxation arise from registration duties (12.5%, among
the highest in Europe) and from the property tax, which is mainly a local tax. Other investments in real
estate are more heavily taxed than financial assets. Shares faced a higher ETR than bonds and deposits,
due to the classical system that still applied for the period under review, but since then the introduction of
the ACE has strongly reduced the tax discrimination against shares. Finally, savings accounts that are not
subject to tax face an “quasi-tax”, due to interest rate regulations.
It is clear from Figure 4 that the tax treatment of savings is far away from neutrality. Differentiations
across assets are even larger, as indicated in VALENDUC (2005), when we account for the effect of the
non-taxation of capital gains. Financial assets that convert interest into capital gains are common
(“SICAV” and “bons d’assurance”) and they attract an increasing share of the household portfolio over
time.
(^17) Differences in ETR between public bonds, one year deposits and short-term deposits simply reflect differences in real
rates or return. Since taxation applies to nominal income, the same tax rate may result in differences in ETR if real rate
of returns are not equal across assets.