Flanders can reduce tax burden by six percent after state reform

The sixth round of state reform could bring about a 6% drop in income tax in Flanders. That is to say if the region chooses to implement such a drop. This scenario is plausible if one takes into consideration the data that André Decoster, a professor at the Centre for Economic Studies at the university of Leuven, and his colleagues Kris De Swerdt and Willem Sas have presented today. Commissioned by tax officials of the Flemish administration who want to prepare a new outlook of the region after state reform, made some simulations and they found out that the new state reform offers some fiscal opportunities although some have designated these opportunities to be rather ’scant’. The complicated compromise surrounding fiscal autonomy implies that the federal government will receive three quarters and Flanders a quarter, or about six billion euro, of the income tax paid by Flemings. The tax income levied by the Flemish authorities will be made up of surcharges, as is the case with the municipal tax today. Apart from collecting the tax, the region will also be given the power to determine the tax rate within certain limits, plus all the related tax deductions. These deductions include the housing bonus, rebate on service vouchers, energy investments and pension savings etc. and will total an income of 1.7 billion euros. If Flanders decides to scrap some of these deductions, the Louvain simulations suggest, it could be in a position to significantly decrease its income tax rate. This could lighten the income tax load on personal income by as much as 6 percentage points Flanders could even further reduce the tax load for the lower income groups and ess for the wealthier income groups. The simple scrapping of tax deductions in itself will be to the detriment of the wealthier groups. One could therefore safely say that in a few years’ time, when Flanders exercises full fiscal autonomy, the issue of redistribution of income via taxation will also feature on the Flemish political agenda. At present redistribution in Flanders occurs solely via expenditure, but this could mean that the region would in future be in a position to redistribute via income and taxation.
Yet expectations should not be set too high as the sixth state reform will also devolve a series of powers to the regions that do not include the relating budgets. At the end of the day, the regions will have to go all out to stay out of the red, which suggests that it may take quite some time before a drop in the tax rate could become a reality. But it nevertheless remains a possibility.