CSC/ACV calls for changes to social security funding

In late 2004, during the run-up to talks over a new national interesectoral agreement for 2005-6, Belgium's CSC/ACV trade union confederation relaunched a plan for the modernisation and rescue of the country's social security system. The proposals include new ways of financing the system, with a universal contribution levied on all types of income, and not just pay.

In the mid-1990s, the Confederation of Christian Trade Unions (Confédération des Syndicats Chrétiens/Algemeen Christelijk Vakverbond, CSC/ACV) - Belgium's largest trade union organisation - launched a 'plan for the future', aimed at more work, more fiscal justice and more social security. In late 2004, CSC/ACV revised the plan, which calls for an alternative financing of the social security system, and started a renewed campaign to promote its content.

The focus of the plan is a programme to modernise and save the Belgian social security system. Since the summer of 2004, more and more questions have raised in public debate about the future of the system, which is widely regarded as one of the 'crown jewels' of the Belgian model of social concertation. A key issue in policy and media debate in the build-up to negotiations over a new two-year national intersectoral agreement to cover 2005-6 (BE0412301N) has been whether the Belgian economy can afford the same kind of social security system in the future. The question has been raised especially in connection with the issue of an ageing population and the affordability of the pension system in the future. Furthermore, interest has been fostered by a demand from the federal government to the social partners to come up with ideas as to how the social security system can be financed in the future. The social partners have until June 2005 to reach a consensus on this issue. Finally, the debate has also been stimulated by the fact that the national health system’s budget, an important part of the social security system, has experienced a major deficit in 2004.

Revised plan

The revised CSC/ACV plan to save the social security system by looking for alternative channels of financing starts from the following basic propositions:

• since the early 1990s, Belgian social security levies on wages have been reduced, but there has been only a slight rise in employment, mainly connected to economic growth;

• taxation on labour has been cut, but other incomes (especially from capital) are still not taxed more. Instead, CSC/ACV states, the government has set up a programme for people who deliberately evade taxes by depositing their savings in foreign accounts (eg in Luxemburg), in order to discharge them from accusations of fiscal fraud;

• the financing of the social security system is still unstable. Alternative channels of financing are not enough to keep the budget in line and are not provided on an institutionalised basis by the federal state, but are decided ad hoc each year when budgetary controls are reviewed; and

• as a result of the ageing population and undiminished unemployment, more and more people are receiving some sort of welfare benefit, but the total amount of money available in the social security system has not been dramatically increased. This has resulted in a lower real income for social security benefit recipients.

The plan concludes that there is a 'negative logic' in the social security system: less jobs, because of high taxes on labour and low or no social taxes on other types of income; which means more people living on social benefits; which means higher taxes on labour or lower benefits. CSC/ACV proposes three fundamental changes in the social security system as a counter to this logic, as follows.

• A division of the social security system in two pillars. First, work-related benefits financed and distributed by occupational category (wage earner or self-employed); these are welfare benefits as compensation for unemployment, sickness or disability and the pension system. For workers, it means that this type of social security (still) has to be financed by levies on wages. Second, health insurance and childcare benefits for everyone financed by everyone (by taxes on all types of income and financed by the state).

• For the financing of the second pillar, the confederation proposes the instigation of a universal social contribution to be levied on all types of income (not only wages, but also interest on savings and investments, company profits, housing rents etc). This general tax contribution would be 2% to 3% on all types of income.

• Reduced taxation and social security contributions on labour, to create additional jobs. However, the cuts should not be attributed in a universal way to all employers, but only on a case-by-case basis linked to collective agreements aimed at saving or creating jobs (an enlarged version of the current 'Maribel' scheme - BE0001303N).

Besides these three major proposals, the plan confirms CSC/ACV’s support for maintaining a federal structure and organisation of the social security system. It does not want a 'regionalisation' of the social security system, or parts of it. Such a regionalisation to the Walloon or Flemish level is a plea often made by certain political parties; especially in the Flemish part of the country (because they claim that there is a biased financial transfer in the social security system from Flanders to Wallonia). The plan also calls for a reinforcement of the joint governance of the social security system by the social partners. The CSC/ACV plan is backed by a set of calculations and a website.

Reactions

The second-largest trade union organisation, the Belgian General Federation of Labour (Fédération Générale du Travail de Belgique/Algemeen Belgisch Vakverbond, FGTB/ABVV) has not published a direct reaction to the CSC/ACV proposals. Nevertheless, it states in its negotiating platform for the late 2004 intersectoral bargaining round (BE0412301N) that it too wants alternative channels of financing for the social security system. For this purpose, as a first step it targets income resulting from property ownership.

From the employers’ side, the reactions to the CSC/ACV plan has been firmly negative. Both the Federation of Belgian Enterprises (Fédération des Entreprises de Belgique/Verbond van Belgische Ondernemingen, FEB/VBO) and the Union of Independents (Unie van Zelfstandige Ondernemers, UNIZO) reacted against the plan, and especially the proposal for a universal social contribution. UNIZO stated that the introduction of such an extra tax is an easy solution that would constitute an extra financial burden for companies and entrepreneurs, while preventing necessary cost-cutting measures in the social security system and keeping alive the abuses in the system. FEB/VBO stated that looking for new revenues for the social security system, without a tighter control of expenses, is just a waste of time and effort. Furthermore, it believes in particular that the system of unemployment benefits has to be modernised and the growth in health expenses has to be diminished. FEB/VBO also warns that lower social taxation of labour compensated by a universal social contribution may result only in a kind of ineffective shuffling of funding.

Commentary

The launch of the CSC/ACV plan and the strongly negative reactions from the employers’ side show that there is still no consensus in Belgium on the financial future of the social security system. The employers’ organisations and liberal politicians criticise the system’s high 'unnecessary' costs. Trade unions and socialist politicians are looking for other ways of financing the system. In this debate on alternative channels of financing, two major policy questions still have not been answered in consensus by the social partners: does a cut in the social security levies on pay create more jobs?; and does a shift from financing the system with income from labour to other types of income result in a positive or negative effect on the available budget? Nevertheless, to a certain degree, a recent study by the the Federal Planning Bureau (Bureau Fédéral du Plan/Federaal Planbureau) backs the CSC/ACV’s proposals. Based on econometric calculations, the study concludes that a lowering of social taxes on labour combined with an alternative financing of the social security system can have a positive macroeconomic effect on growth, jobs and state spending. (Guy Van Gyes, HIVA-KU Leuven)