Fiscal Decentralisation: The Case of Belgium

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Fiscal DecentralisationThe Case of Belgium

• Johan Baras

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Belgium Fiscal Policy in a Federal State

• Scene setter what is Belgium?
• Belgium Federalism in a nutshell
• Financing the Regions and Communities
• How to respect European fiscal rules
• Conclusion - Any lessons?

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1. What is Belgium?
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Belgium Flanders Wallonia Brussels
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2. How is Belgium organised?

• Snapshot 2009
• 1 Federal level
• 3 Regions Flanders Wallonia Brussels
• 3 Communities Flemish (Dutch) speakers French
  speakers German speakers
• 6 Governments 6 Parliaments
• Exclusiveness of powers no hierarchy
• Not a bilingual state

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Who does what ?

• Federal level justice, defence, federal police,
  social security, nuclear energy, monetary policy,
  public debt
• (Geographical) Regions economy, employment,
  agriculture, water, housing, public works,
  energy, transport.
• (Linguistic) Communities culture (including
  media), education, .

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Financing the Regions and Communities

• 1989 Financing Law
• Federal level takes the decisions on most taxes
  (PIT, VAT etc) and collects them
• Regions and Communities have
• Certain taxes earmarked for them
• A dotation based on complex parameters
• Borrowing capacity

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• Decision making power on expenditure is devolved
  to the Regions and Communities, but not revenue
  policy
• ? sometimes labelled
• Consumption Federalism
• But still better than the old system of the
  unitary state waffle iron politics

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Waffle Iron Politics
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Waffle Iron Politics

• Waffle Iron Politics a budgeting policy which
  implies that when money is spent for, say,
  infrastructure works in Flanders, a project is
  sought in Wallonia to spend the same amount of
  money ? a mirror or waffle iron
• Example Ronquières ship elevator
• Example subway Charleroi
• Recent example bank rescue operation KBC

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Waffle Iron Politics
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4. How to respect European Fiscal Rules

• Maastricht and SGP rules apply to general
  government
• High Council for Public Finances
• Cooperation agreements between all levels of
  government

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5. Conclusions some lessons

• Get it right
• Keep it simple
• Exclusiveness of powers hierarchy
• Idea of communities is a useful one
• Avoid waffle iron politics
• Make transfers visible