How to develop a fair tax system. The Belgian Case

Belgium is currently preparing a tax reform. And the more concrete the measures become, the more resistance there seems to be, often driven by personal emotions or by opportunistic reasons.

It is therefore good to stand back once in a while and to look at things from a broader perspective.

The key question is how to set up a fair tax system.

In doing so, it is already important to keep the perspectives pure.

The question of the size of government should indeed be distinguished from the question of how taxes are best structured.

And yes, the size of the government is a (major) concern, but especially (it appears) if the financial householding of that government is lacking efficiency and scope (which is the case in Belgium). Some work to do at that level...

As far as tax structures are concerned, the question arises what weight should be given to capital taxes, labour taxes and consumption taxes.

People and politicians should note that there are some good reasons to advocate a shift from labour (and to a lesser extent capital) taxes to consumption taxes (including environmental taxes), especially in Belgium where consumption taxes appear to be rather low.

It also seems (more than) appropriate to also review the way Belgium is taxing labour and capital. The notorious Belgian 'special schemes' often suffer from a lack of efficiency. Therefore, when lowering tax rates, it is good to also review the scope of such a special schemes (often introduced to lower the tax burden for specific groups or sectors).

As far as capital taxes are concerned, they appear to be rather high. Their distribution however is far from neutral. In particular, it appears that (mainly regional) governments tax capital stock excessively and often inefficiently, whereas taxation of capital income is clearly lacking any coherency.

More info and data in the attached presentation: