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?