## 1. Covid-19 Impact on Firm Turnover ## Source details **Canonical URL:** [1. Covid-19 Impact on Firm Turnover](https://www.imf.org/-/media/files/publications/cr/2021/english/1belea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1belea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1belea2021002.pdf.json) --- ### Overview and objectives - Paper analyzes the impact of the pandemic on corporate insolvency risks and policy options to address them. - Sectional focus: - Section B: estimates of liquidity and solvency pressures from cash-flow model simulations under a scenario that includes selected support measures and a counterfactual scenario without support. - Section C: impact on bankruptcies, job and credit losses; links insolvency risk by sector to bank exposures. - Section D: review of solvency support modalities and recapitalization program design. - Section E: discussion of restructuring and insolvency frameworks and remaining gaps. - Simulation inputs: - Orbis database: 2017–18 annual accounts data covering over 26,000 firms and about 80 percent of domestic turnover. - NBB sample: over 400,000 firms using monthly VAT filings for 2020 to derive shocks. ### Turnover shock and sectoral impact - Firms experienced large revenue losses from forced closures, supply-chain disruptions, and declining demand. - Non-essential, contact-intensive sectors: turnover still expected to be 10–40 percent below 2019 levels in 2022. - Sectors with pronounced turnover declines include: Accommodation and food service activities; Aviation; Events and recreation; Retail sales (non-food); Road transport (persons); Travel agencies; Non-medical contact professions. ### Liquidity and solvency simulation results (staff estimates vs. NBB / comparators) - Without support but with rollover of credit (staff estimates): - 19 percent of firms would have become illiquid. - 12 percent of firms would have become insolvent. - Policy measures reduced incidence by: - about 3 ppts for illiquid firms. - about 5 ppts for insolvent firms. - Guaranteed loans take-up in Belgium: <2 percent (low liquidity impact); full take-up would have lowered share of illiquid firms by another 7 ppts. - Equity need estimates: - Estimated equity needs in Belgium: 0.5 percent of GDP. - Euro Area (EA) comparison: 0.7 percent of GDP. - Measures absorbed more than half of additional equity needs in Belgium (compared to a third for the EA), driven by the short-time work (STW) scheme and tax policies. - Restoring capital of pre-crisis solvent firms to the minimum required to avoid being “in difficulty”: close to 2 percent of GDP. - Dispersion across sectors and firm sizes: - Share of firms rendered insolvent reaches 44 percent in accommodation and food services. - Large firms: insolvency incidence reduced by about two-fifths, to 7 percent. - Small firms: insolvency incidence reduced by about one quarter, to 14 percent. - Small firms for similar turnover reductions: less successful in lowering costs and had smaller buffers pre-crisis. ### Liquidity gaps, debt overhang and additional borrowing risks - About one in five pre-pandemic solvent firms still face a liquidity gap after policy support (comparison: one in eight for AEs). - If residual liquidity needs are closed through additional borrowing (subject to access constraints), firm leverage and insolvency could rise significantly. - NBB estimate: additional borrowing to close liquidity gaps would render nearly 14 percent of firms insolvent (double staff’s estimate). - Closing remaining liquidity shortfall for all firms (not conditional on solvency): - Staff estimate: 3.9 percent of GDP (Belgium). - Euro area: 1.6 percent of GDP. - NBB estimate: close to 4.2 percent of GDP. ### Effectiveness of policy measures included in simulations - Measures included: short-time work (STW) scheme, business grants, loan moratoria and guarantees; tax measures coverage differs across analyses. - Staff analysis: includes announced size of measures (not actual take-up) except for Belgium loan guarantees (actual low take-up <2 percent used). - Staff analysis also includes monetary policy support through reduced borrowing costs. ### Observed short-term outcomes - Administrative measures: two bankruptcy moratoria during first and second lockdowns; voluntary stay on government claims. - Despite simulations indicating large increases in insolvency: - Bankruptcies declined by a third in 2020 despite larger output shock. - Unemployment rate change in 2020: from 5.2 to 5.4 percent. - 2021 data suggest both bankruptcies and unemployment are picking up. ### Key statistics (selected) - Orbis coverage: over 26,000 firms; about 80 percent of domestic turnover. - NBB sample: over 400,000 firms. - Turnover expected to be 10–40 percent below 2019 levels in 2022 (hard-hit sectors). - Staff estimate illiquid without support: 19 percent. - Staff estimate insolvent without support: 12 percent. - Policy measures reduced illiquidity by about 3 ppts and insolvency by about 5 ppts. - Full take-up of guarantees would have lowered illiquid share by another 7 ppts. - Equity needs: 0.5 percent of GDP (Belgium); 0.7 percent of GDP (EA). - Restoring capital to avoid “in difficulty”: close to 2 percent of GDP. - Liquidity shortfall (all firms): 3.9 percent of GDP (Belgium); 1.6 percent of GDP (EA). - NBB insolvency if additional borrowing used: nearly 14 percent of firms. - Jobs-at-risk (staff estimate): 6.7 percent (employment share of firms rendered insolvent). - Jobs-at-risk (NBB): 10.5 percent overall; 15 percent for firms with less than 5 FTE; 27 percent in the hardest-hit sector. - Simulation-implied increase in share of debt of insolvent firms: 2.8 to 5.2 percent. - Illiquid firms’ debt share increased by 16 ppts. - Baseline weighted average CET1 ratio (banks) remains at 18.6 percent with policy measures offsetting a capital impact of 3 ppts. ### Policy implications (from Covid-19 analysis) - Need for further solvency support to repair balance sheets of viable firms, especially SMEs and firms in hard-hit sectors. - Solvency support design should consider take-up rates (guarantees, grants) to maximize liquidity impact and limit harmful additional borrowing that creates debt overhang. - Enhance restructuring and insolvency frameworks to avoid court congestion and excess liquidation when pandemic support is unwound. - New public recapitalization funds should leverage private sector expertise and funding and draw on experiences of recapitalization programs in other countries. --- ### Solvency support, recapitalization programs, and private-sector leverage ### Overview of solvency support measures (federal and regional) - Federal tax measures: - Carry-backward (expired) allowing firms to recoup pandemic-induced losses. - Recovery reserve: exempts profits over 2021–23 from taxes up to €20mn, subject to conditions, to rebuild equity. - Tax shelter for start-ups (≤4y): income tax deductions of 30 and 45 percent for equity investments in small and micro firms, respectively, up to €100k for retail investors (for all tax shelters combined) and €250k for each firm. - Scale-ups (small firms ≥ 10 FTE; between 4–10y; at least 10 percent growth in either employment or turnover in the past two preceding years): deduction is 25 percent, with similar cap for investors and a higher cap for firms (up to €500k). - Covid-19 tax shelter (2020): 20 percent deduction for investments in firms with a turnover reduction of at least 30 percent during March 14–April 30, 2020 or November 2–December 31, 2020, capped at €100k and €250k for retail investors and firms. - Regional schemes: - Flanders: “win-win loans” (subordinated loans) and “friends shares” (equity). - Wallonia: “prêt coup de pouce”. - Brussels: “proxy loans” introduced in 2020. - Public Investment Companies (PICs): capital injections to expand guarantees, bridge/recovery loans, subordinated debt, and equity injections; some PIC funds not yet operational. ### Outcomes and mobilization statistics - Flanders “win-win loans”: - 6-7k Flemish SMEs raised €160mn in subordinated loans in 2020 and another €170mn in the first half of 2021. - “Friends shares” did not attract meaningful investment. - Combined existing regional SME-focused support: just over 0.1 percent of GDP. - New recap programs (federal and regional PICs, not yet operational): - Total support: 0.4 percent of GDP. - Private sector expected to provide about half of this amount. - Public-only envelope: 0.3 percent of GDP. - Coverage: 16 percent of the estimated equity needed to restore pre-pandemic solvent firms to health and 70 percent of the negative equity gap. - Individual firm support size varies by program (up to €50mn; in some SME programs up to €2.8mn). ### Design challenges and recommendations - Key design issues: - Setting clear objectives. - Targeting. - Assessing viability (backward-looking vs forward-looking). - Containing adverse selection, moral hazard, and governance issues. - Ensuring timely exit. - Calibrating size and timing of support. - Instrument and private-sector role recommendations: - Simpler targeting, viability assessments and reporting for SME programs. - Hybrid instruments that avoid equity dilution preferred for SME programs; equity injections for large/listed firms. - Larger role for private sector to leverage public funds and facilitate forward-looking viability assessment. - Mitigate adverse selection and moral hazard if private creditors have “skin in the game”. - Embed timely exit via instrument terms (maturity, pricing, step-up provisions). ### Existing recap programs: targeting and private-sector role - Current recap programs focus on SMEs through subordinated loans with limited private-sector involvement: - Private-sector participation: banks co-financing and administering Wallonia program; in Brussels private funding envisaged to cover about a third of capital of the program. - Eligibility conditional on losses and pre-crisis health; less emphasis on forward-looking viability except where business plans required (Brussels). - Rationale: targeting SMEs appropriate given higher bankruptcy/job-loss risk and limited market financing access; subordinated loans balance needs, fiscal space, and incentives. ### New recap programs: scope and scale - New recap programs will: - Not be limited to SMEs. - Condition support on forward-looking viability. - Deploy a range of (mostly quasi-) equity instruments. - Envisage more private sector co-financing (still scope to enlarge private role). - Aggregate impact: - Total support: 0.4 percent of GDP (private sector about half). - Public-only envelope: 0.3 percent of GDP. - Covers 16 percent of estimated equity needed to restore pre-pandemic solvent firms and 70 percent of the negative equity gap. - Public support level within peer country range for national hybrid recap schemes (0.1 to 0.6 percent of GDP). ### Policy implication (recap programs) - Recap programs should leverage private-sector resources and expertise to narrow solvency gaps, preserve private