Employment rates in Belgium remain relatively low by international standards. This note assesses a reform package aimed at increasing work-incentives for two groups in particular: second earners and low-wage workers. The reforms include reducing joint taxation and expanding the existing in-work benefit. The note assesses the fiscal, distributional, poverty and inequality impact of these reforms.
Boosting work incentives in Belgium
Abstract
Budgetary cost. The combined reform package would lead to an annual budgetary cost of EUR 124 million or 0.02% of GDP in 2024.
Average income gains. On average, the reform package would lead to small average income gains for most households. However, in deciles 3, 4 and 10, the gains from the in-work benefit reforms would not compensate the losses of reduced joint taxation.
Poverty and inequality stay constant. The poverty and inequality increasing effects of the joint taxation reform would be offset by the in-work benefit expansions.
Participation and working hours increase. Especially through the increased participation of women.
Belgium’s participation and employment rates remain relatively low by international standards. Large and persistent gaps exist across regions, with several groups experiencing particularly poor labour market outcomes. This note assesses a comprehensive reform package aimed at increasing work incentives for two groups in particular: second earners and low-wage workers. The package consists of three reforms: a change to the personal income tax and two reforms of the existing in-work benefit.
Reforming the income tax. While the Belgian personal income tax system is largely individualised, some joint taxation elements remain. One of these elements is the marital quotient, a system of partial income splitting between unequal earning partners whereby a proportion of the income of the higher earner is transferred to the lower earner for tax calculation purposes. Due to progressive taxation, the transfer lowers the overall income tax payments of the couple, thereby decreasing work incentives for second earners. The first reform in the package aim to increase the work incentives of second earners by reducing this joint taxation element for non-pensioners (Box 1 for details). This measure was included in the government’s 2025-2029 agreement and planned to come into full affect by 2029.
Reforming the in-work benefit. The second and third reform in the package aim to increase work-incentives for low-wage workers, whose tax burden is particularly high in Belgium compared to other OECD countries (OECD, 2022). One of the tools that governments can use to lower the tax burden for low earners are in-work benefits. The main in-work benefit in Belgium at the national level is the Workbonus, which has three components: low-wage, very-low wage, and a fiscal component. The first two components decrease the social insurance contributions while the fiscal component consists of a personal income tax credit. Taking the three components together, the total benefit first plateaus at a maximum benefit amount before it withdraws gradually, reaching 0 around 80% of the average wage. The second and third reforms of the package would expand the existing Workbonus. The first reform would increase the maximum amount while the second would lower the withdrawal rate (Box 1 for details).
This Study describes the fiscal, distributional, poverty and inequality impact of this reform package. The final section describes the labour supply outcomes. The analysis uses the European Commission’s tax-benefit microsimulation model EUROMOD, based on EU-SILC 2023 input data. The labour outcome effects are analysed using the EUROLAB labour supply model. All reforms are evaluated against a policy baseline for 2024.
All reforms together would generate a budgetary deficit of EUR 124 million per year (0.02% of GDP) (Table 1). Halving the marital quotient would generate EUR 478 million in personal income tax (PIT) revenue, while the two Workbonus reforms would increase government expenditure. The higher Workbonus amount would reduce PIT revenue by EUR 294 million per year, while lowering its withdrawal rate would increase expenditure by EUR 293 million. However, since social insurance contributions (SIC) are deducted from the PIT base, the lower withdrawal rate would increase the taxable income of some beneficiaries, generating additional PIT revenue of EUR 12 million. The Workbonus withdrawal reform would also raise additional revenue from special insurance contributions and generate small savings in child benefits and education grants, while slightly increasing social assistance spending.
Budgetary impact of the three reforms, annual, in EUR millions
Source: OECD calculations based on the EUROMOD J1.0+ model and EU-SILC 2023 data.
The reform package would increase the average equivalised disposable income by just 0.03% (Figure 1). While the marital quotient reform would decrease incomes by 0.20% on average, this effect would be offset by the two Workbonus reforms: +0.12% when increasing the Workbonus amount and +0.11% when lowering the withdrawal rate. Deciles 3, 4 and 10 would experience small average losses of ‑0.10%, ‑0.03% and ‑0.04%, respectively, while decile 1 would see an average income increase of +0.25%. The rest of the distribution would experience smaller positive changes in disposable income.
The marital quotient reform would decrease disposable incomes across the distribution, especially in deciles 3 and 4, with losses reaching up to ‑0.43% on average in the third decile (Figure 1 – grey bars). The supplementary material provides a more detailed assessment of those affected by the reform. In contrast, increasing the Workbonus amount would generate income gains across the distribution, with the highest gains in deciles 1, 3 and 4 (light blue bars). Increasing the Workbonus withdrawal rate would also generate gains across the distribution, but these would be more concentrated in the middle, reaching a maximum around the fifth decile (dark blue bars).
The full reform package would not have significant effects on poverty and inequality (Table 2). The marital quotient reform would slightly increase the Gini coefficient by 0.0004 points and the poverty rate by 0.1 percentage points (p.p.). This increase would be largely offset by the Workbonus amount reform, which would slightly reduce the Gini coefficient by 0.0003. Additionally, the Workbonus withdrawal reform would decrease inequality by 0.0001. The increase in the poverty rate would also be counteracted by two Workbonus reforms, each of which would reduce poverty by 0.1 p.p.
Note: Household disposable income is equivalised using the OECD modified equivalence scale. Anchored poverty line set at 60% of median equivalised disposable income in pre‑reform scenario.
Source: OECD calculations using EUROMOD J1.0+, EU-SILC 2023 data.
The full reform package would boost both participation and hours worked (Figure 2). The share of individuals in full-time work would increase by 0.33 p.p., which is mainly driven by decreases in the share of people that are not in work (‑0.23 p.p.) or in part-time work (‑0.07 p.p.). However, the share of people working overtime also would decrease slightly (‑0.03 p.p.), pointing to adverse effects at the intensive margin.
This overall effect would be largely driven by the labour reactions of women, whose share of full-time work would increase almost three times more than men (0.48 p.p. versus 0.17 p.p.). The increase in full-time work for women would be due to higher participation rates (the proportion not in work would decrease by ‑0.38 p.p.) and an increase in hours worked (‑0.13 p.p. in part-time work). Overtime work would also increase slightly (0.01 p.p.). In contrast, the increase in full-time work for men would be due to higher participation rates (‑0.09 p.p. not in work) and a decrease in overtime work of ‑0.08 ppts.
The reforms described in this note were carried out as part of the 2025 Technical Support Instrument (TSI) project “Boosting the Usage of Distributional Impact Assessments through Microsimulation”, funded by the European Commission. The beneficiary authority in Belgium was the Federal Public Service for Social Security. The reforms assessed during the project, including those described in this note, were for capacity building purposes only and do not necessarily reflect the official views of the beneficiary authority.
The supplementary material provides a more detailed assessment of those affected by the marital quotient reform.
More information on Belgium’s tax and benefit system is available in the OECD Descriptions of Tax and Benefit systems.
How do taxes and benefits affect disposable household income, benefit replacement rates, benefit adequacy, and financial work incentives? Find it out using the OECD tax-benefit web calculator.
More information on the EUROMOD microsimulation model: here.
Contact: Ella-Marie Assal (Ella-Marie.Assal@oecd.org), Daniele Pacifico (Daniele.Pacifico@oecd.org) and Sara Riscado (Sara.Riscado@oecd.org).
This work is issued under the responsibility of the Secretary-General of the OECD, and does not necessarily reflect the official views of OECD Member countries.
This document was produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union.
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