The Belgian federal government has announced a considerable decrease in the social security contributions of employers in the context of the so-called “tax shift”, i.e. a shift from taxes on labour to taxes on property and consumption in order to generate the necessary revenue to finance the proposed reduction in salary costs.
The Belgian employee social security system is financed by both employer and employee contributions, which are determined based on the employee's gross salary.
Currently, the employer’s contribution varies depending on whether an employee is a blue-collar or white-collar worker. For white-collar workers, the contribution is set at approximately 35% of the employee's gross salary, while the contribution for blue-collar workers is set at approximately 48% of the employee's gross wage (108%).
Significant structural reductions exist which can be used to reduce the employer's contributions and for which all private-sector employers qualify. The structural reductions are usually a fixed amount per employee per quarter (at least €400) which the employer can set off against its contribution and varies widely, depending on the employee’s salary, occupational category and effective working time. In addition to structural reductions, employers can also benefit from other reductions for certain target groups (e.g. low and high earners).
The Belgian federal government's proposal to lower the employer’s contribution to 25% is the last step in a three-phase process to eliminate the wage handicap in Belgium. In this way, the government intends to increase the competitiveness of Belgian businesses compared to those in neighbouring countries such as Germany and the Netherlands, which have relatively lower salary costs.
The first two steps were an index jump of 2% and a salary freeze. These measures have already been implemented in national law, by the Act of 23 April 2015 and the Act of 28 April 2015, respectively.
As the final step has yet to be codified, the specificities are still unclear. A first draft will be prepared by the finance minister after the summer recess, with the goal of implementing the lower rate of 25% by the end of the current legislative term.
However, it should be noted that the financial consequences of the latest measure for Belgian employers appear rather limited. Indeed, since employers in the private sector already benefit from significant structural reductions in social security contributions, the effective rate of social security contributions is currently estimated at an average of approximately 28%. Thus, if the rate is fixed at 25% in the future (and the system of structural reductions is abolished), it is unclear whether the envisaged decrease of the labour cost will have a significant financial impact.
Finally and most importantly, the government’s proposal to lower the rate to 25% will probably result in simplification of the current rules as the complex system of structural reductions will most likely be repealed.