skin in the game, and improve selection, monitoring, and forward-looking viability assessments. - Consider targeted support to facilitate restructuring initiation (example: Brussels allocation of about €1mn to cover up to 75 percent of reorganization/mediation costs). --- ### Restructuring and insolvency framework: status, reforms, and risks ### Use of supervisory flexibility and asset-quality indicators - Forbearance measures (other than moratoria) on NFC loans increased from 1.2 percent in 2019Q4 to 2.7 percent in 2020Q4. - For household loans, increase was from 1.2 to 1.7 percent. - Increase driven by performing loans (from about 0.5 to 1.6 percent). - NPL ratio for NFC loans increased from 1.3 to 3 percent between October and March. - Share classified as stage 2 reached 35 percent (double the level for all NFC loans). ### Structural weaknesses and outcomes - Judicial cost for SMEs: highest in the Euro Area; time to recovery high compared to Germany and the Netherlands. - OECD (2019) estimate: zombie firms about 5 percent in 2015, tying up 7 and 9 percent of employment and capital, respectively; reaching 7–8 percent for large firms. - High incidence of zombie firms in specific sectors: textiles and apparel; wood and paper products; transportation and storage; hotels and restaurants; marketing and administrative services. ### Recent insolvency law amendments (March 2021, extended to July 2022) - Introduced a “pre-pack” procedure to facilitate early restructuring and ease access to judicial reorganization, especially for SMEs. - Removed inadmissibility of incomplete insolvency filings. - Pre-pack features: - Debtor in possession with possible temporary relief. - Safeguards to creditors: judicial oversight, cap on interim measures of 4 months, option to petition court to lift interim measures. - Shortened timelines: 1–3 months. - Confidential negotiations under judicial administrator guidance. - Options for “amicable agreement” or “collective agreement”. - Tax exemptions on debt relief under judicial reorganization plans extended to any type of insolvency procedure. - Effectiveness depends on cost/expertise of judicial administrators, case complexity, and court capacity to meet shortened timelines. ### Further reforms planned and near-term risks - Planned measures: - Strengthen early-warning mechanisms (new business intelligence tool). - Introduce cross-class cram-down procedure. - Special out-of-court procedures for SMEs. - Allow creditors to initiate procedures under transposition of the EU Restructuring and Insolvency Directive. - Boost resources to alleviate staffing constraints and accelerate digitalization in the justice system. - Near-term risk: system congestion if bankruptcies rise when support is withdrawn. ### Policy recommendations (restructuring and insolvency) - Accelerate planned reforms in the context of the transposition of the EU Directive. - In the short term, government could incentivize restructuring through tax relief/haircuts on its claims. - Provide direct support to small firms to cover restructuring-related costs and ensure timely initiation of proceedings. --- ### 11. Analysis of tax and parafiscal ### Effective marginal tax rates and distributional pattern - The bottom part of the optimal U-shape (where low-to-mid-income taxpayers should land) is not well formed in Belgium. - Distortion-minimizing low marginal tax rates for middle-income earners—over 60 percent of the taxpaying population—are largely missing. - Concentration of higher marginal rates is away from the low-to-mid-income range. ### Redistribution capacity and paradox - Despite a high tax burden including on low-and medium-income earners, Belgium performs well in redistributive impact: reduces income inequality through taxes and transfers to one of the best levels in the OECD, only slightly below Ireland and Finland. ### Tax expenditures and fiscal cost (2018) - MOF inventory for 2018: tax expenditures estimated at 6.2 percent of GDP. - Composition of tax expenditures, 2018 (percent of GDP; percent of total shown where provided): - VAT: 2.3 (38% of total). - PIT: 2.2 (36% of total). - Other: 1.6 (27% of total). - Total: 6.2. - Official estimates may be understated due to data and methodological issues; Peeters and Schols (2021) note underreporting. ### In-kind and extra-wage benefits - Many extra-wage/on-the-job in-kind benefits (company car regime, accommodation, commuting contributions, subsidized loans, meal and culture vouchers, provision of a computer) are lightly taxed or not taxed; often treated via reduced taxable income and non-application of SSCs. - In-kind benefits are heavily concentrated at the upper end of the income spectrum. - Company-car regime: - Gini coefficient of company-car ownership estimated at 0.848. - Budgetary cost estimated at €3.75 billion in 2016, 0.9 percent of GDP. - Forgone revenue parts: (1) employee tax benefit—taxation on estimated private use value below market value; (2) employers’ tax benefit—SSCs (25 percent rate in 2021) generally not payable on in-kind benefits. - Political agreement to “green” the fleet: deductibility of zero-emission company cars expected to gradually decrease to 67.5 percent of the costs starting 2031 and full phase-out of cost-deductibility for fossil-fuel cars between 2025 and 2028. ### Personal Income Tax (PIT) structure: allowances and family taxation - Basic allowance: €9,050 in 2021. - Numerous family-related allowances; applied from the bottom up (lowest marginal bracket depleted first), making allowances more valuable to higher-income households because value increases with marginal tax rate. - Conversion of allowances into tax credits at a fixed marginal tax rate would be progressivity-enhancing. - Marital quotient: - Individual taxation with a marital quotient allowing transfer when secondary earner income does not exceed 30 percent of family’s total earned income. - Marital quotient limited to €11,090 per annum (as of 2021). - System disadvantages secondary earners (typically females), creating labor force participation disincentives. ### Supplementary pensions (Pillar II and Pillar III) and efficiency - Pillar II employer contributions considered tax-exempt and deductible up to 80 percent of the employee’s last gross salary (“80-percent rule”). - Same 80-percent limit applies to employee contributions, with tax reduction of 30 percent of the actual payment made. - Fiscal costs of supplementary pensions significant and likely exceed MOF-reported tax expenditures. - Court of Audit (2020) for 2017: - 70 percent of beneficiaries received 10 percent of supplementary pensions paid to beneficiaries retired in 2017. - 1 percent of retirees enjoyed 20 percent of supplementary pensions paid out that year. - Peeters and Schols (2021) estimate revenue foregone in 2018 at 3–3.5 billion (0.5–0.8 percent of 2018 GDP) due to underreporting in Pillar II. - Absence of personal tax on capital gains encourages tax arbitrage and organizational forms that lock capital into firms and reduce horizontal equity. ### Intergovernmental tax responsibilities - Revenue responsibilities shared between Federal and Federated entities; for PIT federated entities have a say on both tax rates and bases. ### VAT efficiency and productivity (selected comparators) - VAT metrics (C-Efficiency; Productivity): - Belgium: 0.47; 0.32. - Austria: 0.60; 0.38. - Denmark: 0.62; 0.38. - Finland: 0.57; 0.38. - France: 0.52; 0.36. - Germany: 0.57; 0.37. - Netherlands: 0.56; 0.34. - New Zealand: 0.98; 0.65. - Norway: 0.58; 0.35. - Sweden: 0.59; 0.37. - OECD: 0.61; 0.40. - Definitions: - VAT C-Efficiency = VAT Revenue/(Total Final Consumption net of VAT Revenue * VAT Rate). - VAT Productivity = VAT Revenue as percent of GDP/VAT Rate. ### Options for reform — guiding principles and specific measures - Overarching principles: - Package approach: present reforms as a holistic "give and take" package; communicate clearly. - Comprehensive review of all tax instruments for revenue-neutral rebalancing; include indirect taxes to compensate revenue losses if labor taxes are reduced. - Simplification of tax legislation. - Specific reform options: - Revenue-neutral, growth-oriented rebalancing: shift some burden from labor taxes to less-distortive taxes (consumption or recurrent real estate taxes). - VAT reforms: - Consider raising the standard VAT rate; focus on harmonizing reduced VAT rates and cutting exemptions given VAT tax expenditures of 2.3 percent of GDP in 2018. - Improve VAT C-efficiency via policy and compliance gap analysis using IMF FAD methodology. - Gradual convergence of reduced VAT rates. - PIT bracket structure: - Broaden the two middle bands to provide relief to low-to-middle income employees; raise threshold for top marginal rate. - Determine optimal brackets via Mirrlees-Saez model calibrated to Belgium’s income distribution. - Capital income taxation: - Introduce a capital-gains tax to address non-neutrality. - Consider the “Nordic model” (dual income taxation). - Allowances and credits: - Convert allowances and deductions into tax credits at a fixed marginal tax rate. - Marital quotient: - Consider lowering the tax disadvantage for second earners and ultimately eliminate the marital quotient. - Tax expenditures and in-kind monetization: - Reduce and eventually eliminate tax expenditures; monetize in-kind benefits progressively. - Complete elimination of extra-wage benefits (e.g., company car) a longer-term objective despite recent “greening”. - Supplementary pensions: - Consider introducing a €-denominated limit on contribution amounts. - Social security contributions (SSCs): - Consider eliminating special SSCs; analyze demarcation between taxes and social-security financing and consider shifting revenue-raising role to less-distortive instruments including a reformed VAT. - Recurrent real estate taxes: - Make better use of recurrent real estate taxes; update property values (cadastral values not updated since 1975). - Corporate tax: - Assess revenue implications after final details of the international tax agreement at the Inclusive Framework on BEPS in the fall of 2021. - Environmental taxation: - Integrate environmental taxation as a core element of comprehensive tax reform. --- ### Tax compliance, informality, and administration reforms ### Informality and VAT-gap metrics - IMF 2021 study: average size of the shadow economy in the EU is 23 percent of the formal economy; in the EA close to 22 percent. - European Commission estimate: VAT gap in Belgium was 10.4 percent of total VAT tax liability (VTTL) in 2018. - Table (Belgium and neighbors, 2018): - BE: Revenues 31,053; VTTL 34,670; Gap 3,617; Gap (%) 10.4. - DE: Revenues 235,130; VTTL 257,207; Gap 22,077; Gap (%) 8.6. - FR: Revenues 167,618; VTTL 180,406; Gap 12,788; Gap (%) 7.1. - LU: Revenues 3,729; VTTL 3,928; Gap 199; Gap (%) 5.1. - NL: Revenues 52,619; VTTL 54,897; Gap 2,278; Gap (%) 4.2. - UK: Revenues 168,674; VTTL 192,126; Gap 23,452; Gap (%) 12.2. - Total EU-28: Revenues 1,131,912; VTTL 