Sicily of the North

5th November 2003, Comments 0 comments

Beautiful Bruges is called the “Venice of the North” for good reason - canals, beautiful architecture, romantic atmosphere. But to call Belgium the “Sicily of the North”? We report on Belgium’s underground economy.

Is Belgium really like Sicily, home of The Mafia?

Sicily's underworld reputation certainly seems hardly appropriate to Belgium, a country whose name must be etymologically related to “beige”. Yet all the Belgians I know smile wryly and knowingly when I mention the term “Sicily of the North”. They know.

My husband and I honeymooned in Sicily a few years back. Sicilians were friendlier than most Belgians, but their driving was about the same — frighteningly bad.

Not just bad driving

But bad driving is not the only thing that Belgium has in common with Sicily. Belgium's politicians have developed a rather juicy reputation for themselves, the most recent example being Antwerp's politicians buying themselves treats with government-issue credit cards.

But this article is not about conspiracy theories nor corrupt politicians - it's about the phenomenon of non-taxed work in Belgium. Little, clean, modest Belgium has as big an underground economy as the country that spawned the Mafia.

Other Europeans know quite well that Belgians frequently do their deals under the table. It didn't take me long to figure that out either: I was fresh off the plane when I learned of a distant family member who worked one day per week “in the black”.

Everyone talked about his “extra” work as being perfectly normal, and there was no sense of shame or need to whisper when talking about it. After all, normal is whatever you are used to.

"We're in the same league as Italy"

Leo Van Hove, Assistant Professor of Economics at the Vrije Universiteit Brussel, made a monetary study of the underground economy of Belgium as part of his 1997 doctoral thesis.

In order to track how much untrackable money is circulating through Belgium's economy, Van Hove studied the amount and composition of bank notes in circulation in 1991. Through this study, he found that only 40 percent of the stock of currency was used in the above-ground economy for legal everyday transactions. Another 30 percent was likely to be hoarded, and the remaining 30 percent was likely to be in active use in the underground economy.

Around 1992, a 10,000 BEF banknote (about EUR 244) was introduced. Van Hove says this amount was ridiculous — no shop owner would accept such a large note, so these notes were destined either for hoarding or for use in the black market.

At the end of 2001, just before the introduction of euro banknotes, Van Hove found that one half of the currency in circulation was comprised of these 10,000 BEF bank notes. Further evidence for the unnatural nature of their circulation was that these notes were returned less frequently to the National Bank for replacement.

Cautious old people hoarding money is one possible explanation for slow-moving currency, but a more likely one is people being paid cash for non-taxed activities, because they hold the cash until they can deposit it in a foreign bank.

The situation hasn't changed with the introduction of the euro. Professor Van Hove is convinced the new EUR 500 banknotes are used only for underground transactions or for hoarding, which may or may not be related to underground activity.

One cannot obtain a EUR 500 note from an ATM; one must go to the bank in person and request it. These large bills are likely used to pay for part of a car “in the black”, or to pay a significant portion of the cost of a house without being taxed on it.

Due to the enormous percentage of cash in circulation that has never seen the light of day, “we're in the same league as Italy,” he says.

How it's done

The most popular ways to avoid taxation are to pay for part of a large purchase in cash, or for self-employed people to report only part of their earnings, or to report no earnings at all in the case of a full-time self-employed housecleaner or construction worker.

Then there is the wonderful story of an accountant who was caught embezzling money from his company, but the company couldn't prosecute him because the money he stole was not on the books.

Butchers and bakers are also infamous culprits — they are paid mostly in cash. Further, the tax service doesn't tax them on their actual sales, they are taxed on the supplies they buy. The tax administration applies coefficients to the raw materials purchased, assuming that with so much flour or meat, they will sell so much finished product.

“This leaves room for abuse and generates a cascade effect, because the butchers and bakers can buy part of their supplies in the black, which is also attractive for their suppliers,” says Van Hove.

Moral degradation and higher taxes

“It's stealing,” says Herman Siebens, chairman of the Flemish Network for Business Ethics (Vlaamse Netwerk voor Zakenethiek). According to him, cheating on one's taxes reflects a lack of empathy and a lack of social conscience. There are real moral and ethical questions that arise when reducing one's tax burden through illegal means.

Aside from the purely moral issues, both Siebens and Van Hove agree that tax fraud keeps tax levels artificially high, which creates a vicious cycle of self-justification for squirming out of paying taxes.

“Black work” costs every single Belgian EUR 1,500 per year in additional taxes, says Siebens. A family of four pays a staggering EUR 6,000 extra in taxes every year in order to make up the amount of taxes that would have been paid had everyone reported their income. “Only the richest people are profiting from this situation,” he says.

Cheating the system not just for immigrants

Before we moved here, we had a long conversation with a Belgian friend who was incensed that immigrants would come here, receive welfare payments, and then beg on the streets for extra cash.

She didn't mention the number of people, Belgians and immigrants alike, who receive money from the government and do “black work” on the side. Many can’t even be called “on the side” — they are full-time jobs for which they pay no taxes at all.

“Immigrants are very well integrated,” says Herman Siebens. “The more they cheat, the better they're integrated.”

