Belgians face new taxes in drive to meet EMU criteria

Date: 11/07/1996

By Thomas Klau

BELGIUM'S taxpayers, already amongst the most heavily taxed in Europe, face a further increase in their fiscal burden as Brussels launches an all-out effort to meet the Maastricht Treaty's convergence criteria for participation in monetary union.

With the 1997 budget to be drafted over the summer, Prime Minister Jean-Luc Dehaene's four-party coalition government is desperately seeking to reduce the budget deficit - which exceeded 4&percent; of GDP in 1996 - to the 3&percent; laid down in the treaty.

To achieve this goal, the government is considering several options. Amongst these, a 'general social contribution' hitting all forms of income and a new tax on income from property currently find most favour with the coalition's budgetary experts.

The general social contribution, an idea adopted from France, would affect wage and other income earners alike, and thus have the smallest impact on pay levels and union wage claims.

The idea is backed by three of the four parties in government, with only Dehaene's Christian Democrat Party (CVP) yet to give its assent.

The aim is to slash the budget deficit by about 1.5 billion ecu through spending cuts and measures to boost fiscal revenue.

Initial proposals to introduce a tax on personal wealth have been dropped amid fears that it would simply result in fortunes being transferred abroad.

Faced with opposition from within the ranks of the ruling coalition, Belgian Finance Minister Philippe Maystadt has had to reassure deputies that the government is not falling prey to “fiscal frenzy”.

Some members of parliament, said Maystadt, were “given to rejecting any suggestion for any new fiscal measure”. But such an attitude was acceptable only if the deficit reduction could be generated purely through spending cuts, which neither he nor the premier believed possible.

Maystadt reiterated that new taxation would be drafted in such a way that the fiscal burden on labour would not rise, and that overall taxes and non-tax compulsory payments would not rise above their record 1987 level. He also claimed that the change would lead to greater justice in the way the tax burden was shared between different social groups and types of income.

Effective deficit reduction is particularly important for Belgium if the country is to be among the founding members of monetary union, as its massive global debt means it will need considerable goodwill from its EU partners to be allowed into the EMU club in 1999.

With public debt in excess of 120&percent;, Belgium is far above the 60&percent; target laid down as the benchmark for EMU. But the country's record of steady debt reduction, its stable exchange rate against the deutschemark and low inflation means that - the debt-issue set aside - Belgium is an ideal candidate for the planned currency merger.