1,271,953; Gap 140,042; Gap (%) 11.0. - Median: 9.2. - Authorities estimate scope for ambitious yields from anti-fraud actions and enhanced compliance of up to €1 billion or 0.2 percent of GDP by 2024. ### Current responses and Transaction-Based Reporting (TBR) - Ongoing initiatives: - Action plan approved by the Council of Ministers in 2021 to implement a coordinated anti-fraud policy. - Program to reduce the VAT GAP to the level of neighboring countries, with introduction of real-time monitoring of invoices and receipts. - TBR (e-invoicing and e-reporting) is a key initiative with significant revenue-raising potential for VAT. - TBR implementation principles: - Not a standalone solution; needs to be part of a wider compliance-improvement strategy. - Monitoring and follow-up enforcement must be risk-driven: develop risk-filtering systems; limit field audits to high-risk cases; use “soft warnings” and office-based interventions where appropriate. - Emphasize business benefits: faster VAT-refunds, lower long-run compliance costs, fairer system from improved compliance. - Integrate already-existing ‘electronic cash registers’ into TBR. ### Diagnostic, governance, and legal-framework recommendations - Recommended steps: - Conduct risk assessment of the shadow economy to prioritize actions. - Estimate tax gaps using IMF FAD RA-GAP program for VAT, corporate income tax and excises; personal income tax gap methodology forthcoming. - Use RA-GAP to gain insights into drivers and behaviors to devise mitigation strategies. - Implementation and governance: - FPS Finance needs clear responsibilities, accountability, full-time resources, strong program management, risk identification and mitigation, and formal reform-program governance arrangements. - Establish an overarching strategy to reduce compliance gaps, appoint a dedicated project leader and team within FPS Finance. - Consolidate administrative provisions into a single uniform Tax Procedures Code (TPC) including administration of all taxes, registration, filing and payment, assessment and collections, penalties and interest. ### Access to third-party financial data and use of Central Point of Contact (CPC) - Common reporting standard and an ultimate-beneficial ownership registry established; ultimate-beneficial ownership registry publicly accessible. - NBB maintains a central point of contact (CPC) to which registrants must communicate client lists and bank-account information. - FPS Finance may contact the CPC for taxation matters only where there are indications of tax fraud or where taxes must be recovered; tax officials may not request information from financial institutions for tax purposes as a matter of routine. - Limitations: - FPS Finance has open access only to banking information on behalf of other jurisdictions and not on behalf of the Belgian government; cannot make domestic use of information exchanged with other jurisdictions. - Recommendation: expand use of third-party financial data and incorporate bulk data provision practices (example: FICOBA in France) to enable matching and compliance inquiries. ### High-Wealth Individual (HWI) compliance program - Rationale: HWIs present substantial compliance risks due to complexity and international aspects. - International practice: dedicated HWI unit within large taxpayers’ office, expanded information reporting, voluntary-compliance measures, comprehensive checks, withholding taxes in some contexts. - Recommendation for Belgium: - Consider establishing a HWI unit within the large taxpayer office of the General Administration of Taxes. - Unit functions: enhanced information on HWI segment, targeted processes, matching expertise of HWI advisors, and integrated compliance strategy beyond audit-only approaches. ### Integrating PIT and SSC collections - Current arrangement: PIT collected by FPS Finance; SSC collected by FPS Social Security (parallel systems). - International models: parallel and integrated collection systems; trend toward integration. - Potential benefits of integration: - Reduced administration costs and duplicated IT development costs. - Reduced compliance costs for employers via common record-keeping and forms. - Improved accuracy of employer calculations and facilitation of fight against tax and SSC fraud. --- ### Box 2. Greenhouse Gas Emissions – Targets, Outcomes and Projections ### Belgium’s GHG emissions context and sectoral observations - Belgium has lowered GHG emissions but remains below the EU average; progress similar to France, Italy, Netherlands but behind Denmark, Germany, Sweden, U.K. - Sector notes: - Energy use of residential buildings, industrial processes and product use, and agriculture: "rather modest declines". - Transport: "has even seen an increase". - Transport, housing, and industry show relatively high GHG emission intensity compared with the EU. - Transport: - In 2018, new passenger cars emitted about a tenth less CO2 per distance covered than in 2010. - Retail fuel priced "substantially below efficient levels"; fuel duties on petrol declined "close to 15 percent in real terms over 2011–2018". - Levies on diesel "have risen by nearly a third". - Company cars account for "about an eighth of Belgium’s car fleet". - Subsidies benefitting private and commercial transportation estimated at "about 1 percent of GDP in 2019". - Buildings: - Residential building stock energy performance: bottom “D” and “E” or below categories account for "76 percent in Wallonia" and "65 percent in Flanders". - Space heating: "around three-quarters of energy consumption of Belgian households". - Residential fuel subsidies: "roughly 1 percent of GDP in 2019". - Industry: - GHG emissions from energy use in manufacturing and construction (largely ETS-covered) have dropped "by around 40 percent from their 1990 levels". - Emissions from industrial processes and product use have fallen "less than a fifth". - Electricity-price rebates for large industrial facilities contributed to sectoral subsidies of "about 0.7 percent of GDP in 2019". - Belgium lacks explicit national carbon taxation beyond the ETS and has lower carbon-tax coverage and rates relative to many EU economies. ### Converging towards climate targets and carbon-pricing needs - EU revised NDC: cut GHG emissions by "55 percent below 1990 levels by 2030". - To achieve this with a carbon tax on fossil fuels, Belgium would need to charge a rate "going substantially above €60 per ton of CO2". - €60 per ton described as "the midpoint estimate of carbon costs in 2020 and the low-end estimate for 2030". - Simulation: linear phase-in of a carbon price of "€60 per ton of CO2 over 2022–25" indicates notable declines in household-consumption spending with impact skewed towards poorer segments (simulation abstracts from revenue recycling). ### Fossil-fuel subsidies and policy recommendations - Belgium “makes no use of explicit carbon taxation”. - Excises on road-vehicle fuels are "above the median in EU economies"; duties on fuels used in industry and buildings are "comparatively modest or even non-existent". - Support for fossil fuels via tax expenditures and exemptions described as "among the highest in the EU". - FPS Finance (2021) valuation: Belgium’s fossil fuel subsidies at "2.8 percent of GDP in 2019"; OECD-based estimate: "0.6 percent of GDP". - Policy priorities: - Phase out fossil-fuel subsidies and follow-up on authorities' inventory with measures for gradual phase-out "by the end of 2021 as planned". - Taxation reform to incentivize emissions-neutral company cars. - Consider widening emissions trading to sectors not currently included in the ETS or develop a national scheme. - Devise and communicate a long-term trajectory for carbon taxation. - Complement carbon pricing with feebates and regulations. - Measures to cushion transition costs: - Replace broad subsidies with "well-designed, means-tested support where warranted". - Build infrastructure for emissions-neutral vehicles. - Invest in alternative transport modes (railways). - Finance retrofitting of the building stock and align owner–landlord–tenant incentives. - Use carbon tax revenues to compensate disproportionately burdened households and companies. - Implementation note: - Multi-pronged approach needed: carbon pricing, taxation, and regulation because many fossil-fuel uses are lightly taxed and substantially subsidized. - Recent government plans to reduce labor taxation should consider possibilities offered by carbon pricing. ### Investment needs (housing stock by 2050) - Investment needs to arrive at a fully energy-efficient housing stock by 2050: - €110bn in Flanders. - €28.8bn in Brussels. - €63bn in Wallonia. *International Monetary Fund, Belgium chapter excerpt (content unit 1belea2021002).* ### 1. Covid-19 Impact on Firm Turnover ________________________________________________________ 5 ### 1. Covid-19 Impact on Firm Turnover ### Overview and objectives - Paper analyzes the impact of the pandemic on corporate insolvency risks and policy options to address them. - Sectional focus summarized: - Section B: estimates of liquidity and solvency pressures from cash-flow model simulations under a scenario that includes selected support measures and a counterfactual scenario without support. - Section C: impact on bankruptcies, job and credit losses; links insolvency risk by sector to bank exposures. - Section D: review of solvency support modalities and recapitalization program design. - Section E: discussion of restructuring and insolvency frameworks and remaining gaps. - Simulation inputs: - Staff simulation uses 2017–18 annual accounts data from the Orbis database, covering over 26,000 firms and about 80 percent of domestic turnover. - NBB sample includes over 400,000 firms and uses monthly VAT filings for 2020 to derive shocks. ### Turnover shock and sectoral impact - Firms faced large revenue losses from forced closures, supply-chain disruptions, and declining demand. - Non-essential, contact-intensive sectors hit especially hard, with turnover still expected to be 10–40 percent below 2019 levels in 2022. - Sectors with pronounced turnover declines (indices and percent changes shown in figures): Accommodation and food service activities, Aviation, Events and recreation, Retail sales (non-food), Road transport (persons), Travel agencies, Non-medical contact professions. - Survey evidence cited: ERMG (survey vintage June 22, 2021); NBB evidence used for calibration. ### Liquidity and solvency simulation results (staff estimates vs. NBB / comparators) - Under a scenario without support but with rollover of credit, staff estimates: - 19 percent of firms would have become illiquid (similar to Euro Area average, although 4 ppts below the NBB estimate). - 12 percent of firms would have become insolvent (slightly above AE and EA averages). - Policy measures reduced incidence of illiquid and insolvent firms by about 3 and 5 ppts respectively (compared to EA averages of 15 and 5 ppts). - Low take-up of guaranteed loans in Belgium (<2 