Our government wants us to invest more!

Last week, the Belgian government announced proudly that they will activate the savings of people so it can be invested in the real economy. Great! We need more decisions like that.

No tax on dividends

As a first action, they decided to give investors a tax relief on the first 627€ of dividend that we get. That is is nice gift! Or maybe not?

Well, the tax on dividends used to be 15%, it is now at 30%. That means that the tax doubled. And ironically,  the same government that now grants us 188€ (30% on 627€), just raised the tax from 25% to 27% pct in  2016 and then raised it to 30% in 2017. That is an increase of the tax with 20%. Do they start to feel sorry for us and now give some sweet to keep us calm?

It will not change my personal view on dividend investing. Dividends will remain a side effect of my investment style. The extra 188€ is nothing more than a drop in the ocean of tax on dividends.

Increased pension saving

As part of the effort to have more investments, the yearly tax advantage amount will go from 940€/year to 1200€/year. You read it correctly: that is how much we can invest per year in our pension, and it is after tax money. You understand now why I love the 401(k) that much? Any increase is welcome. So, thank you! Oh wait, there is some small print at the bottom.

The 940€ gives a tax refund of 30%  or 282€. The 1200€ only a tax refund of 25% or 300€. To me, that is giving and taking at the same time. It is nice that I can invest more in my pension. Sadly, this is only in mutual funds, no self directed accounts. And my tax advantages does not increase in a significant way. I get to save a little more…  Doubtful gift.

Combine this with a tax rule from a few years back: we need to pay now tax on the future proceeds of our pension saving: 1% per year. Tax now to get money now. In fact, the government borrowed from the government in 2043 – the year that I am supposed to pay that tax. The 2043 government will get less money… Guess what they will do to cover up that hole…?!?

I will not start to save up to 1200€/year now. There is just a lack of stability here. And why block my money till 2043 when that leaves still 26 years opportunity to tax me.

The tax on assets

An unpleasant surprise: a tax of 0,15% on assets on an brokerage account above 500 000€. Below that you pay nothing, you go to 500 001 and bam… you pay the 0,15 on the full amount. Right now, I am not impacted…

To me, that encourages people to invest only 499 999€ on a brokerage account and sell when your assets go up. Well done politicians.

My crystal ball is broken,however, recent history (tax on dividends anyone) learns us that the 0,15% will increase faster than the banks can adjust their systems and the 500 000€ is likely to come down or not adjusted for inflation.

Or is this a gift to the wealthy people that can invest massively in real estate and private equity. That way, you can avoid the tax.

Things that became visible later

… and the transaction tax goes up. for each buy and sell, we used to pay 0,27%. This is now 0,35% If all my investments would have a yearly increase of 30%, then I would be already FIRE now! Sadly, it are the taxes that go up that fast. Encourage me to invest… Hard to believe.

… and taxes on funds go up as well

Conclusion

The question to ask: when is too much, too much? How often can you disguise a tax increase on investing as a tax advantage. The government – liberal in the majority – has increased taxes on investing a lot since they joined the party. And yet, they leave a lot of room for the ultra rich to pay no taxes.

It is also very likely that some taxes will yield less than foreseen as people will adjust their behaviour. This is known as the Laffer curve. It happened last year with the speculation tax, it is ongoing under the hood with dividends, will these rules create a shift of assets outside a brokerage account and result in less transaction?

 

 

Advertisements

29 thoughts on “Our government wants us to invest more!

  1. It’s similar in Italy, we have a huge set of taxes that are killing the average investor… As you correctly pointed out, if you are invested in real estate you actually get less taxes, especially if you are creative with company setting (many people here open a company in Bulgaria and invest in Italy)… The feeling is that it’s only going to get worse I have very little faith in the political environment at the moment… 😦

    Like

  2. This taxation situation is indeed starting to look worse and worse. The problem is that not enough people are complaining yet. Time to move indeed!

    Like

    1. Most people are not affected.or do not even know that they are affected. In Belgium, a minority invests and is truly affected. And a lot of people consider 500 000€ per person in brokerage accounts a far away dream… So, they do not care. I care in a few years…!

