Kevin Spiritus, Assistant Professor at Erasmus School of Economics, is a member of the Belgian commission of experts advising the government on the upcoming reforms of the tax system. In an interview with the Belgian newspaper Visie, he offers his view on the required reforms.
Dual income tax
Spiritus argues for a so-called 'dual income tax': all income from labour is progressively taxed and all other income from capital is brought together under one heading. He emphasises that the current system has many flaws: 'Savings are largely tax-free, but dividends are not. Land registry income is taxed, but actual rental income is not. Nor is capital gain from shares. That distorts investment decisions, whereas you want a tax system that is as neutral as possible and directs investment to the most productive parts of the economy. As the system is currently constructed, it directs investments towards less productive things, such as a second home'.
Also, some schemes in the current system feel unfair. 'Take the capital gains tax, which is de facto zero. As a result, there is a group with the same taxable income as people with a similar income from employment, while the former group pays less tax. This is so contrary to the sense of justice that you have to tackle it. If people see that they are getting something in return for their taxes and know that everyone is making a fair contribution, they are willing to contribute. But as soon as there are gaps, that willingness drops,' says Spiritus.
Elaboration
In the article, the Assistant Professor explains the rationale behind the dual income tax system: 'The reasoning is that the normal interest rate is a reward for your delayed consumption, a reward for patience. Taxing that normal interest is economically harmful, but anything above that can be fairly taxed. With a dual income tax with a flat rate for all capital income, you can get a tax exemption for part of your capital income through your tax return. Above that, everything falls under a tax of, say, thirty per cent, so that your average rate rises as your capital income increases.'
The ball is in politics' court
Spiritus concisely summarises what the new system will stand or fall with. 'That there will be a reform seems inevitable to me and that it will go in the direction of a dual income tax. The question is with how many exceptions. It is like a bicycle tyre that you stick holes in: if you only fill a few of them, it will still deflate. You simply have to move towards a system without exceptions. Technically that is not a problem, the question is whether the policymakers want it.'
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You can download the full article from Visie (p. 8-10), 10 February 2022, above.