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Purchasing power for those in work has increased for those in work, but not for pensioners

According to figures contained in a study by economists from the Catholic University of Leuven (KUL), those that are in work or have started work have seen their purchasing power rise considerably over the past five years. However, pensioners and the long-term unemployment have seen little improvement to their purchasing power, while those on the lowest pensions have seen their purchasing power fall slightly since the current Federal Government took office in October 2014.  

Last year the economists André Decoster and Toon Vanheukelom looked at how Federal Government policy had impacted people in various income groups, from the poorest 10% to the richest 10%. They looked at a representative sample of 6,000 Belgian families from the annual European income survey.

On the one hand, people have more cash in their pockets thanks to the tax shift and increases to benefit payments. However, the decision to reverse the temporary reduction in VAT on electricity that was brought in by the previous government, higher duty on diesel, alcoholic drinks and tobacco and the failure to increase child benefit in line with inflation have meant that people have also lost out and some have lost out more than others.         

The study shows that the upper middle class has benefited the most from the policies of Charles Michel’s Federal Government, while the lowest income groups are hardly better off at all. In last year’s study by André Decoster and Toon Vanheukelom no distinction was made between those in work, job-seekers and pensioners. Now the Leuven economists have re-worked their study to provide extra information on the financial well-being of pensioners and the unemployed for VRT News.  

If we look at the income of families as a whole, rather than the income of individual family members we see that above all upper middle class families have benefited the most financially. Those in this group are among the higher earners. Furthermore, couples that are both in work reap twice the benefit from the tax shift.     

The short-term unemployed (less than 1 year on the dole) also have seen their purchasing power increase considerably (+4.5%) over the past 5 years. Furthermore, as soon as they find work they are paying less tax than they would have done 5 years ago thanks to the tax shift.       

Little change for pensioners and long-term jobless

Those that are unemployed for more than a year and pensioners have seen little change in their purchasing power. Purchasing power for long-term unemployed has increased by 0.8%, while pensioners have 0.2% more purchasing power than was the case 5 years ago. Those on low pensions have even seen their purchasing power regress since the Michel government took office.   

Although the government has increased benefits the effect of the decision to raise the level of VAT on electricity back to 21% and the increase in excise duty have meant that those on pensions and benefits have seen little improvement and in some cases even a deterioration in their financial situation.

Regional governments’ measures also have an impact

In addition to the measures taken by the Federal Government, measures taken by the regional governments also have an impact on purchasing power.

For example, the abolition of a free electricity and water allowance and the increase in fares on public transport in Flanders effected pensioners, those on benefits and those on low wages the most as they spend a greater proportion of their (relatively low) income on utilities and public transport.

Conversely measures taken in the Brussel-Capital Region, such as the abolition of the 89 euro/year/household regional tax will have proportionally increased the purchasing power of those on the lowest incomes the most.

The Leuven economists conclude that while purchasing power has increased under the current Federal Government the benefits have been unevenly shared.  Those on higher incomes seen their purchasing power increase the most while those on low incomes have seen the smallest increase in purchasing power.  

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