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Unformatted text preview: nquished by the federal
government be apportioned among the Regions?
From the outset, two extreme solutions were possible. The first solution, which favoured the Walloon Region, centred on
the share of the relative importance of the Regions in the amount transferred. The second solution, more favourable to
Flemish Region, apportioned funds on the basis of the Regions’ contributions to personal income tax revenues, applying
the territoriality principle of fair return.
Table 4 below, drawn from Pagano (1999), illustrates the debate.
FINANCING OF THE REGIONS IN BELGIUM
Region Flemish Region
Total Expenditure transferred
(billions of BEF) Income tax revenues (%) (a)
100 The same relating to the
budget transferred Difference (c) = (b) x tot (a)
234.7 (c) - (a)
0 (1 Euro = 40.3399 BEF) At the beginning of the transitional period (1989-1999), the duly regionalized budget transferred served as a basis, i.e.
column (a) in the table. Over ten years, the breakdown were to gradually shift to a breakdown based on the criterion of
the regional yield of personal income tax, i.e. column (c), according to a linear combination (the weight of column (a)
declines 10% each year and the weight of column (c) increases at the same pace). While the initial breakdown favoured
the Walloon Region, it gradually shifted in favour of the Flemish Region (with the application of the principle of fair
return), but accompanied by a remedial mechanism, the national solidarity measure (in French: Intervention de Solidarité
Nationale or ISN), which I will examine later.
The central government’s budgetary interests were satisfied since the amount thus allocated to the Regions only
increased by the rate of inflation, i.e. zero growth in real terms. However, starting in 1994, a gradual link to real growth in
GNP appeared, limited to 10% of such growth in 1994, 15% in 1995, 20% in 1996, 70% in 1997, 75% in 1998 and
97.5% in 1999. Moreover, the federal government retained a portion of the amount to be transferred to the Regions in
the form of a loan from the Regions to the central government, remunerated at the market interest rate and repaid by
means of annual repayments of up to 85.7%. 16 17 18 182 Let us note that the Belgian personal income tax has not been properly turned into a shared tax as long as we understand a shared tax as a which
generates unknown revenue ex ante and is allocated according to fixed proportions, say fifty percent for the regions or twenty percent for a given
region; in Belgium the amount to be shared is predetermined and its allocation among regions evolves in line a.o. with the relative regional revenue of
the personal income tax.
See, in particular, Spinoy (1998) and E. de Callataÿ and R. Savage (1998). It should be noted that the agreement concluded between the federal
government, the Communities and the Regions on December 15, 2000 binds the federated entities to the attainment of fiscal objectives, i.e. achieve
a financing capacity of 0.3% of GDP in 2001 an...
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