New economic study dispels myths about Belgium’s biggest regional tax contributors
Wednesday, 24 February 2021
In a country as politically complicated as Belgium, it only stands to reason that economics should be muddled as well. But while there has long been dispute over which of the three major regions contributes the most to the country in a wide variety of areas – from beer to bike infrastructure – a recent study by the Flemish Chancellery and Foreign Affairs Department has at least settled one thing: Brussels holds its own as a taxpayer.
“The persistent image of Brussels as a beggar in federal Belgium is incorrect,” economist Willem Sas with the University of Stirling / KU Leuven told The Brussels Times, referring to a stereotype that residents of Brussels take more than they give and are reliant on taxpayers in Flanders and Wallonia for financial support.
In fact, Brussels is a close second to Flanders when it comes to federal euros in Belgium.
“The situation in Belgium is that over the last five to ten years, Brussels has increasingly become less of a receiver from the federal system and more of a contributor,” says Sas.
The idea that Brussels doesn’t contribute as much as it should is particularly prevalent in Flemish nationalist narratives, he adds.
The website for the far-right political party Vlaams Belang levels a charge at Wallonia, too, claiming that “billions of euros flow from Flanders to Wallonia every year, without any condition or consideration, and without any noticeable social and economic improvements in return.”
Sas says that takes like this are to be expected.
“You also see it in other countries, like Spain with Andalucia and Catalonia. When you factor in an entirely different language, it’s easy to see how all of these narratives are very simply woven into political platforms.”
But the Brussels taxpayers will be investing €1.2 billion in Wallonia this year – a significant increase over the €400 million five years ago – and next year it’s expected to grow an additional €100 million.
The study looks at the extent to which tax dollars from Flanders, Brussels and Wallonia flow back into their region.
When it comes to Belgium overall, the taxpayers of Brussels are becoming an increasingly important contributor to the federal budget.
Generally, taxes are paid in each region and then sent to the federal government to cover things like social benefits and pensions for all Belgians, plus other federal government expenditures.
In the coming years, Brussels taxpayers will see more and more of their tax dollars flow to Wallonia. About €855 per inhabitant of Brussels, to be exact.
In Flanders, that amount is closer to €1,000. The Flemish region’s contribution to Wallonia is expected to grow from €5.8 to 7.2 billion by 2022. They still contribute the lion’s share toward Belgium, but Flanders and Brussels are increasingly converging.
Why do Brussels and Flanders contribute more?
There are a few things driving the increase in Brussels’ contributions, one of them being the younger population there – 34% of people in Brussels are between 18 and 40 years old, compared to around 26-27% in the other regions.
“Young people are less likely to become ill, which means that health care benefits and costs remain limited. Take into account that pensions in Brussels are relatively low and you can see that ageing-related costs are also lower,” explains Sas.
One negative factor is that the employment rate of 60% in Brussels is much lower than the 72% Flanders has, but this is largely negated by big corporate tax contributions.
“’Brussels is the country’s economic engine. A lot of companies have settled here and that’s reflected in the corporate tax,” Sas says. “There’s quite a lot of economic activity here in Brussels.”
Meanwhile, Flanders faces high ageing costs that cut into the money they’d get back from the federal government. Wallonia and Brussels pay about €2 billion towards Flemish pensions.
But Flanders more than makes up for this with its higher contributions to social security and personal taxes- 64% of federal personal income tax for Belgium is collected in Flanders, even though only 58% of Belgians live in that region.
What holds Wallonia back?
Sick and disability benefits are heavily used in Wallonia, while relatively few social benefit contributions are collected there.
“People that are unemployed are also more prone to be ill,” Sas explains. “Especially the sorts of long term illness that is found disproportionately in the unemployed population, and that kind of healthcare for that kind of population is expensive, and you have a lot of that in Wallonia.”
They’re also facing an employment rate of 62%, which – while higher than Brussels – brings in below-average personal income taxes.
Sas explained that much of Wallonia’s economic lag is structural, and some of it can be attributed to its dependence on heavy industry.
Still, despite what political narratives may insist, the lopsided tax contributions between regions is rather typical for any country.
“There are also income flows between young and old, high and low educated, working and non-working, between Walloon Brabant and West Flanders, and between all municipalities,” says Sas. “And these are often much higher.”