percent) limits liquidity impact; full take-up would have lowered share of illiquid firms by another 7 ppts. - Equity need estimates: - Estimated equity needs in Belgium: 0.5 percent of GDP (vs. 0.7 percent of GDP for EA). - Measures absorbed more than half of the additional equity needs in Belgium (compared to a third for the EA), driven by the short-time work (STW) scheme and tax policies. - Restoring capital of pre-crisis solvent firms to the minimum required for firms not to be considered “in difficulty” is estimated at close to 2 percent of GDP (close to the average for all countries in the sample). - Dispersion across sectors and firm sizes: - Share of firms rendered insolvent reaches 44 percent in accommodation and food services. - Small firms are more likely to face equity shortfalls; measures reduced insolvency incidence by about two-fifths for large firms (to 7 percent) and by one quarter for small firms (to 14 percent). - For similar turnover reductions, small firms less successful in lowering costs and had smaller buffers pre-crisis. ### Liquidity gaps, debt overhang and additional borrowing risks - About one in five pre-pandemic solvent firms still face a liquidity gap after policy support (compared to one in eight for AEs). - If residual liquidity needs are closed through additional borrowing (subject to access constraints), firm leverage and insolvency could rise significantly. - NBB estimates additional borrowing to close liquidity gaps would render nearly 14 percent of firms insolvent (double staff’s estimate). - Closing remaining liquidity shortfall for all firms (not conditional on solvency) remains large at 3.9 percent of GDP (1.6 percent for the euro area); NBB estimate close at 4.2 percent. ### Effectiveness of policy measures included in simulations - Measures included in staff and NBB analyses: short-time work (STW) scheme, business grants, loan moratoria and guarantees; tax measures coverage differs across analyses. - Staff analysis includes announced size of measures (not actual take-up) except for Belgium loan guarantees (actual low take-up <2 percent used). - Staff analysis also includes monetary policy support through reduced borrowing costs. ### Key numeric findings (preserved) - Orbis database coverage: over 26,000 firms and about 80 percent of domestic turnover. - NBB sample coverage: over 400,000 firms. - Turnover expected to be 10–40 percent below 2019 levels in 2022 for hard-hit sectors. - Staff estimate of firms illiquid without support: 19 percent. - Staff estimate of firms insolvent without support: 12 percent. - Policy measures reduced incidence of illiquid firms by about 3 ppts and insolvent firms by about 5 ppts. - Full take-up of guarantees would have lowered illiquid share by another 7 ppts. - Estimated equity needs: 0.5 percent of GDP (Belgium) vs. 0.7 percent of GDP (EA). - Restoring capital to avoid being “in difficulty” estimated at close to 2 percent of GDP. - Liquidity shortfall for all firms: 3.9 percent of GDP (Belgium); 1.6 percent for the euro area. - NBB estimate of insolvency if additional borrowing used: nearly 14 percent of firms. - Bankruptcy change: bankruptcies declined by a third in 2020 despite larger output shock. - Unemployment rate change in 2020: from 5.2 to 5.4 percent. - Jobs-at-risk (staff estimate): 6.7 percent (employment share of firms rendered insolvent); NBB estimates 10.5 percent overall, reaching 15 and 27 percent for firms with less than 5 FTE and in the hardest-hit sector respectively. - Simulation-implied increase in share of debt of insolvent firms: 2.8 to 5.2 percent (below average increase of 4.1 percent for AEs); illiquid firms’ debt share increased by 16 ppts. - Baseline weighted average CET1 ratio (banks): remains at 18.6 percent with policy measures offsetting a capital impact of 3 ppts. ### Observed short-term outcomes - Administrative measures included: two bankruptcy moratoria during first and second lockdowns; voluntary stay on government claims. - Despite simulations indicating large increases in insolvency, observed bankruptcies declined in 2020 and unemployment rose only modestly; 2021 data suggest both bankruptcies and unemployment are picking up. ### Policy implications and considerations (summarized from text) - Need for further solvency support to repair balance sheets of viable firms, especially SMEs and firms in hard-hit sectors. - New public recapitalization funds should leverage private sector expertise and funding and draw on experiences of recapitalization programs in other countries. - To avoid court congestion and excess liquidation when pandemic support is unwound, enhance restructuring and insolvency frameworks. - Solvency support design should consider take-up rates (guarantees, grants) to maximize liquidity impact and limit harmful additional borrowing that creates debt overhang. *Post-Pandemic Corporate Vulnerability and Insolvency in Belgium; August 20, 2021; prepared by Ruud Vermeulen (IMF staff).* ### 7. Solvency support aimed at rehabilitating corporate balance sheets has been largely ### 7. Solvency support aimed at rehabilitating corporate balance sheets has been largely ### Overview of solvency support measures - Federal tax measures: - Carry-backward (expired) allowing firms to recoup pandemic-induced losses. - Recovery reserve: exempts profits over 2021–23 from taxes up to €20mn, subject to conditions, to rebuild equity. - Tax shelter for start-ups (≤4y): income tax deductions of 30 and 45 percent for equity investments in small and micro firms, respectively, up to €100k for retail investors (for all tax shelters combined) and €250k for each firm. - For scale-ups (small firms ≥ 10 FTE; between 4–10y; at least 10 percent growth in either employment or turnover in the past two preceding years), deduction is 25 percent, with similar cap for investors and a higher cap for firms (up to €500k). - Covid-19 tax shelter (2020): 20 percent deduction for investments in firms with a turnover reduction of at least 30 percent during March 14–April 30, 2020 or November 2–December 31, 2020, capped at €100k and €250k for retail investors and firms. - Regional government schemes to incentivize retail investment in SMEs: - Flanders: “win-win loans” (subordinated loans) and “friends shares” (equity). - Wallonia: “prêt coup de pouce”. - Brussels: “proxy loans” introduced in 2020. - Public Investment Companies (PICs) provided capital injections to expand capacity to provide guarantees, bridge/recovery loans, subordinated debt, and equity injections; PICs set up subordinated loan programs and new funds not yet operational. ### Outcomes and mobilization statistics - Flanders “win-win loans”: - 6-7k Flemish SMEs raised €160mn in subordinated loans in 2020 and another €170mn in the first half of 2021. - “Friends shares” did not attract meaningful investment. - Recovery reserve: exempts profits over 2021–23 from taxes up to €20mn. - Tax shelter caps and rates (as described above) preserved exactly as in source. - Combined existing regional SME-focused support adds up to just over 0.1 percent of GDP. - New recap programs (federal and regional investment companies, not yet operational): - Support totaling 0.4 percent of GDP—about half expected from the private sector. - Excluding private sector, public budget envelope equals 0.3 percent of GDP. - Coverage: 16 percent of the estimated equity needed to restore pre-pandemic solvent firms to health and 70 percent of the negative equity gap. - Individual firm support size varies by program (up to €50mn; in some SME programs up to €2.8mn). ### Design challenges for further solvency support - Key design issues to address: - Setting clear objectives. - Targeting. - Assessing viability (backward-looking vs forward-looking). - Containing adverse selection, moral hazard, and governance issues. - Ensuring timely exit. - Calibrating the size and timing of support (Ebeke et al, 2021). - EU’s Temporary State Aid Framework: provides guidance on objectives, targeting, governance, and size/duration of support but leaves firm selection, viability assessments, instrument choice, and private-sector role to national authorities. - Recommendations on instrument choice and private sector role: - Simpler targeting, viability assessments and reporting for SME programs. - Hybrid instruments that avoid equity dilution preferred for SME programs; equity injections for large/listed firms. - Larger role for private sector desirable to leverage public funds and facilitate forward-looking viability assessment. - Mitigation of adverse selection and moral hazard if private creditors have “skin in the game”. - Embed timely exit via instrument terms (maturity, pricing, step-up provisions). ### Existing recap programs: targeting and private-sector role - Current recap programs focus on SMEs through subordinated loans with limited private-sector involvement: - Private-sector participation: banks co-financing and administering Wallonia program; in Brussels private funding envisaged to cover about a third of capital of the program. - Eligibility conditional on losses and pre-crisis health (consistent with EU requirements); less emphasis on forward-looking viability except where business plans required (Brussels program). - Size and conditions vary by firm and program (up to €2.8mn in some regional programs). - Rationale: - Targeting SMEs is appropriate given higher bankruptcy/job-loss risk and limited market financing access. - Subordinated loans balance needs, fiscal space, and incentives given reluctance to accept equity dilution. ### New recap programs: scope and scale - New recap programs (funds not yet operational) will: - Not be limited to SMEs. - Condition support on forward-looking viability. - Deploy a range of (mostly quasi-) equity instruments. - Envisage more private sector co-financing (still scope to enlarge private role). - Aggregate impact and comparisons: - Total support: 0.4 percent of GDP. - Private sector expected to provide about half of this amount. - Public-only envelope: 0.3 percent of GDP. - Covers 16 percent of estimated equity needed to restore pre-pandemic solvent firms and 70 percent of the negative equity gap. - This public support level is within the peer country range for national hybrid recap schemes (0.1 to 0.6 percent of GDP). ### Restructuring and insolvency framework: current status and reforms - Use of supervisory flexibility: - Share of NFC loans benefiting from forbearance measures other than moratoria increased from 1.2 percent in 2019Q4 to 2.7 percent in 2020Q4. - For household loans, increase was from 1.2 to 1.7 percent. - Increase driven by performing loans (from about 0.5 to 1.6 percent). - Asset quality indicators and risks: - NPL ratio for NFC loans increased from 1.3 to 3 percent between October and March. - Share classified as stage 2 reached 35 percent (double the level for all NFC loans). - Structural weaknesses and outcomes: - Judicial cost for SMEs is the highest in the Euro Area; time to recovery high compared to Germany