Tax autonomy without tax competition ?
The case of the Belgian regions
Christian VALENDUC
Federal Ministry of Finance - Belgium
Tax autonomy without tax
competition ?
 The pre-reform situation
 Current fiscal arrangements
 The use of tax autonomy by the
Regions since the 2001 reform
 Why tax autonomy has not resulted
in (harmful) tax competition
 NB: we just discuss the tax autonomy
of Regions (communities not
included)
Tax autonomy without tax competition ?
I. The pre-reform situation
 Regions may create their own taxes,
subject to a “non bis in idem” rule”
 Full autonomy on some minor (former
federal) taxes
 Rate autonomy, including the possibility to
put surcharges on the federal PIT or on
registration duties
 According to HCF (1998), very limited use
of tax autonomy by the Regions
 Claim for more tax autonomy on the
political side, mainly in Flanders
Tax autonomy without tax competition ?
II. Current fiscal arrangements (2001 reform)


Regions may create their own taxes, subject to a “non bis in idem”
rule
Full autonomy on “Regional taxes” (former federal taxes)


Gambling tax, registration duties, inheritance duties, gift tax,
mortgage tax, taxes on vehicles and some other minor taxes
Property tax but..



Local surcharges account for 95% of the rate
Regions may not change the imputed rent (part of PIT tax base) but
may opt for another tax base
Rate autonomy on PIT but




May not reduce the progressivity of PIT (explicit definition)
May not result in harmful tax competition (no explicit definition)
May not exceed +/- 6,75% of the PIT revenue of the Region
Regions may set up their own tax incentives
Tax autonomy without tax competition ?
II. Current fiscal arrangements (2001 reform)
 Regions may collect themselves “regional”
(former federal) taxes
 Safeguards provisions
 Limits on the “rate autonomy for PIT”
 Definition of residence for inheritance duties
 Horizontal agreement needed for any
change on the taxation of leased vehicles or
for vehicles owned by firms
 How large is the tax autonomy of Regions ?
 Tax autonomy of the Belgian Regions in an
international setting
Tax autonomy without tax competition ?
II. Current fiscal arrangements (2001 reform)
% tax revenue of
the Regions
How large is the tax autonomy of the Regions ?
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1989
Own taxes
1991
1993
1995
1997
Other regional taxes - full aut.
1999
2001
2003
Rate autonomy
2005
2007
Only surcharges
Tax autonomy without tax competition ?
II. Current fiscal arrangements (2001 reform)
Tax autonomy (% total tax revenue): international comparison
B
D
Ö
CH
Sp
Full autonomy
45
0
3
73
12
Rate autonomy only
55
0
0
27
88
0
100
97
0
0
No tax autonomy
What about the decentralisation of…
Redistribution ?
Incentives ?
Tax collection ?
+
0
0
++
++
++
0
0
++
+
+
+++
+++
+++
++
Tax autonomy without tax competition ?
III. Has the extended room been used ?
 More widely used than prior to the 2001
reform
 But Regions did not ask for collecting
themselves regional taxes
 Accountability issue
 Leading role of Flanders
 In some cases, tax changes supporting
broader policy initiatives
 Tax incentives (PIT) for investment in venture
capital (Flanders)
 Tax credit for private loans to SME’s (Flanders)
 Abolition of property tax on fixes assets held by
entreprises (Wall)
Tax autonomy without tax competition ?
III. Has the extended room been used ?
 Registration duties
 Highest rate in Europe (12,5%)
 No consensus for changes during the
nineties
 Reduced rates or tax rebates in Flanders
and Brussels, aiming at improving mobility
(Flanders, portability of registration fees)
or home ownership (Flanders)
Tax autonomy without tax competition ?
III. Has the extended room been used ?
 Inheritance duties and gift tax
 Rules were “out of date” when the tax
competences were devoluted
 No link with competences in the spending side
 Tax autonomy extensively used (31 changes
since 2002)
 Tax mimicking
 Changes of tax rules in support of
 Economic policy (Zero tax rate for entreprises)
 Housing policy (Support for home ownership in
Brussels)
 Fight against tax evasion (reduced rate for financial
assets and for gifts)
Tax autonomy without tax competition ?
III. Has the extended room been used ?
 PIT: only Flanders
 Tax credits introduced
 Targeted on low wages
 Extended to any earned income in 2009
(Regional elections…)
 Back to targeting in 2010
Tax autonomy without tax competition ?
IV. Why…? Tentative explanations
 No competition for tax bases, but some tax
mimicking
 Safeguards have played their role
 PIT and progressivity
 Definition of residence for inheritance duties
 Requirements for cooperation agreement for
vehicle taxes
 Changes focus on immobile tax bases (or to
tax bases of which the mobility was
reduced by the safeguard provisions)
 Limited room for tax cuts, apart for
Flanders