Belgium has a heavy tax burden which has mainly fallen on labour as international tax competition has limited the scope to which this burden could be imposed on capital. This has raised concerns about possible adverse labour market impacts from such high tax rates. In view of these concerns, the government has made substantial cuts in employers’ social security contributions, has reduced employees’ social security contributions and, in the context of a personal income tax reform, has introduced an earned income tax credit. All of these measures have been focused on low-income earners, maximising their favourable labour-market effects by increasing the likelihood that they produce lasting reductions in labour costs and/or reductions in benefit replacement rates. Further reductions in labourincome taxation targeted on low-income earners should be made as budget room becomes available. Narrowing the range of goods and services that are not subject to VAT would help to make more budget ...