and the Netherlands. - OECD (2019) estimate: zombie firms about 5 percent in 2015, tying up 7 and 9 percent of employment and capital, respectively; reaching 7–8 percent for large firms. - High incidence of zombie firms in specific sectors (e.g., textiles and apparel; wood and paper products; transportation and storage; hotels and restaurants; marketing and administrative services). - Recent insolvency law amendments (March 2021, extended to July 2022): - Introduced a “pre-pack” procedure to facilitate early restructuring and ease access to judicial reorganization, especially for SMEs. - Removed inadmissibility of incomplete insolvency filings. - Pre-pack features: debtor in possession with possible temporary relief, safeguards to creditors (judicial oversight, cap on interim measures of 4 months, option to petition court to lift interim measures), shortened timelines (1–3 months), confidential negotiations under judicial administrator guidance, and options for “amicable agreement” or “collective agreement”. - Tax exemptions on debt relief already enjoyed by creditors under judicial reorganization plans extended to any type of insolvency procedure. - Effectiveness depends on cost/expertise of judicial administrators, case complexity, and court capacity to meet shortened timelines. - Further reforms planned: - Strengthen early-warning mechanisms (new business intelligence tool). - Introduce cross-class cram-down procedure. - Special out-of-court procedures for SMEs. - Allow creditors to initiate procedures under transposition of the EU Restructuring and Insolvency Directive. - Boost resources to alleviate staffing constraints and accelerate digitalization in the justice system. - Near-term risk: system congestion if bankruptcies rise when support is withdrawn. ### Policy implications and recommendations - Move toward increasingly targeted solvency support focused on solvency (quasi-equity) to mitigate prolonged assistance and zombification. - Evidence on leakage and targeting: - Initial estimates of leakage of support to firms that would have incurred cash drains or losses regardless of the pandemic at 2-3 percent overall; substantially higher for some measures, indicating scope to improve targeting on viability. - Example: some 8 percent of regional grants were allocated to firms that did not experience a cash drain between March-September (Tielens et al, 2021). - Graydon estimates 5–10 percent of support misused; newspaper De Tijd analysis shows some 44K firms became eligible for support after adding a new NACE code. - Rationale for (quasi-) equity instruments: - Large share of firms that were healthy before the pandemic continue to face liquidity and/or solvency gaps, necessitating further support that relies increasingly on (quasi-) equity to prevent wave of bankruptcies, excess liquidation, and indebtedness. - Operational recommendations: - Condition eligibility on forward-looking viability assessments where appropriate. - Use hybrid/quasi-equity instruments for SMEs to avoid equity dilution and balance incentives. - Leverage private sector funding to increase leverage of public funds and introduce market discipline. - Embed private participation to reduce adverse selection and moral hazard (private “skin in the game”). - Design instruments with clear exit mechanisms (maturity, pricing, step-ups) to ensure timely withdrawal of public support. *International Monetary Fund, Belgium chapter excerpt* ### 15. Recap programs sh ould leverage private-sector resources and expertise and draw ### 15. Recap programs sh ould leverage private-sector resources and expertise and draw ### Recapitalization programs and private-sector participation - Subordinated loan programs and new funds to support viable firms run by the federal and regional public investment companies would help narrow solvency gaps. - Private-sector participation should be enhanced to: - leverage public funding in the context of narrowing fiscal space; - facilitate targeting, viability assessment, selection and monitoring; - ensure private partners retain sufficient skin in the game. - The design of new funds could build on novel approaches deployed in peer countries. - Examples of targeted support to facilitate restructuring initiation: - The Brussels regional government allocated about €1mn to cover up to 75 percent of the cost of judicial reorganization or mediation processes (€4–10k and €1–2.5k, resp.). ### Restructuring and insolvency frameworks - Recent insolvency reform is welcome, but risks remain: - Risk of excess liquidation and court congestion if bankruptcies surge when support is unwound. - Recommended actions: - Accelerate planned reforms in the context of the transposition of the EU Directive next year, where possible. - In the short term, the government could incentivize restructuring through tax relief/haircuts on its claims. - Direct support to small firms to cover related costs and ensure timely initiation of proceedings could be considered. - Administrative note: - The stay on government claims expired on July 1. ### Key statistics and program modalities (selected figures preserved from text) - Brussels regional government allocation: €1mn to cover up to 75 percent of reorganization/mediation costs (€4–10k and €1–2.5k, resp.). - Stay on government claims expiry: July 1. - Belgian labor-tax burden and related figures: - By 2019, Belgium’s tax burden on labor income exceeds comparator levels by more than 8 percentage points. - Labor tax share declined by four percentage points in the last thirty years, a third of which followed implementation since 2016 of the “tax shift” reform. - Belgium’s tax wedge: 51.5 percent in 2020, exceeding the unweighted average of OECD economies by 16 percentage points. - Estimated employment effect of the tax shift: creation of 45,000–65,000 additional jobs by 2021 (Federal Planning Bureau and National Bank of Belgium estimate). - Personal Income Tax (PIT) and social security parameters: - Top marginal PIT rate: 50 percent (Belgium shares the 6th position among OECD countries). - OECD average top marginal rate: 41.22. - PIT schedule features compressed brackets; marginal income around the minimum wage falls under the 40 percent rate; marginal income around the average wage can fall under the 50 percent top rate. - General SSCs in 2021: employer 25 percent, employee 13.07 percent, applied on employee gross remuneration with no ceiling. - Special SSCs: base formed by total household earnings net of general SSC and work-related expenses; thresholds not indexed and little adjusted since introduction. - Erosion of special SSC thresholds over time: - Upper limit originally intended at around 2.5 times the average wage now applies to incomes 1.25 times the average wage. - Lower limit originally intended at about 70 to 80 percent of average wage now burdens very low incomes, less than half of the average wage. - Fiscal work bonus (refundable tax credit) reduces PIT at a rate of 33.14 percent of social bonus, capped at €830 per annum (as of 2021). - Basic allowance plotted in Figure 3 noted as: 2015 vs 2021 (Basic allowance: 9,050; Minimum wage: 19,508; Average wage: 47,720) as presented in figures. ### Policy implications and reform directions (from the text) - Leverage private-sector resources and expertise in recapitalization instruments to narrow solvency gaps while preserving private skin in the game. - Build new funds’ design on novel peer-country approaches to improve selection and monitoring. - Accelerate insolvency-reform measures tied to EU Directive transposition to mitigate liquidation and court-congestion risks. - Use short-term measures—tax relief/haircuts on government claims and direct support to small firms—to incentivize restructuring and ensure timely proceedings. - Consider rebalancing the tax mix away from labor taxes and towards consumption taxes to improve labor-market efficiency and long-run growth. - Address PIT schedule compression and special SSC design to reduce work disincentives: - Broaden intermediate PIT brackets and raise the income threshold at which the top marginal rate applies. - Reassess indexing and thresholds of special SSCs and the deductibility treatment relative to PIT. *Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1belea2021002.pdf* ### 11. Analysis of tax and parafiscal ### 11. Analysis of tax and parafiscal ### Effective marginal tax rates and distributional pattern - Analysis of tax and parafiscal components forming the effective marginal rates of individual income taxation shows a shortcoming: the bottom part of the optimal U-shape, where low-to-mid-income taxpayers should land, is not well formed in Belgium. - Distortion-minimizing low marginal tax rates for middle-income earners—over 60 percent of the taxpaying population—are largely missing. - Figure 5 adds the cumulative distribution of Belgian individual income taxpayers to illustrate the concentration of higher marginal rates away from the low-to-mid-income range. ### Redistribution capacity and paradox - Despite a high tax burden on individual income, including for low-and medium-income earners, Belgium performs well in redistributive impact: Belgium’s system reduces income inequality through taxes and transfers to one of the best levels in the OECD, only slightly below Ireland and Finland (Figure 6). - OECD comparison uses Gini coefficient before and after taxes and transfers to measure redistributive impact. ### Tax expenditures and fiscal cost - Ministry of Finance (MOF) inventory for 2018 estimates tax expenditures (foregone revenue) at 6.2 percent of GDP (Table 3). - Composition of tax expenditures, 2018 (in percent of GDP; percent of total shown where provided): - VAT: 2.3 (38% of total) — distributed across categories in Table 3 as 1.5 (Social measures), 0.0 (Employment), 0.5 (Housing), 0.0 (Saving and credit), 0.0 (R&D), 0.3 (Sector specific), 0.3 (Other). - PIT: 2.2 (36% of total) — distributed as 1.0, 0.4, 0.5, 0.2, 0.0, 0.0, 0.1 across columns in Table 3. - Other: 1.6 (27% of total) — distributed as 0.4, 0.4, 0.0, 0.0, 0.4, 0.3, 0.4. - Total: 6.2. - Official estimates may be understated due to data and methodological issues; Peeters and Schols (2021) note underreporting (see footnote). ### In-kind and extra-wage benefits - Large variety of extra-wage/on-the-job in-kind benefits (company car regime, accommodation, commuting contributions, subsidized loans, meal and culture vouchers, provision of a computer) are lightly taxed or not taxed; many are treated via reduced taxable income and non-application of SSCs. - In-kind benefits are unequally distributed: overall allotment of benefits is heavily concentrated at the upper end of the income spectrum (Figure 7). - Company-car regime specifics: - Highly regressive distribution: Traversa and Valenduc (2020) estimate Gini coefficient of company-car ownership at 0.848. - Budgetary cost estimated at €3.75 billion in 2016, 0.9 percent of GDP (Princen, 2017). - Two main parts of forgone revenue: (1) employee