If Flanders wants to keep its public finances healthy, taxes should also be tinkered with. Labor costs must be reduced, but this must be compensated by new taxes, such as a CO2 tax and a progressive tax on gifts and inheritances. This is what Koen Algoed, Secretary General of the Department of Finance and Budget of the Flemish government, says.
In his (non-public) note ‘The road to sustainable public finances’, which was viewed by the Belga press agency, Algoed paints a picture of the worrying evolution of Belgian public finances. But not only are the flashing lights on red for the total Belgian government debt, the evolution of the Flemish government debt also gives food for thought.
For example, it recently became known that interest costs on the Flemish government debt are gradually rising towards 1 billion euros. According to the Court of Audit, the Flemish debt ratio will rise next year to 77 percent of receipts, which is well above the set target value of 65 percent. In the coming years, that figure would rise further towards 85 percent.
In his note, top official Algoed, former chief of staff of former Budget Minister Philippe Muyters, puts forward a number of options that, according to him, can “contribute to sustainable public finances”.
Donations and inheritances
The most obvious avenue revolves around tax reforms. For example, he advocates broadening the taxable base. This can be done not only by getting more people to work, but also by reducing the number of “special tax regimes, loopholes or extras in regional taxes”. For example, donations and inheritances are taxed at much lower rates than income from work. Algoed suggests adding up those transfers and taxing them “progressively, with a franchise”.
Labor taxes down
In addition, according to Algoed, a tax shift is needed in which labor should be taxed less, especially for middle and lower incomes. “We must dare to tap new taxes for that lost income (such as a CO2 tax, smart kilometer tax),” the memorandum reads.
Algoed also advocates working with “multi-year budgetary envelopes” per policy area. In this way, a general expenditure standard is agreed and each policy area receives a share. “Each minister is therefore his or her own minister of finance within the limits set for his or her expenditure area,” it said.
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