White smoke on financing law

The seven parties negotiating a new package of state reforms have reached agreement on the broad outlines of a new financing law. The law sets out the mechanisms under which Belgium's devolved authorities receive their funding.

A deal on the financing law was a prerequisite for the Flemish nationalist party, N-VA, to continue the negotiations. The deal was struck on Tuesday evening.

During the forthcoming government formation talks experts will draw up the detail of the new financing law.

The negotiators have agreed to a significant increase in the amount of cash that the “federated entities", i.e. the regions and the communities, will be able to raise. This being said, the regions will have to avoid competing against each other fiscally and won't be able to offer fiscally advantageous arrangements aimed at getting businesses to switch from one region to another.

The parties have rejected any thought of a flat tax: the greater your income, the more tax you will continue to pay in Belgium.

The new financing law will also have to prevent any structural impoverishment of the regions, though when the economy goes through a bad patch income will fall.

The negotiators also agreed to punish poor management. Regions that maintain sound finances will be rewarded financially, but sanctions will be imposed on poor financial management.

The deal also contains a commitment in favour of the federal state: the federal state must remain viable for the long term and part of personal taxation will continue to be reserved for federal expenditure.

The negotiators have also been keen to retain solidarity between the various parts of Belgium. There is a guarantee that the social security system will receive sufficient funding, but the so called "perverse effects" of the present mechanism will be dealt with.

In future the regions and communities will become more financially responsible for the policies that they pursue, but factors like CO2 emissions, tax revenue and employment levels will all be taken into account. Population numbers and the number of children will also impact on community funding for education.

The deal also includes greater financial recognition for Brussels as the capital of Belgium. Account will be taken of the "specific situation of the Brussels Capital Region".

Financial stability too must be guaranteed to take account of the European Stability Pact. This means that the budgets of the federal state and the devolved entities must be in balance.

The reform of the financing law should not endanger financial stability. Simulations of the mechanisms of the new law will be used to ensure there are no unwelcome surprises and that the legislation will not again have to be changed in a couple of years.

Commentators suggest that this framework is a balanced one that takes account of the aspirations of Flemings and French-speakers, but also note that it is a pretty vague document without any figures. It will now be up to a group of technical experts to fill in the detail.

"I'm not taking this any longer!"

The deal on the financing law has led to optimism that full agreement is now in site. On Wednesday morning negotiators reconvened to consider proposals for the splitting of the Brussels Halle Vilvoorde constituency (BHV) and the future of Brussels.

After Tuesday's deal on the financing law there was a stormy session on BHV and Brussels. Joëlle Milquet was the only party leader who stayed on while technical experts pursued their search for a solution.

Ms Milquet was reportedly "extremely tense". Together with the delegations of the other Francophone parties she left the meeting early and doors were slammed.

One Francophone negotiator referring to the position of all the Flemish parties is quoted as saying: "We hit a wall". Ms Milquet reportedly added: "This is intolerable. I'm not taking this any longer."