tax benefit—taxation on estimated private use value below market value; (2) employers’ tax benefit—SSCs—25 percent rate in 2021—generally not payable on in-kind benefits. - Company-car scheme creates adverse mobility incentives and environmental spillovers; political agreement to “green” the fleet limits full tax incentives to zero-emission cars, with deductibility of zero-emission company cars expected to gradually decrease to 67.5 percent of the costs starting 2031 and full phase-out of cost-deductibility for fossil-fuel cars between 2025 and 2028 (footnote). ### Personal Income Tax (PIT) structure: allowances and family taxation - PIT allowances: - Basic allowance: €9,050 in 2021. - Numerous allowances related to family situation (differ by number of children, dependents, handicapped spouses, single parents). - Allowances applied from the bottom up (lowest marginal bracket depleted first); with narrow brackets and significant deductions, allowances are more valuable to higher-income households because value increases with marginal tax rate. - Conversion of allowances into tax credits at a fixed marginal tax rate would be progressivity-enhancing and equalize €-value across taxpayers. - Family taxation and marital quotient: - Belgium uses individual taxation with a marital quotient allowing transfer of part of taxable income from primary earner to secondary earner when secondary earner income does not exceed 30 percent of the family’s total earned income. - Marital quotient is limited to €11,090 per annum, as of 2021. - The system disadvantages secondary earners (typically females), creates labor force participation disincentives, and helps explain low employment for some groups of women (Figure 8). ### Supplementary pensions (Pillar II and Pillar III) and efficiency - Government incentivizes supplementary pensions: - Pillar II employer contributions considered tax-exempt and deductible for employer up to 80 percent of the employee’s last gross salary (“80-percent rule”). - The same 80-percent limit applies to employee contributions, with tax reduction of 30 percent of the actual payment made. - Fiscal costs of supplementary pensions are significant and likely exceed MOF-reported tax expenditures. - Court of Audit (2020) findings for 2017: - 70 percent of beneficiaries received 10 percent of supplementary pensions paid to beneficiaries retired in 2017. - 1 percent of retirees enjoyed 20 percent of supplementary pensions paid out that year (Figure 9). - Peeters and Schols (2021) estimate revenue foregone in 2018 at 3–3.5 billion (0.5–0.8 percent of 2018 GDP) due to underreporting in Pillar II (footnote). - Non-neutrality of taxation (absence of personal tax on capital gains) encourages tax arbitrage and organizational forms that lock capital into firms and reduce horizontal equity. ### Intergovernmental tax responsibilities - Revenue responsibilities are shared between Federal and Federated entities; for the PIT federated entities have a say on both tax rates and bases (Table 4). - Table 4 indicates Federal and Federated roles across tax categories (personal income tax, environmental taxes, real-estate related taxation, transport-related, industry-related, buildings-related, property taxes, transactional taxes, rental income) with checkmarks for responsibility allocation. ### VAT efficiency and productivity (comparison) - Table 5: VAT metrics (Belgium vs select OECD comparators) - Belgium: VAT C-Efficiency 0.47; VAT Productivity 0.32. - Austria: 0.60; 0.38. - Denmark: 0.62; 0.38. - Finland: 0.57; 0.38. - France: 0.52; 0.36. - Germany: 0.57; 0.37. - Netherlands: 0.56; 0.34. - New Zealand: 0.98; 0.65. - Norway: 0.58; 0.35. - Sweden: 0.59; 0.37. - OECD: 0.61; 0.40. - Note: VAT C-Efficiency = VAT Revenue/(Total Final Consumption net of VAT Revenue * VAT Rate). VAT Productivity = VAT Revenue as percent of GDP/VAT Rate. ### Options for reform — guiding principles and specific measures - Overarching reform principles: - Package approach: present reforms as a holistic "give and take" package to navigate political pressures; communicate clearly and upfront. - Comprehensive review of all tax instruments to enable revenue-neutral rebalancing; include indirect taxes to compensate revenue losses if labor taxes are reduced. - Simplification of tax legislation as an overarching objective (Coalition Agreement). - Specific reform options and considerations: - Revenue-neutral, growth-oriented rebalancing: shift some burden from labor taxes to less-distortive taxes (consumption or recurrent real estate taxes). - VAT reforms: - Consider raising the standard VAT rate but given low VAT productivity and VAT tax expenditures of 2.3 percent of GDP in 2018, focus could be on harmonizing reduced VAT rates and cutting exemptions. - Improve VAT C-efficiency via VAT policy and compliance gap analysis using IMF Fiscal Affairs Department methodology. - Gradual, well-communicated convergence of reduced VAT rates (Figure 10). - PIT bracket structure: - Broaden the two middle bands to provide relief to low-to-middle income employees; top marginal rate threshold should start at a higher income level. - Determine optimal brackets via Mirrlees-Saez model calibrated to Belgium’s income distribution. - Capital income taxation: - Introduce a capital-gains tax to address non-neutrality and reduce tax arbitrage. - Consider the “Nordic model” (dual income taxation): relatively low, flat tax on capital income; progressive taxation on labor income; apply same schedules for taxable business income and salary income. - Allowances and credits: - Convert allowances and deductions into tax credits at a fixed marginal tax rate to equalize €-value across taxpayers and enhance progressivity. - Marital quotient: - Consider lowering the tax disadvantage for second earners by reforming and ultimately eliminating the marital quotient to raise employment among affected groups of women. - Tax expenditures and in-kind monetization: - Reduce and eventually eliminate tax expenditures, including sectoral preferential treatments (actors, athletes, flexi-jobs, hospitality) and deductions for private-pension savings. - Monetize in-kind benefits progressively—convert to equivalent cash benefits to be taxed within the standard tax system. - Complete elimination of extra-wage benefits (e.g., company car) should remain a longer-term objective despite recent “greening” steps. - Supplementary pensions: - Consider introducing a €-denominated limit on contribution amounts to constrain tax advantage use at the high end of the income distribution. - Social security contributions (SSCs): - Consider eliminating the system of special SSCs; analyze the demarcation between taxes and social-security financing and consider shifting revenue-raising role for quasi-universal outlays to less-distortive instruments, including a reformed VAT. - Recurrent real estate taxes: - Make better use of recurrent real estate taxes; update property values (currently based on cadastral values not updated since 1975). - Corporate tax: - Expect revenue implications once comprehensive rewrite of corporate tax rules is finalized; assess revenue impact after final details of the international tax agreement at the Inclusive Framework on BEPS in the fall of 2021. - Environmental taxation: - Integrate environmental taxation as a core element of the comprehensive tax reform (discussed in a separate Selected Issues Paper). *Source: 11. Analysis of tax and parafiscal (content unit 1belea2021002).* ### References ### 1belea2021002 - References ### Key findings on informality and the compliance challenge - Economic activity in Belgium is characterized by significant informality, with adverse effects on tax revenues, social cohesion, and growth. - Revenue losses associated with informal activity appear large in Belgium compared with neighboring countries. - Evidence of non-compliance includes: - a high value-added tax (VAT) compliance gap; - repeated rounds of voluntary disclosure programs to encourage taxpayers to disclose past non-compliance; - high-profile cases—‘Lux Leaks’, ‘Swiss Leaks’, ‘Panama’ and ‘Paradise’ papers—revealing avoidance and evasion by companies and individuals. - A 2021 IMF study concluded that the average size of the shadow economy in the European Union (EU) is 23 percent of the formal economy, and in the euro area (EA), close to 22 percent. Emerging economies tend to have larger shadow economies, around 33 percent on average. - The European Commission estimated the VAT gap in Belgium to be 10.4 percent of total VAT tax liability (VTTL) in 2018, higher than France, Germany, Luxembourg, the Netherlands, or the EU median. ### Quantified VAT-gap and related statistics (as reported) - Table 1. Belgium: VAT Gap for Belgium and Neighboring Countries, 2018 - BE: Revenues 31,053; VTTL 34,670; Gap 3,617; Gap (%) 10.4 - DE: Revenues 235,130; VTTL 257,207; Gap 22,077; Gap (%) 8.6 - FR: Revenues 167,618; VTTL 180,406; Gap 12,788; Gap (%) 7.1 - LU: Revenues 3,729; VTTL 3,928; Gap 199; Gap (%) 5.1 - NL: Revenues 52,619; VTTL 54,897; Gap 2,278; Gap (%) 4.2 - UK: Revenues 168,674; VTTL 192,126; Gap 23,452; Gap (%) 12.2 - Total EU-28: Revenues 1,131,912; VTTL 1,271,953; Gap 140,042; Gap (%) 11.0 - Median: 9.2 - Authorities estimate scope for ambitious yields from anti-fraud actions and enhanced compliance of up to €1 billion or 0.2 percent of GDP by 2024. ### Current responses and reform initiatives - Ongoing initiatives to fight tax fraud in Belgium include: - an action plan approved by the Council of Ministers in 2021 to implement a coordinated anti-fraud policy; - a program to reduce the VAT GAP to the level of neighboring countries, with introduction of real-time monitoring of invoices and receipts. - The multi-agency anti-fraud action plan is built around four clusters—collaboration, coordination, data exchange and compliance—and includes 29 action areas. - The government’s September 2020 coalition agreement includes the objective of reducing the VAT gap to the level of neighboring countries; coordination is led by the cabinet of the Minister of Finance with seven FPS working groups covering e-invoicing/e-reporting, VAT staff training, VAT credits, Benelux VAT-gap colloquium, exchange of information, harmonization of the 6-percent VAT rate, and collaboration with Customs and Excise. ### Transaction-Based Reporting (TBR) — real-time monitoring of invoices and receipts - TBR (introduction of an ‘e-invoicing’ and an ‘e-reporting’ system) is a key initiative with significant revenue-raising potential, particularly for VAT. - Principles and cautions for TBR implementation: - TBR is not a standalone, ‘magic-bullet’ solution; permanent revenue increases occur only if TBR is part of a wider compliance-improvement strategy. - Monitoring and follow-up enforcement must be risk-driven: develop risk-filtering systems to reduce large data volumes to manageable levels; limit field audits to high-risk cases; use “soft warnings” and office-based interventions where appropriate. - TBR is