Gillet, Roland. "La taxe sur les plus-values pénalise les gens audacieux." Interview par Marc Lambrechts, L'Echo, 7 février 2025. English Version.
“The Capital Gains Tax Penalizes the Bold” Roland Gillet
Roland Gillet, professor of financial economics at La Sorbonne in Paris and ULB (Solvay), and an advisor to various public and private authorities, laments the introduction of a measure that disadvantages risk-takers.
What are the implications of this 10% capital gains tax on stocks and its potential effects ?
This tax adds yet another layer to the existing 30% withholding tax on stocks and the tax on securities accounts. This is quite extensive, especially at a time when efforts are being made to mobilize savings to revive the economy. The state bond introduced by Minister Van Peteghem has already created a crowding-out effect, pulling funds from savers at the expense of risk capital. By imposing taxes on capital gains on stocks—a form of risk capital—we exacerbate this crowding-out effect even further. It is this risk capital that enables the economy to grow boldly and sustainably without excessive reliance on debt, which can lead to adverse effects during economic downturns.
The tax has two components: one for those holding more than 20% of a company's capital and another for individuals, which includes a €10,000 exemption.
Yes, however this €10,000 limit can be reached quite quickly. The only positive aspect is that taxpayers will be able to deduct capital losses, but the implementation details remain uncertain. The devil is in the details.
It is the taxpayer who will apparently have to report the capital losses...
In the United States, the system operates symmetrically, taxing capital gains while allowing deductions for losses. When markets decline, investors realize their losses at year-end for deduction purposes. One clear point regarding this capital gains tax is that it will not have a retroactive effect; it will be based not on the historical purchase price but on the price at which the tax is introduced. In essence, even if shares were purchased at €20 a few years ago and are currently valued at €100, the capital gain will be assessed at the time the measure takes effect, not on the initial purchase price. This is particularly concerning in light of current market conditions following recent growth.
However, I must stress that this tax sends a negative signal when the aim is to stimulate economic activity and reward bold and courageous individuals. It penalizes middle-class individuals who have founded their companies and have worked for 10 to 15 years, witnessing the disappearance of tax incentives and rising taxes in consequence. It affects those who save and prudently diversify their assets by investing in stocks, placing their resources at the service of the real economy while assuming the associated risks. If the companies they invest in fail, they lose their money, yet if they continue to grow and maintain their sustainability, they face even higher taxes. Notably, taxation is already high in Belgium, which includes a corporate tax rate of at least 25%, a 30% withholding tax, this new capital gains tax, in addition to the tax on securities accounts.
The securities tax, currently set at 0.15% for assets exceeding one million euros, has not been increased.
Most people do not understand that this 0.15% is an annual levy on financial assets, regardless of their profitability. It affects capital regardless of its performance; even if an individual's capital diminishes due to market downturns but remains above one million, they still pay tax while incurring losses. This wealth tax compounds the existing tax burdens, making it increasingly taxing for individuals.
Once the capital gains tax is implemented, will future governments not seize the chance to raise it ?
Indeed, the door will be open. Future governments could argue that the 10% rate is relatively low compared to other countries, and without considering all other taxes imposed on risk capital in Belgium, they may be tempted to double or triple this rate. Such actions would essentially cripple risk capital. In reality, this capital gains tax creates a sort of reversed Cooreman-De Clercq effect (a fiscal mechanism established in the early 1980s aimed at stimulating venture capital). This is particularly unfortunate in a world rife with uncertainties, where we seek to revive the dynamic of sustainable and job-creating investments.
The government may counter that it will bring in revenue for the state...
We will have to see how much it actually generates. If this tax stifles initiative, it will adversely impact state revenues. What should be measured are all the potential investments that would occur in the absence of this fiscal increase—investments that might not happen or could take place elsewhere. We have observed similar effects with the American Inflation Reduction Act (IRA), which attracted investments from both Belgium and across Europe. Measures like this capital gains tax that impede or dissuade risk-taking individuals from investing here are regrettable.
Isn’t it paradoxical that a right-leaning government would implement such a measure ?
I think this is somewhat the price to pay for finally having a government following the election outcomes and possible coalition pressures amid increasingly evident European pressure. It was crucial to establish a fully functional government to achieve a budgetary convergence plan over a maximum of seven years.
We can regret that more structural savings, albeit unpopular, could not be decided on the expenditure side. On the revenue side, for instance, there has been no adjustment to the VAT. I believe a VAT increase on luxury goods from 21% to 22% could have been a viable option, as I have suggested in the past. The impact on inflation would be relatively marginal. Furthermore, at the time, we had solicited major luxury brands that were even willing, in their advertising slogans, to offer this additional 1% VAT to their customers.
However, in Belgium, this remains a taboo: VAT increases are not considered, even for luxury products. Yet, a 1% increase is minimal and would affect only a portion of the population. It would constitute a significant structural measure, as required by Europe in establishing our budgetary convergence plan. This might have helped avoid the implementation of an additional tax on risk capital, which has uncertain expected returns and undermines the sentiment of support for investment in our businesses.
In summary, the ongoing taxation of capital gains penalizes those who are willing to take risks. It is essential to consider the broader implications of such measures on economic growth and the incentives for individuals to invest in the future. Such a tax sends a negative signal to those who have already faced increasing tax burdens and diminishing tax incentives over the years. Therefore, these developments could stifle initiative and further hinder the dynamism needed for sustainable economic growth and job creation.
Find the interview with Roland Gillet on the L'Echo website
Or download it here (original version)