Belgian public expenditure comprises about 55% of gross domestic product (GDP), and we even crossed the 60% threshold during corona. According to the National Bank, it was no less than 70% in Wallonia. Belfius is therefore no longer so enthusiastic about acting as the principal banker of the Walloon Region. Moreover, the high government expenditure is a European phenomenon that has existed for several decades. It goes hand in hand with a high tax burden: the effective tax rate of the average Belgian employee…
Belgian public expenditure comprises about 55% of gross domestic product (GDP), and we even crossed the 60% threshold during corona. According to the National Bank, it was no less than 70% in Wallonia. Belfius is therefore no longer so enthusiastic about acting as the principal banker of the Walloon Region.
Moreover, the high government expenditure is a European phenomenon that has existed for several decades. This goes hand in hand with a high tax burden: the effective tax rate of the average Belgian employee is 53.5% (compared to an average of 43.9% in the European Union). For that reason, the Tax Liberation Day in Belgium this year only on 15 July. That is the day on which the Belgian works for his own account during the rest of the year. For this, the salary goes to all kinds of taxes, levies and excise duties.
Everyone is complaining about the high tax burden, and that is allowed. We live in a social-democratic liberal society, but father state dominates our lives more and more. The Belgian Official Gazette is getting thicker and thicker: it consisted of 127,776 pages at the end of last year, compared to 98,290 pages at the end of 2020 and 119,516 pages at the end of 2019. We are not even talking about European legislation, which with its regulations and directives governs 50% of the national regulations.
Despite the digitization, all this requires many more civil servants to handle the administrative burden, people who cannot be deployed in the free economy. The high inflation is supposedly a boon for the government debt, because it reduces the public debt in relative terms, but on the other hand, the wage indexation of the government also makes the wage burden of that government much heavier. The unions still have a lot of influence, and will not allow this indexation to be tampered with.
A major drawback of the regulations is that they do not evolve to the same extent in a rapidly evolving society, and can become obsolete after a few years. In that case, we have to follow rules that are no longer relevant at all. The fact that the Code Napoleon of 1804 as long as national civil law has dominated, and still does, but to a lesser extent, shows it.
Passing on to the private sector
For that reason, the government also seems to be delegating more and more administrative follow-up obligations to third parties. This is how the legislation is around Anti Money Laundering (AML) due to EU directives. She insists that all companies need to know who their customers are, what they do and what the risks are to maintaining a business relationship. It’s what one de Know Your Customer-verification. The legislation is especially relevant in the area of financial services.
In this context, for all companies (including the numerous non-profit associations), the banks have to check who the Ultimate Beneficial Owners of their customers. These are the persons who own a company, have voting rights or have actual control. Incidentally, you are also regarded as a UBO if you own at least 25% of the shares.
So you can imagine what an administrative burden that is for financial institutions: hundreds of thousands of customers are involved. Companies (including the numerous non-profit associations) must also annually confirm who their UBOs are in the UBO register, on pain of a fine. And all this in the fight against black money, drugs, financing terrorism, …
Service economy makes the economy run?
In fact, all these tasks require a lot of staff and resources, both in the public and private sectors. Industry in Belgium now accounts for about 15% of GDP, compared to 23% in Germany. It makes the economy run, but one wonders if the regulitis is the most efficient way. It is much better to give the economy impulses through entrepreneurship and free initiative, which lead to innovation and sustainable growth, but this is strongly discouraged by the red tape.
Belgium therefore has a low turbulence as far as companies are concerned. There are relatively few real start-ups that replace older disappearing companies. As a result, about 15% of companies in our country are zombie companies: weak companies that are more likely to stay alive artificially, but still take on many assets and personnel that can be better deployed in other younger dynamic companies. It curbs the necessary productivity growth.
Let’s start with ourselves first
We are partly responsible for the fact that the government permeates all sections of society. As soon as a problem arises, everyone knocks on the government’s door for assistance.
We think, for example, of the financial crisis of 2008-2009, when governments were right to bail out the reckless bankers. Excessively high government spending in some countries triggered the European debt crisis, and large support funds (European Stability Mechanism or ESM) were set up for those countries.
Even during the corona crisis, important support measures were taken in all European countries that were not always well thought outfor both individuals and companies. The Belgian system of economic unemployment played a key role in this.
Even now with the high energy prices, the scenario repeats itself: the government must act as a lifeline, both for citizens and for companies. Citizens want a reduction in their high energy bill and compensation measures for the loss of purchasing power. The companies want the government to intervene to safeguard their competitiveness as a result of higher labor costs and energy prices.
Some who use a lot of energy are forced to close their doors, and then turn to economic unemployment. They do not want to lay off staff: because the labor market is tight, it avoids seeing staff leave permanently. Due to the high gas prices, various energy suppliers are in danger of going bankrupt. They buy energy at a high price, but are still bound by older contracts with a lower fixed price. Here too, the government must intervene to avoid a disaster scenario in the current market conditions. For example, the German government had to save the large Uniper, which lost 12 billion euros in the first six months of this year, from destruction.
Everyone wants the benefits (government support), but not the burdens (high taxes).
However, the economic parties apparently do not realize that the government cannot do everything. The tax burden cannot be much higher in Europe. In Belgium, according to the Planning Bureau, the budget deficit will rise to 31.5 billion euros next year, or 5.3% of GDP, and the aging burden has yet to really get off to a good start.
The government is needed to take structural measures. For example, something must be done on a global level against global warming, but that is complicated by the fact that sovereign states can hardly be imposed. Just look at Hungary’s attitude within the European Union.
In the current energy crisis, the energy price must be decoupled from that of gas. In that context, it is good that Belgium is a member of the Union: alone we cannot do anything. In Belgium itself, reforms have long since become impossible due to the stalemate between emergency and the south.
No bottomless barrel
However, everyone must accept that the government is not a bottomless vessel from which one can always get everything. It is time for everyone to learn to take more responsibility for themselves. However, the government must work more efficiently and take more targeted measures.
A reduction in VAT on electricity applies to everyone, including those who need it less. After all, the wealthy consume more, and thus paradoxically benefit the most from this. A price ceiling on gas can have the opposite effect that people will continue to consume a relatively large amount of gas, and this against global warming..
The same also applies to temporary government discounts of a few hundred euros on energy bills. These measures are therefore more likely to stimulate consumption in general and are therefore inflationary in the current context. In doing so, they increase the budget deficit, although it is rather a drop in the ocean.