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Belgium takes the lead, but in the wrong race

by Johanna Vijverman, Policy Officer, AmCham Belgium

Belgium remains the frontrunner in the OECD’s 2019 Taxing Wages report with a 52.7% tax wedge, which gives us the ignominious honor of being the only OECD country above 50%. Furthermore, according to recent Eurostat data, labor costs in Belgium are the third most expensive in the European Union. Belgium is taking the lead, but in the wrong race.

There is also a positive side to the story, however: the tax wedge (the difference between total labor costs for employers and take-home pay for employees, calculated for an average single worker) decreased by 1.1% in 2018 and is the lowest over the 2000-2018 period. Yet, it is still more than 15% higher than the OECD average, and with a 37.7% tax wedge, Belgium’s main competitor, The Netherlands, also performs much better.

But what does this mean for employers and employees? Employees see 39.8% of their salary going to income taxes and social security contributions, taking home only 60.2% of their gross wage. At the same time, employers are faced with a growing cost of labor (from €39.1 per hour in 2017 to €39.7 in 2018).

In the past, high labor costs could be justified or explained by high levels of productivity. It is therefore further cause for concern that, while Belgium remains the 4th most productive country, according to the most recent data from The Conference Board, its productivity levels are slipping.

Despite the tax shift, which reduced employer social security contributions, costs remain too high and put a strain on Belgium’s competitiveness. To truly turn this situation around, Belgium should re-introduce a cap on employer social security contributions, in line with our neighboring countries. For labor costs, less is more: lowering them will have a positive effect on the take-home pay of employees and stimulate more people to work, and this will in turn bring more prosperity to all.

The race Belgium should be leading is in the World Economic Forum’s (WEF) Global Competitiveness Index – currently ranking 21st out of 140 countries. In our 2019 Priorities for a Prosperous Belgium (#PPB19), we set the challenge and ambition for Belgium to achieve a top ten ranking within the next ten years. The labor tax rate in Belgium is ranked third-but-last. By addressing the tax wedge and high labor cost, we can and will climb the competitiveness ranks.

 

 

 

About the author

                                                                                    

Johanna Vijverman, Policy Officer, AmCham Belgium
An avid researcher and exceptional writer, you'll find Johanna working on our blog and policy publications such as the #PPB19. You can contact her at jvijverman@amcham.be

 

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