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In Belgium, the Law on Fiscal and Social Greening of Mobility of 25 November 2021 eliminates corporate tax deductibility for all company cars except those with zero CO2 emissions. The main effect of the tax reform is an accelerated electrification of the company car fleet and an accelerated decline in CO2 emissions. Compared to the no-reform scenario, the reform leads to an increase in net tax revenues of about 1 billion euro on an annual basis.
The state reform was elaborated at a moment when large fiscal consolidation measures were required to restore the long-term sustainability of Belgian public finances. The 2011 institutional agreement provided that the federated entities contribute, through the reform, to the fiscal consolidation. That contribution can be justified by the fact that the reform, by reducing the budgetary size of the federal level, decreases the federal level’s room for manoeuvre and its capacity to resolve on its own the sustainability issue. The magnitude of the contribution necessary to prevent the sustainability challenge from deteriorating is assessed and compared to the redistribution of the public deficit as organized by the reform. The assessment is made in a constant policy scenario and for different assumptions about the reform's life span. This study shows that the transfer of fiscal burden to the federated entities is, a priori, sufficient not to aggravate the sustainability problem considering the reduced size of the federal level’s budget. The federated entities have gained scale and powers but will have to contribute substantially to the efforts to restore fiscal sustainability.
This Working Paper is aimed at describing the current version of Federal Planning Bureau’s medium-term macrosectoral model, named HERMES. This model is used to produce on a regular basis medium-term outlooks for the Belgian economy. In addition to the main macroeconomic aggregates (GDP, private consumption, external trade, investments,…), those outlooks also concern labour market aggregates, detailed public finances, energy consumption and greenhouse gas emissions. The HERMES model is also used to compute the impact of policy measures and external shocks on the Belgian economy.