Deloitte European Salary Survey - 5th edition
Belgium continues to be fettered by high and unlimited social security
Lowering employer’s social security contributions to 25% improves Belgium’s competitiveness, but not its ranking compared with its main competitors.
Diegem, 6 December 2014 – Deloitte today announced the results of its fifth European Salary Survey. This large-scale survey, which compares salary costs, net salaries and net disposable incomes in nineteen countries, underlines that Belgium continues to be fettered by very high employer costs, primarily due to high and unlimited social security contributions. Even if lowering employer’s social security contributions to 25% improves Belgium’s competitiveness, it does not improve its ranking as compared to its main competitors.
Belgium is fettered by a high marginal rate from a relatively low income level. A taxable income as low as EUR 37,750 attracts the highest tax rate of 53.5% (taking account of an average municipal tax rate of 7%). Nevertheless, it is still considerably less expensive to live in Belgium than in other wealthier European countries.
Even though wages indexation will be delayed in 2015, automatic salary indexation remains an added handicap for Belgium. Only three of the surveyed countries foresee such a mechanism.
Belgium remains at the forefront regarding social security costs
Belgium and France continue to have the highest employer costs due to the high and unlimited social security contributions. In the 2014 study, it is observed that, in eleven of the nineteen countries surveyed, employers experience rising social security costs due to an increase in the rate or the threshold amount at which contributions are payable.
“Belgium continues to be fettered by a salary handicap due to the high social security costs in combination with a high minimum salary set by law and compulsory automatic indexation,” says Patrick Derthoo, Tax Partner at Deloitte Belgium, and responsible for this study. “The coalition agreement of October 2014 provides for a reduction in employer social security contributions to 25%, before the next election. That would certainly give employers some breathing space but even if the survey shows that the measure would improve Belgium’s competitive position, it would nevertheless not directly help it progress in the ranking against competitors.”
Almost half of the surveyed countries apply a top rate of ≥ 50%
A top rate of over 50% is now in force in almost half of surveyed countries. That means that the gap between Belgium and the rest of Europe is gradually closing in terms of the top rate. In Belgium, a 53.7% rate (including 7% municipal tax) is applied to taxable incomes as low as EUR 37,750, which is substantially lower than in other countries with a high marginal rate. (It is up to eight times the threshold amount in Spain for instance.)
Non-working partner and two children rewarded in Belgium
A single person is taxed more heavily in Belgium than a married taxpayer with non-working partner and two children. The difference in the tax burden in Belgium fluctuates roughly between EUR 4,200 and EUR 5,700, but the survey shows that the difference in other countries can be even bigger (even up to EUR 14,300 in Switzerland’s Geneva canton). The vast majority of the surveyed countries grant a tax bonus for the non-working partner and/or the children. Patrick Derthoo: ‘The question arises whether these countries should not reform this tax advantage to motivate people to enter or remain in the job market
No distinction is made based on personal circumstances in Sweden, Greece and the United Kingdom.
Housing costs rise again in Northern Europe and fall further in Southern and Eastern Europe
The housing and living costs continue to rise mainly in Paris, London and especially in Geneva. To the contrary, they keep on falling in Madrid, Lisbon and Athens.
In contrast to European trends, housing and living costs in Belgium are virtually stable. Belgium remains an attractive country to live in. Brussels continues to be significantly less expensive than Amsterdam, Luxembourg, London, Geneva and Paris, among other cities.
R&D measure makes Belgian employment cheapest after the Netherlands
Companies with research and development activities in Belgium have been able to largely offset the salary handicap and even to become the least expensive country, after the Netherlands. Under the R&D measure Belgian employers can immediately claim back 80% of withholding tax paid with regard to researchers.
By applying this measure, Belgian companies in the highest salary scales have pulled ahead of their main competitors in research and development in France, Germany, Luxembourg, Switzerland and the United Kingdom.
This measure in the field of research and development which structurally reduces wage costs, makes Belgium (together with the Netherlands) unique. It is therefore important that Belgium positions and profiles itself as an international leader.
Belgian savings tax system is just above the European average
With regard to taxation of passive income (e.g. interests, dividends), Belgium is just above the European average, which is around 24% for both interests and dividends.
The continuing general European trend is that short-term capital gains are taxable (< 6 months, for instance). They are only tax exempt in Belgium and Switzerland and in certain circumstances Luxembourg. Capital gains resulting from speculation do, however, remain taxable in Belgium at 33% (plus municipal tax).
The wealth tax remains the exception in Europe. Switzerland, France and Spain are the only countries to levy a wealth tax if the net wealth exceeds a certain threshold.
High social security contributions do not necessarily guarantee a high statutory pension
Legal pensions are typically built up on social security contributions. It would therefore be logical that countries with an expensive social security system could also offer wealthy pensions. This correlation is nevertheless not observed in the study. Moreover, the legal pension is often inappropriate to meet the basic needs of retired workers.
As a result, pension benefits can also be accrued through employment (second pillar). This is even compulsory in Switzerland and since 2012 in the United Kingdom as well. Switzerland and the United Kingdom are , however, the exceptions: the study points out that corporate retirement savings plans do not or rarely come over in more than 60% of the surveyed countries in case of lower incomes. On the opposite, for a yearly income of EUR 75.000, they are used in 70% of the surveyed countries.
In most European countries, the retirement age will rise to 67 years over the next few years. Belgium is no exception here.