The Politics of Territorial
Finance in Belgium
Wilfried Swenden
University of Edinburgh
Belgium: ‘regime crisis’ since 2007?
Formation process interim government following June 2007
elections:194 days
Formation process ‘new coalition-government’ since (early) June
2010 federal elections: as of today 165 days
Why so long:
 Fragmented and split party systems along both sides of the
linguistic divide, but especially in Flanders
 Territorial reform high on the agenda most Flemish parties,
especially CD&V (Leterme), NV-A, Vlaams Belang and OpenVLD (Liberals) but no appetite for territorial reform in Wallonia
 Growing Left-Right divisions in a context of austerity
 2010: polarization as a result of issue triggering early elections
(BHV) and especially disenchantment with absence agreement
on constitutional reform after 2007. Charismatic leadership Bart
De Wever helped NV-A make major inroads into support CDV,
Open-VLD, Vlaams Belang and LDD.
Relative strength of parties 2010 elections (and
comparison with 2007 –Senate)
electoral district
(C–Right – Ext Right)
 VB 12.3 (-6.6)
 LDD 3.37 (-2.2)
 NVA 31.4 (+31.4)
 Open-VLD 13.0 (-6.5)
 CD&V 16.9 (-14.5*)
 SPA 15.6 (-1.7)
 Groen! 6.9 (+0.6)
electoral district
(C-Right – Ext Right)
 FN 5.95
 MR 24.3 (-7.9)
 Cdh 13.5 (-1.99)
 PS 35.7 (+8.89)
 Ecolo 14.3 (-0.92)
Current negotiations
Day 1 Bart de Wever (NVA
Day 25 Elio Di Rupo (PS preformateur)
Day 84 Danny Pieters (NV-A) and
Andre Flahaut (PS): mediators
Day 99 Jan Jambon and Jean Claude
Marcourt (High Level working group)
Day 118 Bart De Wever (NVA clarifier)
Day 131 Johan Van de Lanotte (SP.A):
PS manifesto 2010: ‘prosperity federalisme/ de prosperite’: need to retain strong federal
role in providing interpersonal solidarity, social protection, labour market and social
dialogue (wage-setting) + Brussels and surrounding municipalities (146-147)
NVA: manifesto 2010 ‘Daring to change now. A strong socio-economic perspective for
Flanders and Wallonia’
Belgium = the sum of two democracies which have been increasingly growing apart
What is needed is to turn Belgium into a ‘confederation’: Belgium will evaporate: what Belgium
cannot do by itself will be done by EU, what could be done by Belgium can be done much better by
Wallonia or Flanders alone…the two language communities have different views about almost
everything: home and justice policy, traffic regulation fines, asylum and migration, finance and the
budget,… incapacity to find agreement on how to reform social security. All competences should go
to the Regions, all financial transfers will be stopped, what we still want to do together we will do via
direct transfers from one community to the other. Based on European socio-economic parameters
(OMC), we will agree on ‘convergence criteria’ between Flanders and Wallonia’
The challenge of coalition building (in a
context of austerity)
Institutional Status Quo
Comparative thinking about territorial
First generation fiscal federalists (Oates, Tiebout,
Musgrave and Musgrave… echoed by Peterson)
Redistribution and Stabilization best federal, Allocation
However, balance can vary and depends on mobility labour
and capital (cf. US), as well as ‘heterogeneity’ of preferences
Generates VFI, and therefore also expectation of bail outs
in case of underfunded regions, because regions cannot be
held responsible for their own financing
Common for most WE countries, with partial exception of
Switzerland and Basque Country
Second generation fiscal federalists (Weingast, but
in recent years especially Rodden, Wibbels)
Emphasize role of political incentive structures in
explaining outcomes of fiscal federalism
Centre is too weak: i.e. strong shared rule provisions may
make it difficult for the centre to resist bailout requests or to
regulate the fiscal behaviour of local governments
Vertically integrated parties may cushion such ‘regionally
oriented’ actions
Conversely, centre is too strong: predatory behaviour of the
centre can erode tax base regions, encroach regional
autonomy through conditional grants or unfunded
Enderlein (‘trilemma of fiscal federalism’)
Solidaristic Fiscal
Federalism (Belgium)
Equal Living
Unitary Fiscal
Explaining the Belgian gridlock
Belgium: high shared rule (consociational), high VFI – expectation of regional bail out
high (notwithstanding restrictions borrowing autonomy sub-national governments)
However, 1992-2001: regional bail outs (primarily Francophone demand)
accompanied by competence transfer Flanders
Money for Francophone Belgium in exchange for competencies and overgenerous sub-state funding arrangements
