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Belgium ranks 1st with the highest labor costs in the EU… again!

According to the Institut Economique Molinari’s latest report, for every euro in an employee’s pocket, a Belgian employer must spend €2,52. With a tax burden 36% higher than those of the average employee in the EU, Belgium, once again, ranks first.  

In mid-July, the long-awaited government commissioned report on Belgium’s wage handicap was revealed. The report notoriously raised more questions than it solved, as the social partners argued whether 2,8% or 16% was the more accurate indicator. Later that same month, the Institut Economique Molinari released its own independent study of labor costs across the European Union. The European think tank’s results are even more pessimistic.

“Those who believed Belgian taxes could only move in one direction (down) were proven wrong again in this year’s study” the report so aptly stated. Since 2011, Belgium has consistently ranked first with the highest labor costs in the European Union with an employer cost of €2,52 per euro in an employee’s pocket  (€2,34 if the VAT is excluded). The EU average was of €1,86 (€1,73 when excluding the VAT) and the lowest ranking country was Cyprus where employers only pay an extra €0.25 (€0.18 VAT excluded).

Of more interest to Belgium is how the country ranks compared to its neighbors: France, Germany and The Netherlands. If the FEB/VBO had claimed a wage handicap of 16% in July, these new numbers place the gap at 18,9% (or 17,59% if the VAT is excluded, as in the following chart). The full Molinari report can be found here.  

The report highlights Belgium’s employer social security contributions and income tax, both the second highest in the EU. Only France has a higher employer social security contribution, but it compensates this with a reduced income tax. Likewise, Denmark compensates for its higher income tax with very little social contributions. Belgium does neither, and with average employee social security charges and VAT, cannot hope to compete with the average €1,99 of its three neighbors.

One would think that Belgium’s high cost of labor translates into excellent social spending, but the Molinari report goes further. While Belgium ranks third in social spending (behind France and Denmark), it only ranks 6th with regards to the quality of it social services. The Netherlands and Germany, which take the top two positions, are proof that much more can be done with less.

AmCham Belgium’s position

One of the Chamber’s top priorities has long been a reform of the Belgian labor market, especially with regards to employer social security contributions. This new data only further reinforces the need for a change in the Belgian legislation. Not only is the current system a deterrent to companies who are considering investing in Belgium, but the comparison with social spending shows that there are inefficiencies in the redistribution.

The social partners need to stop postponing the inevitable, and instead aim to learn from the best practices from other countries. Indeed, should it try to replicate its neighbors, Belgium could lower its wage handicap while improving the quality of its social spending, a win-win scenario if there ever was one.

To read AmCham Belgium’s recommendations on how to reduce the cost of labor, please refer to our 2013 Priorities for a Prosperous Belgium.

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