- Belgium has the third highest average hourly labor cost in the EU and highest tax wedge in the OECD
- International companies are job creators, and Belgium will need to compete more effectively for investments in the post-COVID world
- AmCham Belgium recommends re-introducing a cap on employer social security contributions
Belgium claimed another podium finish last year: with an average hourly cost of €41.1, it has the third highest labor cost in the EU, behind only Denmark (€45.8) and Luxembourg (€42.1), according to the latest data from Eurostat. Labor costs in Belgium increased by only 1.5% between 2019 and 2020, less than the EU average of +3.1%, but it still held onto the bronze medal for another year. The high cost of labor has been a longstanding concern for the international business community in Belgium, and this only takes on renewed urgency in the context of the relaunch plan.
The OECD’s 2021 Taxing Wages report provides further detail about the structure of labor costs. Among OECD countries, Belgium had the highest tax wedge in 2020 at 51.5%, versus the OECD average of 34.6%. The tax wedge is the difference between the labor costs paid by the employer and the net take-home pay of an average worker (single, without children). It is made up of three components, expressed as a percentage of labor costs. In Belgium, these are:
- 21.3% employer social security contribution
- 11.0% employee social security contribution
- 19.2% income tax
Belgium’s tax wedge declined by 0.76 percentage points from 2019, but this is in line with a general trend observed across OECD countries last year, as effective taxes on labor fell due to the impact of the COVID-19 pandemic and the policy response to the crisis.
How does Belgium compare to its neighbors? In terms of the tax wedge, Germany ranked second among OECD countries at 49%, France fourth at 46.6%, Luxembourg 17th at 37.5% and the Netherlands 20th at 36.4%.
While Belgium has the highest total tax wedge, when we look at the individual components, a slightly different picture emerges. Among neighboring countries, Belgium has the highest income tax, but it is France which has the highest employer social security contributions (26.6%) and Germany which has the highest employee social security contributions (16.8%). Belgium is on top overall because it scores poorly for all three components, even if it is the worst in only one. Of particular concern are the employer social security contributions, where Belgium is one of only nine OECD countries with a rate above 20%, despite the reduction of this rate under the previous government.
AmCham Belgium has set the challenge and ambition for Belgium to reach a top 10 ranking in the World Economic Forum’s (WEF) Global Competitiveness Index – but Belgium is currently in last place for the labor tax rate, 140th of 140 countries, only leaving room for improvement. As the economy rebounds from the pandemic and the relaunch plans set a new course for the future, Belgium needs to make further efforts to attract foreign investment. International companies are an important source of job creation, and we want to see new jobs flow to Belgium.
To boost competitiveness, AmCham Belgium recommends re-introducing a cap on employer social security contributions, in line with our neighboring countries. Not only is Belgium’s rate relatively high, but employer social charges also increase without limit, in proportion to the salary. A cap will help Belgium to attract senior and other highly qualified employees. In addition, Belgium should maintain and improve the other tax regimes and incentives which help to attract these internationally mobile workers.
In order to compete effectively in the post-COVID world, Belgium will need to distinguish itself with a compelling long-term vision and an attractive investment climate. We set out our policy recommendations – for the labor market and other areas of concern for the international business community – in our 2020 Priorities for a Prosperous Belgium (#PPB20).
About the author
Maud assists the policy team and the Committee members in their mission. Before joining AmCham Belgium, she worked and lived throughout Europe and China, which built up her interest in sharing and learning from others.