That right there, my dear readers, is the Belgian stock exchange, currently home to the Euronext Brussels. In front of its 150-year-old building you see a 120.000 people-strong labour demonstration, probably one of the biggest in post-war Belgium. Since my office is right around the corner I decided to take a sneak peek during lunch. Not liking the grim atmosphere, I hastily returned though. That was one malcontent mob, I tell you!
About two hours later things went south, with some protestors turning to violence to cool off their anger. When Belgium makes the frontpage of the BBC for something different than a beer award, you know shit really hit the fan. How is it that violent acts like the ones reported by the BBC happen in one of the most advanced, progressive and socially equal countries in the entire world?
In my opinion, it all boils down to a growing sense of inequality, fueled by austerity measures of the new right-wing federal and regional governments.
Following the elections for both the federal and regional parliaments in May of this year, right-wing parties strongly gained on their leftist counterparts with a story of policy change, tax pressure reduction and more economic growth. Forward three to four months and we’re finally finishing up our government formations. As it turns out, the new legislative proposals by the right are strongly aimed at reducing government spending and with that quite a lot of public services.
Without going into detail, it’s clear that most households stand to lose more than they gain. It’s true that government spending will go down, but because of our 3% budgetary deficit the spending reduction did not result into less taxes. On top of that, the often promised tax shift from a focus on income taxes to eco-taxation, consumption taxes, and taxes on (large) capital didn’t materialize.
Couple the above with our already legendary high tax rate on income, with a higher retirement age, and with a freeze to the automatic link between wages and inflation, one of the cornerstones of the left movement, and you know most hard-working Belgians won’t be too happy.
Income and wealth inequality
One of the reasons why I like the OECD is its extensive database full of interesting statistics – who doesn’t love big data? My favourite part of the OECD website deals with income and wealth distribution, for which the OECD uses the Gini coefficient. This ratio represents the income distribution of a nation’s residents.
As it happens, Belgium has one of the lowest Gini coefficients, which means income is quite evenly distributed among all social classes. Only the Scandinavian countries and two Eastern European countries have a lower income inequality.
Of course, income inequality doesn’t tell us anything about wealth inequality. It’s not because you earn a lot of money that you also own a lot of money – a trap which many high-earners fall for when they succumb to lifestyle inflation. Sadly, it’s much harder to find data on wealth distribution in Belgium, but it’s safe to say there are some mightily wealthy people among us Belgians.
Even if there was good data on wealth inequality, it wouldn’t matter. In my view, the growing sense of inequality in general is enough to have everyone on edge and spur public discontent among the ‘have nots’. When one group feels like it is over-contributing to our social welfare, that’s a major problem.
The cry for equal contribution to our social welfare model
What these people want is very simple: everyone should chip in to their own ability. To be more specific, a large group of Belgians want wealthy citizens to contribute more based on their wealth or capital, rather than on their earnings from labour. When considering that income from capital is taxed at 25% and capital gains aren’t taxed at all, that sounds like a fair question to ask.
What drives me crazy though, is the vocabulary used to denote different tax regimes. It seems like nobody knows the difference between taxes on capital and property, capital gains taxes, taxes on income from capital like dividends, or taxes on specific kinds of asset classes.
Obviously, language confusion makes having a healthy debate difficult.
Because I’m trying to reach financial independence sooner rather than later, I’m of course following this debate argus-eyed. As a rather high-income earner with hardly any assets, I’ll probably move to a no-income earner with many assets in the future, so the advantages and disadvantages of a tax shift are quite clear to me.
The debate on whether we should introduce a certain kind of “tax on the wealthy” is entirely mute without considering the big picture. Therefore, I’d like to propose a complete rethinking of taxation, which includes all types of wealth creation and spending. To me it doesn’t make any sense to treat income from capital differently than income from labour. New income is income, period. You could even add capital gains in the mix since they could be considered income as well.
We should furthermore rethink consumption taxes with a focus on ecologically sustainable services and products. Does it make sense to apply a higher tax rate to a Diesel guzzling SUV than to a very efficient small European car? Yes, it absolutely does. Not only can I defend this standpoint from an environmental perspective, it also turns consumption taxes into a tool for social redistribution.
It would be refreshing to see someone propose a tax system like the one I describe above. One in which all income is combined and subjected to the same progressive tax rate. One in which not only government spending and income taxes are viewed as a way to increase social equality, but also uses other forms of taxation to achieve a more equal society.
In the long-run, such a system would reduce not only income inequality, but also wealth inequality, whereas our current welfare state has limitless potential for wealth accumulation, resulting in the grievances recently seen in Brussels. Even in my proposal wealth can accumulate until the end of time, but it does so at a much more societally desireable pace.
It took me a really long time to find the right words and write down my point of view on the debate that’s raging over here. I’d love to hear your opinion on wealth and income distribution with regards to social welfare states. Open dialogue is the only true standard of a democracy, so please try and convince me of your standpoint.