an opportunity to cultivate greater trust in the tax system by emphasizing benefits to business, including faster VAT-refunds, lower long-run compliance costs under an e-invoice system, and a fairer system from improved compliance. - Implementation guidance: seek international consultations on project formulation and implementation, benefiting from experience of other EU countries with similar systems (e.g. Slovenia). - Note: Already-existing ‘electronic cash registers’ will be integrated in TBR. ### Recommended diagnostic and analytical steps - Conduct a risk assessment of the shadow economy to understand drivers and consequences; assess types of risks (by tax types, sectors, geographical variation, taxpayer groups) and rank them to prioritize actions. - Estimate tax gaps using the IMF Fiscal Affairs Department (FAD) Revenue Administration Gap Analysis (RA-GAP) program, which currently includes gap analysis methodologies for VAT, corporate income tax, and excises; a methodology for personal income tax gap analysis will be issued shortly. - Use RA-GAP not only for size estimates but to gain insights into drivers and behaviors behind tax gaps to devise, implement, monitor, and review mitigation strategies. ### Core elements of effective strategies to tackle the informal economy - Adopt a comprehensive, overarching set of strategies with a compliance-risk management approach to prioritize risks and devise treatments. - Common attributes of success (as highlighted in Box 1): - Management arrangements for “whole-of-administration” leadership, coordination, and evaluation. - Comprehensive research to assist risk-detection and assessment, test treatments, and monitor perceptions. - Enhanced risk-detection processes, including use of third-party (financial) information and sophisticated risk-profiling techniques. - A broad set of treatment strategies: education, outreach, communication, specially-legislated detection/deterrence tools, traditional enforcement, specialist programs for serious evasion. - Leverage intermediaries such as tax professionals and industry representatives. - Effective mechanisms for systematic gathering, transmission, and processing of ‘bulk’ information with other government agencies, including bulk access to financial information. - Use of media and social media to communicate strategy and results. - Evaluation of impacts and outcomes of individual treatments and overall strategy. ### Implementation, governance, and legal-framework recommendations - FPS Finance needs clear responsibilities, accountability, full-time resources, strong program management, risk identification and mitigation, and formal reform-program governance arrangements to implement reforms alongside day-to-day work. - Ensure overarching awareness of impact, timing, sequencing, and interdependencies of combined reforms across multi-year, cross-agency initiatives. - Establish an overarching strategy to reduce compliance gaps from tax fraud, appoint a dedicated project leader and team to lead strategic direction and operational implementation at the highest level within FPS Finance. - Consolidate administrative provisions from each tax law into a single, uniform Tax Procedures Code (TPC) to enhance transparency, clarity, and consistency; the TPC should include provisions for administration of all taxes, registration, filing and payment requirements, assessment and collections, penalties and interest, and other administrative matters. - Advance early plans to develop a TPC; incorporate the new “Enforced Collection Code” (enacted January 1, 2020) into a new TPC once enacted to avoid fragmentation and ambiguity. *Italic: Content summarized from “References” and the IMF chapter “Reducing the Tax Compliance Gap in Belgium” contained in the provided PDF content unit.* ### 22. Belgium has recently taken important steps towards greater transparency of ### 22. Belgium has recently taken important steps towards greater transparency of information. ### Transparency measures and current data infrastructure - The common reporting standard for automatic exchange of tax information has been introduced. - An ultimate-beneficial ownership registry was established as part of the European Anti-Money Laundering-Directive, in line with OECD worldwide exchange of information principles. - The ultimate-beneficial ownership registry is publicly accessible. - Financial institutions are required to share information on their clients and their respective accounts once a year. - This information is centralized in a database of the National Bank of Belgium (NBB). ### Access constraints to bank information and Central Point of Contact (CPC) - The NBB is entrusted by law with maintaining a central point of contact (CPC) to which registrants must: - communicate a list of clients, - identify bank accounts owned or co-owned, - list the types of contracts these clients have concluded with the registrants. - FPS Finance may contact the CPC for matters subject to taxation only: - where there are indications of tax fraud, or - where taxes must be recovered. - Tax officials may not request information from financial institutions for tax purposes as a matter of routine. - After the “Panama Papers” leaks, a special commission established by the federal parliament found that bank secrecy hampers the fight against tax fraud. - One recommendation from commission inquiries was to use the centralized NBB database as a dynamic platform with accessible, real-time information. - Footnotes in source: - Code of the amicable and enforced recovery of tax and non-tax claims, entered in force on January 1, 2020. - Website ‘National Bank of Belgium’, central point of contact. ### Limitations on use of exchanged information - FPS Finance has open access only to banking information on behalf of other jurisdictions and not on behalf of the Belgian government. - FPS Finance cannot make domestic use of information exchanged with other jurisdictions. - This creates a situation where the Belgian tax authority may have more information on Belgian taxpayers with accounts abroad than on domestic account-holders. - The report concludes: Reforms are needed in this area. ### Use of third-party financial data and recommendations for tax code provisions - The use of third-party financial data is identified as one of the most effective tools for tax administrations to identify non-compliance. - The tax code should: - include provisions to encourage voluntary compliance, and - grant compliance and enforcement tools to the tax administration. - A key provision recommended: require banks and other financial institutions, contractors, and employers to regularly submit information to the tax administration for matching and compliance programs. ### Bulk data provision practices in other countries - Many countries perform systematic, periodic, and fully-automated “bulk” data provision of bank balance information to the tax authorities (example cited: FICOBA program in France). - Benefit: Enables tax administrations to match third-party financial data of taxpayers to master files to facilitate compliance inquiries for omissions and discrepancies. E. Implementing a High-Wealth Individual (HWI) Compliance Program ### Rationale and risks - Compliance risks of high-wealth individuals (HWI) are a concern in many countries. - The need to focus on the HWI sector has been highlighted by the IMF and the OECD. - Failure to address compliance risks for this small but highly-visible group can erode trust in fairness of tax administration and reduce compliance of the broader taxpayer population. - HWIs present substantial compliance risks due to complexity of financial affairs and use of tax-planning strategies. - Understanding international aspects of HWI affairs is integral to addressing HWI compliance risks. ### International practice and examples (Box 2) - Examples of HWI compliance programs: - A dedicated HWI unit, often within a large taxpayers’ office, with highly-skilled officers undertaking risk analysis, audit, and debt collection. - Expanded information reporting covering entities and assets owned by HWIs, and mandatory disclosure of certain types of transactions. - Measures to encourage voluntary compliance, such as pre-filing agreements, a rulings regime, and carefully-designed voluntary-disclosure schemes for past non-compliance. - Comprehensive checks—risk reviews, audits, and prosecutions for the most egregious offenders—applied according to perceived risk level. - Withholding taxes—e.g., on rental payments in India—have helped reach HWIs. - Tightening laws to prevent tax-free private use of company assets, use of companies and trusts to hold income at lower tax rates, and diversion of income to preferential beneficiaries. - Source cited for Box 2: Current Challenges in Revenue Administration: Improving Tax Compliance, IMF, April 2015. - Countries reporting having a HWI unit to the ISORA database in 2019 include: Australia, Cameroon, Chile, Cook Islands, Ghana, Hungary, India, Ireland, Jamaica, Kenya, Kiribati, Mexico, Netherlands, New Zealand, Norway, Portugal, Republic of North Macedonia, South Africa, Spain, Uganda, and United Kingdom. The U.S. and France have HWI compliance-improvement programs in place. ### Evidence of benefits - Experience suggests firm action combined with sound compliance activity and good stakeholder services can significantly improve compliance. - Benefits can be substantial, as shown in Australia and the U.K. ### Recommendation for Belgium - The authorities should consider establishing a HWI unit within the large taxpayer office of the General Administration of Taxes. - The unit would involve: - enhanced information on the HWI segment, - processes to use this information effectively, - an understanding of particular needs of the segment, - actions that the tax administration can use to service those needs. - An integrated approach to deliver an HWI-compliance strategy is likely to yield better results than an audit-only policy. ### Functions of a dedicated HWI unit - Send a clear message to non-compliant HWIs of possible actions by the administration, potentially reducing aggressive tax-planning and improving voluntary compliance. - Enable the administration to develop awareness and skills and match the level of expertise and knowledge of HWI advisors. - Allow concentration of skills, targeted training, retention of knowledge, and an improvement over time of HWI understanding. - Footnote: This unit should work in close collaboration with “Unit Private (International) fiscal constructions” included in the action plan for the fight against tax and social security fraud planned to be established within the General Tax inspection directorate. F. Integrating Collections of Personal Income Taxes (PIT) and Social Security Contributions (SSC) ### Current institutional arrangement in Belgium - Personal income taxes (PIT) and social security contributions (SSC) are collected by two different agencies: - For PIT: FPS Finance under the MOF. - For