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Tax burden on labor falling, but more to be done

Tax Liberation Day fell on July 15 this year, two days earlier than last year. As from that day, Belgian employees theoretically stopped working to pay taxes and began to keep their earnings. Among the 28 EU Member States, only Austria and France ‘celebrate’ it later. This year’s ranking is an improvement for our country, but more needs to be done to make Belgium cost-competitive on an international level.

The 10th edition of The Tax Burden of Typical Workers in the EU28 by Institut Économique Molinari brings some good news for Belgium: we are no longer the most expensive country to employ people in the EU. The report credits the tax shift and other measures implemented by the Michel Government to reduce labor costs in Belgium.

These gains can be illustrated by looking at the difference between the cost of employing someone in Belgium and the net salary an employee takes home in return. At its peak in 2013, Belgian employers had to spend €2.34 to put €1 in an employee’s pocket, but this amount has since fallen to €2.01, a 15% improvement. By this measure, Belgium has swapped the gold medal for the bronze in recent years – the further off the podium, the better – yet the country remains too expensive.

Tax burden

The overall employment cost in Belgium is the fifth highest in the EU, but this does not correlate with employees’ net salary, which is only ranked tenth. Compared to the Netherlands, which has the second highest employment cost, but also the second highest net salary, it becomes clear that Belgium’s labor cost structure is an issue.

When we look at the real tax rate, we see an EU average of 44.5%, but 53.6% for Belgium. For this calculation, the report takes the “invisible” employer contributions to social security into account, which are paid “on top” of the gross salary. In Belgium, employers’ social security contributions are uncapped, another major difference with some of our neighbors. They increase in proportion to the salary, without limit. This results in very high labor costs, which remain the number one concern of the international business community in Belgium, despite the positive impact of the 2015 tax shift.

Might the tax burden be justified by the quality of public services in Belgium? How much value are Belgians really getting for their tax money? The government collects €29,326 from a typical Belgian worker’s wages, which is the second highest amount in the EU. Yet, the report’s authors argue that services do not live up to those standards, and the country underperforms in several international rankings.

The tax burden on labor is one ranking that Belgium does not want to climb, but to fall further down the league tables. To continue the positive downward trend of recent years, AmCham Belgium recommends the next governments to introduce a ceiling on employers’ social security contributions, in line with our neighboring countries, which will also help improve Belgium’s international competitiveness and create more attractive employment conditions for both employees and employers.