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Unformatted text preview: ative terms would have increased at the same pace as growth in GNI while the personal
income tax transfers would have changed less (more) rapidly than growth in GNI for those regions whose share of
personal income revenues decreases (increases). The personal income tax transfers of the regions that grow relatively
poorer would have gradually been undermined while the other(s) earned a bit more each year. To summarize,
differences in wealth are reinforced by any criterion of change applied uniformly to the three regions.
This problem was pinpointed by the regions experiencing a drop in their share of personal income tax revenues, i.e. the
Brussels and Walloon regions, and the authorities contemplated abandoning the notion of uniform change in respect of
the three negative terms and implementing a regional change equivalent to growth in the respective personal income tax
transfers. Thus, if the negative term represented x% of the personal income tax transfer in 2002, the same percentage
was deducted from subsequent years and a separate percentage would be calculated for each region. The advantage of
this measure is that growth in the total of the three negative terms is equivalent to growth in GNI. This measure has the
same budgetary impact for the federal government as the preceding solution, but in this instance, the anti-redistributive
effect is cancelled and double neutrality is achieved.
Flanders rejected in extremis this new proposal, arguing that it did not wish to lose the gain tied to the first proposals, a
gain that it had not in the least acquired. An additional argument maintained that a region whose share of personal
income tax revenues declined would effectively have lost financial resources because of this change in the negative
term. However, this state of affairs was acceptable since, at the same time, this region would have benefited from the
overcompensation afforded by the equalizing transfer.
The compromise ultimately adopted consists in maintaining a uniform growth rate for the three regions, but by reducing
this rate in relation to the GNI rate, i.e. 91% of growth in GNI (more precisely, it is a link to inflation plus 91% of real
growth in the economy). Thus, the regions that are relatively wealthier maintain an advantage over the other regions,
while the losses of the regions that are relatively poorer are reduced to a minimum. Budget neutrality is no longer
achieved, on the one hand by the federal government, which loses the difference between a link to 100% and a link to
91% of growth each year. The budgetary impact on the regions is positive for some and the losses virtually nil for the
others. In a word, neither vertical budgetary neutrality nor horizontal budgetary neutrality is achieved.
Given the anti-redistributive effect inherent in the final choice of linking changes in the negative term to a single rate of
91% of growth, the negotiators decided to implement a temporary insurance mechanism in respect of the regions. The
risk of experiencing the negative effect of the new deal is greater for the Brussels region because regional taxes account 65 66 See Cattoir and Verdonck (1999) for an explanation of this phenomeno...
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