SSC: FPS Social Security under the Minister of Health and Social Affairs. - Collaboration is mainly through cross checking of data obtained by the agencies operating independently of one another. ### Collection models internationally - SSC collections may be organized in two fundamental ways: - Parallel systems (as in Belgium, France, and Germany). - Integrated systems (as in Australia, Sweden, and the U.S.). - There has been a trend to integration of SSC collection into tax administrations: - Sometimes by transferring SSC collection responsibilities to the tax administration. - In other cases, by closer cooperation while maintaining separate systems. - Table 2 (source) lists countries under: - Parallel Collection: France, Germany, Japan, Belgium, Austria, Greece, India, Mongolia, South Korea, Chili, Mexico. - Integrated Collection: United States, Canada, Hungary, United Kingdom, Ireland, Sweden, Argentina, Brazil. - Planned Transition: China, Turkey, Slovak Republic, United Kingdom, Azerbaijan, Croatia, Kazakhstan, Russia, Romania, Kyrgyz Republic, Argentina, Brazil. - Footnote: 1/ Transitioned from a parallel collection model. ### Rationale for unifying PIT and SSC collections - Commonality of core processes: - Identify and register contributors and taxpayers using a unique registration number. - Systems to collect information in the form of returns from employers and the self-employed (SE), usually based on similar definitions of income. - Employers withhold tax and contributions from payments to employees and pay this to agencies (usually via the banking system). - Effective systems to follow up on employers who do not file or do not account for payments. - Verify accuracy of information shown on returns using modern, risk-based audit methods. ### Potential benefits of integration - Reduced administration costs: - Fewer staff and economies of scale in human resource management and training, fewer managers, and common processes for filing and payment, enforcement, data entry and verification. - Lower infrastructure costs in office accommodation, telecommunications networks, and related functions. - Elimination of duplicated IT development costs and less risk in system development and maintenance. - Reduced compliance costs for employers: - Common record-keeping and forms and a common audit program covering VAT, income and payroll taxes, and SSC. - Simplification may improve the accuracy of calculations by employers, improve compliance levels, and facilitate the fight against tax and SSC fraud. *International Monetary Fund — Belgium country report excerpt.* ### Box 2. Greenhous Gas Emissions – Targets, Outcomes and Projections ### Box 2. Greenhous Gas Emissions – Targets, Outcomes and Projections ### B. Belgium’s Greenhouse Gas Emissions in Context - Belgium has lowered GHG emissions but remains below the EU average; progress similar to France, Italy, and the Netherlands but behind Denmark, Germany, Sweden, and the U.K. - Emissions by sector since 1990: - Energy use of residential buildings, industrial processes and product use, and agriculture: "rather modest declines". - Transport: "has even seen an increase". - Sectoral emission-intensity observations: - Transport, housing, and industry show relatively high GHG emission intensity compared with the EU. - These sectors offer substantial scope for efficiency gains and will be central to meeting national and international climate goals. - Transport-specific findings: - In 2018, new passenger cars emitted about a tenth less CO2 per distance covered than in 2010 (contrast: reductions of up to a fifth in other EU economies). - Retail fuel priced "substantially below efficient levels"; fuel duties on petrol declined "close to 15 percent in real terms over 2011–2018". - Levies on diesel "have risen by nearly a third" as diesel aligned with petrol taxes. - Company cars account for "about an eighth of Belgium’s car fleet". - Subsidies benefitting private and commercial transportation had an estimated worth of "about 1 percent of GDP in 2019". - Buildings and residential sector: - Residential building stock energy performance: bottom “D” and “E” or below categories account for "76 percent in Wallonia" and "65 percent in Flanders". - Space heating represents "around three-quarters of energy consumption of Belgian households" and is predominately based on solid fuels, oil, or gas. - Residential fuel subsidies amounted to "roughly 1 percent of GDP in 2019". - Industry: - GHG emissions from energy use in manufacturing and construction (largely ETS-covered) have dropped "by around 40 percent from their 1990 levels". - Emissions from industrial processes and product use have fallen "less than a fifth". - Electricity-price rebates for large industrial facilities contributed to sectoral subsidies of "about 0.7 percent of GDP in 2019". - Belgium lacks explicit national carbon taxation beyond the ETS and has lower carbon-tax coverage and rates relative to many EU economies. ### C. Converging Towards Belgium’s Climate Targets - EU target and carbon-pricing needs: - EU revised NDC: cut GHG emissions by "55 percent below 1990 levels by 2030". - To achieve this with a carbon tax on fossil fuels, Belgium would need to charge a rate "going substantially above €60 per ton of CO2". - €60 per ton is described as "the midpoint estimate of carbon costs in 2020 and the low-end estimate for 2030". - Distributional and macro impact simulation: - A simulated linear phase-in of a carbon price of "€60 per ton of CO2 over 2022–25" indicates "notable declines in household-consumption spending" with the impact skewed towards poorer segments due to larger shares of inelastic energy demand (heating, transport). - The simulation "abstracts from the distribution of carbon tax proceeds back to households" and other uses of revenues. - Fossil-fuel subsidies and tax context: - Belgium “makes no use of explicit carbon taxation”. - Excises on road-vehicle fuels are "above the median in EU economies", but duties on fuels used in industry and buildings are "comparatively modest or even non-existent". - Support for fossil fuels, primarily via tax expenditures and exemptions, is described as "among the highest in the EU". - FPS Finance (2021) values Belgium’s fossil fuel subsidies at "2.8 percent of GDP in 2019", contrasted with an OECD-based estimate of "0.6 percent of GDP". ### D. Conclusions and Policy Recommendations - Overall assessment: - Despite notable reductions, "stronger efforts will be needed" and "Belgium will likely miss its climate goals under existing EU frameworks". - Under current mitigation policies, GHG emissions are on track to increase by 2030, largely driven by a rise in ETS emissions (including effects from "nuclear power phase-out in 2025") and only gradual decline of non-ETS emissions. - Policy priorities recommended: - Phase out fossil-fuel subsidies and follow-up on the authorities' inventory with measures for their gradual phase-out "by the end of 2021 as planned". - Taxation reform to incentivize procurement of emissions-neutral company cars, given their sizable fleet share and short replacement cycles. - Consider widening emissions trading to sectors not currently included in the ETS, or develop a national scheme (as recently done by Germany). - Devise and communicate a long-term trajectory for carbon taxation, in line with a range of EU countries, to steer firms and households toward climate-friendly fuels. - Complement carbon pricing with feebates and regulations to provide additional incentives and remain within political limits of price-based policies. - Measures to cushion transition costs and protect vulnerable groups: - Replace broad subsidies with "well-designed, means-tested support where warranted". - Build infrastructure for emissions-neutral vehicles (clean energy supply, charging stations). - Invest in reliable and efficient alternative transport modes (railways) to address congestion and other externalities. - Finance retrofitting of the building stock and align owner–landlord–tenant incentives. - Use carbon tax revenues to compensate households and companies disproportionately burdened by higher carbon prices, including options highlighted by SPF Santé Publique, Sécurité de la Chaine Alimentaire et Environnement (2018): direct redistribution of carbon tax revenues to most affected groups, shifting taxation away from labor and electricity, and public investment to support the transition. - Implementation notes: - A multi-pronged approach is needed combining carbon pricing, taxation, and regulation because many fossil-fuel uses in Belgium are lightly taxed and substantially subsidized. - Recent government plans to reduce labor taxation in broader fiscal reform should take the possibilities offered by carbon pricing into account. *Source: Box 2. Greenhous Gas Emissions – Targets, Outcomes and Projections (IMF).* ### 15. Tackling climate change calls for a coordinated, coherent, and integrated policy ### 15. Tackling climate change calls for a coordinated, coherent, and integrated policy ### Major findings and analysis - Achieving envisaged GHG emission reduction goals requires a coordinated, coherent, and integrated policy approach. - A sizeable part of the GHG emission cuts achievable from upgrading Belgium’s building stock can be attributed to the electrification of space heating, in addition to improving the energy efficiency of houses. - Electrification gains will only materialize if the de-carbonization of power generation continues apace. - National-dimension issues, like energy or transport networks, require a high degree of policy coordination across various governmental bodies to maximize environmental benefits and minimize associated costs for the budget and the wider economy. - New EU-level climate targets will call for a substantial revision of existing national frameworks; associated efforts should reflect on streamlining processes and decision making across federal and regional entities in Belgium. ### Policy recommendations and governance - Reach agreement among the various layers of government to equitably distribute and share the burden of meeting more stringent GHG emissions goals. - Explore the adoption of a National Climate Law to improve the governance of climate policies; the intention is commendable even if ambitious and potentially requiring constitutional change. - Ensure continued de-carbonization of power generation to realize emission-reduction gains from electrification measures in buildings. - Enhance policy coordination across governmental bodies for national infrastructure (energy, transport) to minimize budgetary and economic costs while maximizing environmental benefits. ### Key statistics and investment needs - Investment needs to arrive at a fully energy-efficient housing stock by 2050: - €110bn in Flanders - €28.8bn in Brussels - €63bn in Wallonia *Source: IMF staff summary of chapter 15 of the Belgium country report.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1belea2021002.pdf_