"No link with society"

Let's face it — most human beings are morally flexible. The difference between cultures with low corruption and cultures with high corruption lies not in the individual humans, but rather in the effectiveness of curbing everyone's corrupt tendencies through social pressure and legal consequences. But what makes Belgians more prone to tax evasion than other cultures?

Belgians are fond of criticising their northern neighbours, the Dutch, for being stingy, but I have yet to meet a Belgian who joyfully parts with his cash. I'm sure the Belgian tendency to save money and look for the best value contributes to the social acceptance of reducing their tax bill by any means necessary.

There is also a notable absence of patriotism in Belgium. This could be related to Belgium's doormat-of-Europe history. Herman Siebens theorises that Belgians see the government as “the enemy” because it was indeed the enemy during Belgium's frequent foreign occupations. Any time a people is oppressed, they find ways to work around the oppressors: underground activity.

To this day, however, Siebens believes the average Belgian sees the government as being “not me, or not us” — they don't realise where the government's money is coming from, and where it is going to. Siebens says that Belgians have “no link with society”.

"No controls — that's the way it's done"

Medium and large-scale fraud is tolerated because there is a social agreement which says it is tolerable behavior. If it were not socially tolerated, the government would have found money to buy more and better computers for Belgian tax collectors, and it would not be such a popular sport to cheat the government. “Belgians are proud when they cheat the system,” says Siebens.

Small-scale fraud (such as working a few extra hours here and there “in the black,” or not reporting an honorarium one receives in addition to one's normal salary) is quite understandable given that the Belgian tax system makes it hugely difficult to report extra income without registering as a self-employed person.

Everyone knows what a confusing blizzard of paper self-employment generates, so making oneself known to the government is simply not worth it for piddling sums. But at what point does a sum change from being piddling to significant enough to report on one's taxes? The only truly ethical answer is that all sums are worth being reported to the government. Now, if there were only a way to do that without having to change your name to Kafka…

“In Belgium, everyone knows that a lot of things are happening, so you feel foolish if you don't do it too,” says Van Hove. Belgians watch politicians receive a slap on the wrist for corrupt actions, they watch their friends and neighbors working “in the black” without getting audited, and they read in the paper that the tax service doesn't have enough personnel, has outdated computers, and is practically unable to monitor business tax payments.

“There are no controls — that's the way it's done,” says Siebens. Is it any wonder that they think stealing from the government is acceptable behaviour? “They're trying to figure out how much they can get away with,” says Van Hove.

High taxes not the only reason

In Scandinavia, taxes are high, but corruption of all kinds is low. Thus, having high taxes doesn't necessarily drive people to tax evasion. The Scandinavians I know are also quite aware of, and even proud of, the excellent social benefits they receive. Perhaps therein lies the difference: they feel like they're getting a good value for the taxes they pay, unlike the Belgian sense of entitlement.

Coming from a land where the government does not subsidise health insurance for its citizens, I find it amazing that the Belgians don't seem to realise that their tax money is responsible for the excellent and very cheap health care and education they enjoy. Not to mention those social subsidies that keep people above the desperation level of poverty and thus keep all Belgians safer from crime.

I recently chatted with a wealthy Belgian couple who were quite aware that the domestic personnel they hired worked in the black, and that most of them also received money from the government (be it welfare cheques, or unemployment benefits, or some other form of social assistance).

"It's silly that a person makes less money working as an official employee than working in the black. Of course, one does receive some benefits for being an official employee and paying taxes, such as unemployment insurance, but still…" they said. It's as if the benefits one receives from the government are as transparent as the air they breathe.

Belgium's corruption average

Belgium is not among the most corrupt countries in the world. According to the 2003 Corruption Index, published by Transparency International, Belgium ranks 17 (in descending order) out of the 141 countries surveyed. The Corruption Index is a poll of polls. Transparency International conducts at least four different polls of people's perception of corruption, and averages the results per country.

In 1996, the earliest available Corruption Index, Belgium ranked 20 out of the 41 countries surveyed. The perception of corruption in Belgium had slipped badly to 29 in 1999, but is now back up again to its highest level ever – 17th place, with a score of 7.6 out of 10.

Belgium still lags behind the Commonwealth countries: New Zealand tied for third place with squeaky-clean Denmark; both had an almost perfect score of 9.5 out of 10. Australia made it to eighth place, and the UK and Canada were tied for 11th place. Belgium beat the US, however, which sits just behind it in 18th place.

And how does Belgium compare to its supposed mirror, Italy? This year, Italy is in 35th place, so perhaps Belgium no longer warrants its pet name?

Bad boys beware

Watch out if you have a business and rely on a certain amount of “black money” to keep your business profitable. The Ministry of Finance has finally admitted that businesses and self-employed people are not sufficiently audited by the tax service.

The Christian Union CCOD says that the reasons for this are a shortage of personnel, bad organisation, and an outdated computer system. This is set to change — the service will soon receive an additional EUR 100 million to update their computer system.

Indeed, the general corruption in Belgium seems to be lessening, according to Belgium's one-step-forward and two-steps-back climb up the corruption index.

Even government workers are being asked to work hard and not steal things, according to employees working for the Flemish government. “In the previous generation, it was more accepted that things disappeared, and that is not accepted anymore,” one says.

It's tough but true: times are changing in the Sicily of the North.

November 2003

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Subject: Belgian News

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