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Belgium’s company car conundrum

Camille Gijs
09 Dec 2021 00:00:00 | Update: 09 Dec 2021 04:47:32
Belgium’s company car conundrum

The company car has long been a taboo subject in Belgian politics.Some of the parties making up the Belgian government would love to kill them off, but a recent reform dodges the issue. Instead of scrapping company cars, it just mandates that their generous tax break applies only to zero-emission cars after 2026.

“Of course we wanted to take this a step further and eliminate the entire system,” said Petra De Sutter, the Belgian deputy prime minister from the Green Party. “But we are a coalition government, and within this coalition, this was the highest achievable compromise.”

There’s a solid political reason for her caution.

Her party suffered a bruising slap-down from voters two years ago when it vowed to end the popular perk. That pledge sent the Greens spiraling from a predicted 16 percent in opinion polls ahead of the election to a lackluster 10 percent finish.

“We paid the price for that,” said De Sutter. “Let’s not call it a defeat, but it was not such a big victory as we had anticipated or hoped for.”

That reinforced the danger of attacking company cars, and that’s why they survive in the government’s reforms.

Belgians have a passion for cars, but it’s as much an affair of the head as the heart. Of the 6 million cars on Belgian roads, about 10 percent are company cars. The country›s stratospheric tax rates make it more attractive for employers to reward workers with cars than with cash — most of which ends up in the government›s coffers. Even a first job often comes with a car, and most employees also get unlimited fuel cards. The green NGO Transport & Environment last year crowned Belgium as the EU country with the highest company car subsidies. The country also earned the top spot for car subsidies among all members of the OECD club of rich countries.

The result can be seen on Rue de la Loi — the traffic-choked road running through the heart of the Belgian capital.

“There’s no other EU country which subsidizes company cars so heavily. The system has become so successful it has become very hard to reverse it,” said Michael Maus, a professor of fiscal law at the Free University of Brussels.

In recent years, Belgium has been under pressure to U-turn on company cars. The European Commission, the OECD and a wide range of experts have repeatedly criticized the impact of the scheme on Belgium’s traffic jams and air pollution, and subsidizing cars isn’t a great fit with the country’s green targets.

It also doesn’t make a lot of economic sense, said Bruno De Borger, a professor in transport economics at the University of Antwerp. “It’s incomprehensible. It’s not efficient, extremely expensive and unjust. But the groups who benefit from it are politically powerful.” De Borger has seen attitudes over the perk shift in the last decade, as concern of air pollution, traffic and climate change has grown.

That has resulted in a wide range of governmental efforts to steer away from company cars, but their success has been limited.

For example, a cash-for-cars scheme that allowed workers to trade in company cars for a low-tax cash alternative didn’t survive legal scrutiny. Another alternative in place since 2019 is the mobility budget, which allows employees with a company car to trade in their vehicle in return for public transport benefits like reduced taxi costs, a bicycle or shared car services.

The result? Hardly anyone handed over their keys.

The Belgian parliament approved the reform plan last month; it only allows for the full tax deductibility of zero-emission cars as of 2026, while deductions for fossil fuel cars will be phased out by 2028. Zero-emission cars will eventually see their tax benefits reduced, from 100 percent in 2026 to 67.5 percent by 2031.

That is expected to cut emissions by a fifth by 2030, helping to tackle air pollution — another perennial Brussels problem. The reform is also part of Belgium’s recovery and resilience plan, which includes ending tax deductions for fossil fuels.

It’s a big step forward, said Stefaan De Rynck, the European Commission’s representative in Belgium. But he added it’s only one element of reforming Belgium’s tax system. “Less taxes on labor are a priority,” De Rynck said.

The current system is inherently unfair, said De Sutter. “The Belgian progressive tax system has a redistributive effect. [The company car scheme] goes against that: half of all company cars are owned by employees with the 10 percent highest incomes. We have to discuss how we can phase out alternative compensation measures that undermine our social system.”

The Greens want to take another run at company cars before the 2024 election, but the French-speaking liberal Reformist Movement (MR) party that’s part of the ruling coalition is strongly opposed.

“That’s a clear no,” said party leader Georges-Louis Bouchez. “We now have an agreement on greening company cars. It is already difficult to reach agreements in this government. If we go back to the drawing board, we won’t be able to sort it out.”

Bouchez is no fan of the current system, preferring to give people the freedom to spend their money as they please.

But for now, MR is steering clear of calling for radical change. “If you remove it, people lose purchasing power. You have to offer the same amount of cash. But that requires an enormous social and fiscal reform,” said Bouchez.

He also argued many Belgians need cars because of the country’s urban sprawl. “Some try to make people believe there will be public transportation everywhere. It’s idiotic. You can’t make a train ride to a village of 3,000 people. People need their car to get by.”

For Maus, the only way to flip the current system is by doing it in small steps, like the current plan to end the scheme for combustion engine cars. The other alternative is spending a huge pile of money to ease the pain of angry voters.

Even Green leader De Sutter acknowledged there’s not much chance of a policy change before 2024.

“This directly touches people’s paycheck,” she said. “For a politician, it doesn’t get much more sensitive.”

 

Politico