Tax the Poor, Help the Rich

Julie Robert

Afew days ago, Eurostat published its annual report on the taxation trends in the European Union. Eurostat is the Directorate-General of the European Commission. Its main responsibilities are to provide statistical information to the institutions of the European Union and to promote the harmonization of statistical methods. This recent report confirms, in an indisputable way that the levies of the Belgian public authorities are extremely heavy, particularly the direct or income tax. The tax rates average 42.8% while the European average is 35.8%. The tax revenues as a percentage of GDP are a high 44.1% in Belgium. Sweden and Denmark are the only two countries which take more, but they have a social system much more caring than Belgium's. This heavy taxation is due to high direct tax rates and its coverage. It clearly discourages the setting-up of new enterprises and the creation of employment. It paralyses Belgian economy and creates a fertile ground for an underground/ black economy and for undeclared employment.

Belgium has the same problem as each and every European country; it has an enormous public debt. The situation is not as bad as in, for instance, Greece or Portugal, but still. For the moemnt, Belgium has not asked for any help from Europe, unlike some other countries. According to Belgian government, the situation is under control. But as pointed out by Eurostat, the Belgian authorities are bleeding their citizens dry. There is something else worth mentioning. The Belgian government keeps saying that it has to raise the taxes and that it is the responsibility of every Belgian citizen to help keeping the economy afloat. But the very tax system is a two-tier system. What does that mean? It means that while every common citizen has to pay a high tax on each of his professional activity, the super rich pay nearly nothing. The more recent instance of the importance of the attractiveness of the tax system for the rich is the arrival of the actor Gerard Depardieu in Belgium. In France, the authorities have recently decided to tax the rich. In fact, they have levied a tax for the people whose wealth is more than 790,000 Euros. Since the passing of this law, more and more French citizens have moved to Belgium. They usually buy a house, and ask for the Belgian nationality. .Moreover, the companies making big protits in Belgium do not pay much in taxes either. As mentioned in a previous letter, Arcelor Mittal, who in 2009 paid 496 Euros tax on a net profit of 1,288 billion Euros.

And this kind of tax systems leads invariably to a massive black economy. The black or underground economy is a manifestation of the natural reaction of the people who attempt to avoid levies that the state tries to impose on any transaction of exchange of goods and services. It is a term used to cover all the economic activities generating profits outside the framework of the law, and beyond the control of the authorities. There are two components in the black economy, the tax fraud and the social fraud. The tax fraud is citizens/businesses evading taxes that they should pay to the State. A social fraud is when a company or a citizen dodges the contributions it should pay to the social security system. An Austrian professor, Friedrich Schneider, from a university based in Linz and expert in underground economy has just published a new survey. According to his research, the black economy accounted for 17.5% of the GDP of Belgium in 2008, rose to 17,8% in 2009 to come down to 16.8% in 2012 and 16.4% in 2013. The 2013 percentage is equivalent to 63 billion Euros.

A recent survey conducted at the instance of the authorities shows that the Belgians are the 'champions' of undeclared casual employment. The data is revealing. In 2012, 14.1% of the population worked in black/underground economy. When the researchers asked the people the reason why they did not declare their employment, they always answered that the tax imposed on income or income tax is too high. A lot of people having a part-time job also often work in the black/underground economy beside their 'official' work. There, the reason mentioned to the researchers is different. In fact, after the tax paid, someone with a part-time job earns pretty much the same amount of money as an unemployed. More-over, someone who doubles up two different part-time jobs is overtaxed. At the end of the month the person with two part time jobs does not have a double salary. The tax system does not treat two part-time jobs are as one full-time job. In the end, the salary of the person who works part-time for two different employers will be the same as if he/she worked only one part-time. This situation inevitably leads to undeclared employment and income. People working part-time do not earn enough money to live. And if they double up, they do not earn more. So, what do they do? They do not disclose their employment and earn money without paying taxes. But one has to know that this is very risky. The first risk, and maybe the less 'serious' for the employee, is to get caught by the inspectors appointed by the government to keep watch on the tax records of the companies and its employees. But riskier still is that the person working undeclared is not registered in any social security database. So the worker who loses an undeclared job does not get the chance to receive any compensation for the job lost. Furthermore, while s/he worked without paying any tax, s/he did not contribute to the pension funds that disburse pension to elders/retirees and the person concealing employment will not receive any pension either. When legally hired, the employee is covered by an insurance taken by the employer that the employer is compelled to avail under the laws for each one of his employees. This insurance protects the employees against the risks at the work place. So, if an employee conceals his employment and s/he meets with an accident at the workplace, all the medical expenses have to be borne by the employee and this can be very expensive. If the employee is very seriously injured and cannot work anymore then he has no chance of receiving disability compensation. Therefore, an undeclared casual employment is not a good option but, unfortunately, for many it is the only one. It is also a source of livelihood for those living illegally in Belgium, or waiting to receive the papers which will allow them to stay in the country. The situation of all these immigrants is very fragile and because of their weak bargaining capacity, these people are usually exploited by the employers. When one talks to them, the answer is always the same: 'I have to carry on; I have a family to feed. This job is better than nothing'. Talking about the risks of getting caught, or of being injured and not having the chance to be treated, once again, the same answer: 'I do not have a choice'.

It's been ten years now that the Belgian authorities have been taking measures to reduce the underground economy. But as the numbers keep increasing, one can wonder if these measures are adequate. The debate is virulent, and there are manifold solutions that have been proposed. Yet, it seems that the answers found by the government over the last few years have not worked well. The system of titres-services came into effect in 2003. It was an initiative by the federal government to promote local jobs and services. The main aim was to create jobs and to reduce undeclared casual employment. How was this to be achieved? The titres-services cover certain kind of jobs like cleaning, ironing, laundry etc. In Belgium, these services are almost always done in the underground. So, with this new system, the authorities wanted to bring the people engaged in it under the purview of laws and benefits covering employees. The titres services allow every private individual to pay an authorized company to buy these particular services. In concrete terms, what are the benefits? The system gives the users the right to a tax concession, namely a fixed tax concession of 30%. It means that the titres-services that one bought for 6.20 Euros each cost 4.34 Euros after deduction. The employees of the service providers get the following advantages; an employment contract, a salary based on the pay scale applicable, social security coverage and an insurance coverage for accidents during work. Thus, this system is beneficial for everyone, and even for the state as it collects the tax since as all the employment under titres-services is declared and legal. However the government in its efforts to find money everywhere is now tinkering with the system. Since April of this year each titre-service costs 8.5 Euros which means 5.95 Euros after deduction. In an interview given last week to a daily newspaper, the former minister of Social Affairs has announced that the price for the titres-services will probably rise again very soon, and that the idea of the revocation of the tax concession was also on the table. "Ten years ago, we deliberately fixed the prices too low to bring on record the undeclared casual employment. Now that it is a success, the price can be increased without any problem. For my part, the tax concession can even disappear" said the former minister. So now that the authorities have more or less reached their goal of reducing the number of people working in the underground economy they are considering ways and means of curtailing the benefit to people at large. Once again, the government has a short-term vision of reducing its debt. These future measures will only lead to the death of the system, and Belgians will be back to the previous situation of the nineties.

Frontier
Vol. 46, No. 4, Aug 4-10, 2013

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