Furthermore, progressive worsening ‘own source revenues’ federal government in
the face of major challenges ahead (pensions, health, social security + public debt
Mechanisms cannot work now:
Macro-economic situation has reduced the availability of fiscal resources that can be
used to buy the support of Francophone parties without making the richest federal entity
(Flanders) pay more directly
Furthermore, Francophones not in immediate need of funding after 2001 constitutional
Consensus in Flanders: to move Belgian fiscal federalism away from
solidaristic model, and closer towards competitive model
Consensus in Wallonia: to retain strong solidaristic element in Belgian fiscal
federal model
Solidaristic federalism: how did
we get there? 70-80
Unitary state  “federalism” but “unionist federalism” (Wilfried
Martens PM 1979-1992):
Representational equivalence: Consociationalism (shared rule)
before self-rule…
“Grendelgrondwet” (‘lock in constitution’)
 Equal representation of ministers from each language group in
the federal executive (which decides by consensus)
 ‘alarmbell procedure’
 Special Laws (Special Majority Laws)
 2/3 majorities overall in Chamber of Deputies and Senate
must comprise majority in each language group in each
parliamentary chamber
 Destroys old dream some Flemish nationalists: i.e. to use their
demographic, electoral and (now also economic weight) to
shape Belgian state to suit their needs  exit strategy through
increased self-rule only option
Coming together logic is more amenable to competitive fiscal
federalism than ‘holding together’ federalism
Equal living conditions: social security but also funding R/C
1970-1980: Central block grant corresponded with expenditure
assignments in regionalized competencies prior to their
regionalization (1/15 national budget)
Finance Law 1980 (in effect January 82)
 Regions: Regional distribution key: 1/3 surface (benefits W), 1/3
population, 1/3 regional contribution to personal income tax
receipts (benefits FL) ‘dotations’ (Berckx, 1990: 385)
annual adjustments parallel adjustments in central budget (for first
year), thereafter to changes in consumption price index
Initially: Regional distribution key: 2/3 based on population, 1/3
surface and for Brussels distribution between FL-FR C based on
share of votes most recent municipal elections for D or F-speaking
parties, but with a minimum of 20 percent for D; annual adjustments
parallel adjustments in central budget
As of 1982: 55-Fl/45 Fr + annual adjustment to reflect changes in
consumption price index
1980: tax receipts for some smaller taxes (TV and radio license
fee tax, vehicle tax, games and betting, property registration tax,
alcohol tax, inheritance tax, ‘onroerende voorheffing’) ceded to
Regions (‘ristournes’)
 Regional distribution key based on localization tax receipts
 Right to vary tax rates on the above, but without affecting overall
tax pressure and subject to agreement with national government
(Berckx, 1990: 482)
 Flemish compensation for support Walloon steel action plan
Limited borrowing powers, under supervision of the national
Parliamentary debates: some references to ‘consumption
federalism’ and comparison with Thatcher’s ‘I want my money
back’ … however, ‘solidarity is essential for a federal structure’
But… the unfinished business of Belgian
territorial reforms… 1988-9
Already in 1982: Flemish calls for more
competencies especially in education,
(calls Van den Brande: 50% national
budget should be transferred + full
control over education)
Distribution key: Flanders wanted
strengthening ‘juste retour’
No solution for Brussels yet…
No direct elections yet for key regional
Regional committees to decide on
‘national sectors’ (steel, ports, mining
industry) prelude to their regionalization
1987: early elections and coalition
negotiations for 147 days led by
Dehaene (‘The Plumber’ or ‘Mr. Fix-it’) –
more competencies, finance law,
Brussels and direct election regional
parliaments envisaged
16 January 1989 Special Finance law
(amended in 1992 and 2001)
Transfer 40% national budget to Regions and Communities
SFL: hints at need for supermajorities, justified by government
due to need for broad consensus between language
communities (‘Bundestreue’)
‘as in other federal states, need to match ‘financial responsibility
and reversible solidarity’ (parliamentary debates)
 Regional distribution keys main revenue sources amended (more
on the basis of ‘juste retour’) but transition period of 10 years
 National solidarity payment for Regions with below average per
capita personal income tax receipts, adjusted annually to reflect
changes in consumption price index.