      Like

  3. It’s looking more and more like the situation we have in The Netherlands. 😉 Not a big fan of this kind of ‘improvements’ to the tax system…

    Like

    1. Easy money, not this generations politicians problem. They should get part of their reward based on the long term effect of decisions… Too bad a country does not trad on the exchange (well, given the debt levels, would be penny stocks eitherway 😉 )

      Like

  4. They can never tax the ultra rich because with all their money they can always find a way to avoid taxes and ultimately they can just walk away. They can not tax the poor because, well, they do not have a lot of money. Take the little they have and you face revolt.
    Which leaves the guys in the middle to pay for everything. The government just forgot a small thing … I am going to do a post about it otherwise I am hogging your comments …

    Like

  5. USA are broke too and taxing around to fill the gaps. The world is driven by debt and looking to survive. A challenging environment for wealthbuilding.

    Like

  6. Real estate gives a return of 3 to 4 % yearly and you have a lot of problems/paperwork/… etc. Not my favourite cup of tea…although I know some people are huge fan of this kind of investments. What other options do we have? I have the feeling that once I reach 499.999 euro there will be a solution. Art, oldtimers, wine,….??

    Like

    1. Wine is a risk… You could drink it all! I do think that solutions will emerge. Right now, it is only taxed when it can be valued (solution: it is on a brokerage account). I expect some non brokerage account solutions to emerge. Question is: as from what amount? And I might be happy going forward having some tak21. For now, excluded…

      Like

  7. I like the free 188 euro on the precious dividends. That will be a nice boost next year! Only problem will be in a couple of years when the account exceeds 500,000 euro. Will find a solution 😉

    Like

  8. Overall I’m not too happy with the new fiscal measures, I really get the feeling here that CD&V bulldozed over NVA and Open VLD. More taxes on investments and a commitment to a plan for a taxpayer-funded compensation for Arco investors in exchange for lower corporate taxes (which aren’t even as great as they appear at first sight).
    The only silver lining is the tax relief for dividend investors. There’s no final text yet but I believe this will be per person so a couple should be able to reclaim 376.20EUR per year.
    The same applies to the tax on stock portfolios, for a couple there’s no tax until 1 million EUR.

    Like

    1. It is indeed nice that it is on a per couple basis. On million per household combined with some investing outside brokerage accounts could lead to FI. My worry is that the threshold will be lowered and the tax rate increased. That being said, it becomes hard to select a party to vote in.

      Liked by 1 person

  9. Interesting. Our government is doing something similar. Right now, we have a special account called zero where the taxes on the dividends are postponed until we take money out of the account. This is great, because it boost the compounding effect a lot.

    However, the government is now trying to create a new account with not so unfamiliar terms as yours, and the goal here is also to increase investments. But they also want to close the zero account, which is very negative for a dgi as me.

    I really can´t understand why they need to do cons and pros at the same time. Just let people invest and create wealth and progress.

    Like

    1. TO me, it is about symbols. Some parties in Belgium can now tell their voters: the rich pay taxes on their wealth (we all know they will find ways out) and the others will say: no tax on a part of dividends (after they increased the tax)

      Liked by 1 person

  10. What a bummer, not being able to move a couple of kilometers south to avoid wealth tax anymore…
    Anyway, high savings rates in combination with investing will still do the job to get you FIREd, although slightly slower

    Like

  11. Just like When Do You Retire I like the dividend incentive, though, it doesn’t compensate the other measures the government is taking. The 500k is set per head of the family if I’m not mistaken. This means having a partner can be quite the benefit. Personally, I see this as just a bump in the road. This only encourages me to combine my investments in both the stock market, real estate and other opportunities down the road. Afterwards, other adventures await, not in Belgium…

    Like

  12. Wow. Give with one hand and take with the other. I suppose the taxes have to be raised from somewhere to pay for the awesome services that European governments provide, but there’s a price.

    Mr DDU

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s