And the tax on labor goes... up
In the latest Economic Survey of Belgium the Organisation for Economic Co-Operation and Development (OECD) says that the fiscal federalism in our country is problematic:
The current system of fiscal federalism is creating imbalances between the federal and the sub-federal governments (vertical imbalance), and between sub-federal governments (horizontal imbalance). Without reform, the vertical imbalance will widen as the fiscal burden from the aging of the population falls mainly on the federal level.
In Flanders we are fast to blame the French speaking part of the country for mismanaging the economy and for not acknowledging what needs to be done in a rapidly changing environment. In Flanders we deplore the fact that the French speaking part of the country is very reluctant to discuss reforms of the state structures, even though it seems that those structures are not efficient.
However, there are reasons to believe that Flanders is not exactly perfect in following the recommendations of international institutions such as the OECD. In the agreement for the new Flemish government taxes on labor are actually going up rather than down while international institutions recommend to decrease the weight on labor.
The discourse by politicians, employers and economists invariably stresses the need to incite people to work more and longer. The aging of the population and the generous social and health benefits have to be paid by someone, in fact by the working population.
There is a gap between the official discourses and the reality. If a big company needs to restructure, all of a sudden the older employees get all kinds of incentives to retire. Everyone seems to end up happy: the fifty-somethings who won't have to work ever again during their lifetime, the unions who defend their members, the politicians who don't have to deal with major social unrest and the company which can lower the labor costs. Yet, everyone agrees that in general these practices are not sustainable - until the next big company gets into trouble.
Now it seems that this attitude is not that different when Flemish political parties are at the negotiation table: socialists (sp.a), christian-democrats (CD&V) and Flemish nationalists (N-VA) agreed in the absence of the liberal party (VLD, in the opposition now) to get rid of a tax discount for workers, so effectively increasing the tax burden on labor.
There are other measures going into a strange direction: financial support will be increased for working parents who want to interrupt their carreers (to take care for the kids).
Those measures do not involve enormous amounts of money, but the direction which is taken is strange: do we want people to work more as everyone is recommending, or do we want to incite them to work less?
To be fair, it cannot be denied that the new Flemish government has lofty ambitions. Public expenditures will be tackled in a serious and courageous way, and financing of green and innovative projects will be stimulated. The Flemish government wants to have its budget in equilibrium in 2011. But increasing the tax burden for workers is a strange way to prepare for the future.
Roland Legrand
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