 Bulk of funding still block grants, but transfer federal PTI and VAT
receipts, adjusted annually to reflect changes in national
economic growth
The unfinished business of the 1988
reform… 1992
Still no direct elections regional parliaments (except
for Brussels)
Reason: reluctance 1989, monarch, those who opposed
reform two chamber system delays and early fall
In the meantime, financial difficulties French Community…
Compromise: transfers French Community in transition
period 89-99 accelerated, but overall amount not changed.
– bill presented around 1999. In exchange, ‘third phase’ of
1988 compromise implemented
Points at wider problem since 1992
Francophone parties no longer demand more competencies (in 1992 and 2001)
but primarily more money; attitude PS very different in state reforms 1970s1980s
‘Waffle iron politics’: Flemish Community receives more money than is
necessary but French Community needs it to avoid default.
Federal government paymaster:
CEO Agfa-Gevaert Andre Leysen:
‘one has not only undressed the federal government, now one has also turned off the
heat’ (in Falter, 1994:74)
Budget surpluses Flemish government feed calls for increased self-rule (we do
not want more money, we want more competencies! – policy ownership)
2001 reform exacerbates this tendency:
federal government agrees to transfer extra € 200 million as of 2002 to fund
Communities and progressively increases this amount to € 1 billion by 2012; Flemish
obtain more control over some taxes transferred to the Regions, but not budget neutral
operation; furthermore agriculture, foreign trade, (development aid) and control over
sub-regional government (municipalities and communities) ceded to the Regions.
Yves Leterme: everything revolves around money: ‘maxi Flemish money for mini
Flemish competencies’
Phillippe Moureaux (PS) ‘Nous n’avons plus de raisons d’etre demandeur’ echoed in
2007 Joelle Milquest (PSC) ‘Nous sommes demandeur de rien’ (nicknamed Madame
Non in Flemish press)
New dynamics since 2009: federal
budgetary situation worsened (and debt)
But also that of the regions, including
Flemish Region…
Flanders from surplus to deficit: approx. € 1 billion in 2009,
estimated € 500 billion in 2010 + no longer debt-free!
Wallonia (2010 budget deficit): 6.340 million receipts versus
7.122 expenditures
Brussels expected deficit ca € 350 million
Changes dynamics of negotiations:
 More competencies and finance now primarily seen as a means
to safeguard own ‘Flemish’ iso ‘Belgian welfare’
 Or (SPA/ to some extent CDV) reforming federalism in such a
way as to make the federal governmental smaller but more
efficient (strengthen its fiscal base) + increase incentives for
Regions to be more efficient, for instance through more fiscal
autonomy and especially (regionalization) labour market policy
Where are we now
NVA agrees that regionalization social security is unacceptable for 5.5
of the parties
(important, because BY FAR the most important redistributive tool – see text)
Therefore increased emphasis on
Amending the SFL: increase input regions in personal income tax (‘split rate’)
but retain overall (federal) progressivity of income tax scales?
Revise solidarity component of SFL
‘Development Trap’ (Cattoir and Verdonck/ Deschamps When a region
improves its economic performance, the decrease in revenues generated by the
equalization mechanism is more important than the increase in revenues related to
a larger share of PIT grants
Horizontal externalities: economic performance of one region influences PIT grants
of the other regions…
Diplomatic and technocratic approach Van De Lanotte (4 stage
Each party makes proposal
NBB/Planning Commission/six academic economists (3 FL-3FR):
anonymous peer review!!! + economic simulations
Compromise proposal (since yesterday)
Bilateral negotiations per language group as of today with VDL as mediator
Three issues
1) Paul De Grauwe: In the end, the question
is… how much solidarity do we still want?
2) Brussels? (finance, borders, Communities)
3) SFL and competencies only first part
Package deal, also deal needed on BHV +
Austerity package federal government
Cantillon, 2010: 50; the cartogrophy of Belgian social security

The Politics of Territorial Finance in Belgium