VZCZCXYZ0001
RR RUEHWEB

DE RUEHBS #0941/01 0811521
ZNR UUUUU ZZH
R 221521Z MAR 07
FM AMEMBASSY BRUSSELS
TO RUEHC/SECSTATE WASHDC 4775
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC

UNCLAS BRUSSELS 000941 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR OES/ENV, EB/OGE AND EUR/UBI 
USDOC FOR 4212/OECA/JLEVINE 
TREASURY FOR OASIA/ICN - Atukorala 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EAIR SENV KCRM BE
SUBJECT: Last Belgian Budget Check Before Elections - Much 
Ado About Nothing 
 
Ref: (A) 06 BRUSSELS 3715  (B) BRUSSELS 843 
 
¶1. (U) Summary.  The much-heralded special Council of 
Ministers retreat in Leuven yielded little more than a 
cursory budget scrubbing and a few symbolic initiatives 
designed to garner votes in the June 10 elections.  The 
earlier-agreed "green" revenue enhancement measure to tax 
packaging was downgraded to a tax on plastic bags and 
single-use food containers, and the 320 million Euro 
projected hole in the budget is to be filled by a litany of 
other environmentally-oriented taxes and more aggressive 
anti-fraud measures.  Tax breaks for patents, 
environmentally friendly cars and kitchen goods, as well as 
a small increase in state subsidy for single parents, were 
offered.  Tighter controls and enforcement were promised on 
money laundering and gambling.  The budget also contains 
funding for Belairbus, the consortium of Belgian 
subcontractors to Airbus.  End Summary. 
 
¶2. (U) Despite high Belgian public and press anticipation, 
a three-day special Council of Ministers retreat in Leuven 
fell short of expectations.  The main result was to 
engineer the seventh budget surplus in a row for the 
Verhofstadt government.  While the Belgian National Bank 
has predicted a higher budget surplus figure, the 
government based its actions on a conservative estimate of 
2.2 percent GDP growth. 
 
-------------------------------- 
Recovering packaging tax revenue 
-------------------------------- 
¶3. (U) The 2007 budget proposed last Fall anticipated 
implementation of a packaging tax scheme that would have 
heavily taxed packaging materials according to their 
environmental cost to produce, beginning in July 2007 
(after the elections).  It was expected to produce 320 
million Euros in revenue, but was judged unworkably complex 
by the Finance Ministry.  In order to close this revenue 
gap, the Council of Ministers agreed in Leuven on a series 
of taxes on other disposable goods.  These taxes, to be 
implemented in April 2007, include taxes of 3 Euros per 
kilo on plastic bags, 2.7 Euros per kilo on plastic foil, 
4.5 Euros per kilo on household aluminum foil, and 3.6 
Euros per kilo on disposable plates and cutlery.  Together, 
these "green taxes" are expected to garner 67 million Euros 
of revenue.  Cars will also be taxed at the time of 
purchase, both as company cars and privately owned, 
according to their CO2 emissions, with diesel cars taxes at 
the highest rate.  This car tax is expected to generate 65 
million Euros for the 2007 budget. 
 
¶4. (U) Additional resources to keep the budget out of the 
red are to be found by fighting fiscal fraud, according to 
the Finance Ministry tax department.  These include 37 
million Euros to be gained from anti-money-laundering 
operations, 30 million from cracking down on gambling and 
gaming activities in Belgium, 10 million from debt 
collection, 10 million from tighter controls on management 
agencies that forward taxes owed by clients, 11 million 
from new regulations such as a French-Belgian cross-border 
workers accord, and 7 million from other tax and social 
program fraud-fighting measures.  In sum, 105 million Euros 
are expected from this anti-fraud program. 
 
---------------------------------------- 
Help to Airbus contractors, families, and inventors 
---------------------------------------- 
¶5. (U) Having assured itself of the needed revenue, the 
coalition government yielded to some vote-attracting 
symbolic spending, under particular pressure from Socialist 
members of the governing coalition.  The Leuven Ministers' 
meeting passed numerous increases in social spending that 
benefit single parent households as well as those in 
poverty seeking legal assistance.  Single parent families 
will receive a 20 Euro a month per child supplement 
payment, which will benefit 62,000 children.  There will 
also be an increase of paid maternity leave for unwed 
mothers.  To create urgently needed social housing 
facilities, the Ministers allocated an additional two 
million Euros. 
 
¶6. (U) Allocations were also made for Economic Minister 
Marc Verwilghen to invest in nuclear fusion research 
(Belgium's contribution to the ITER project), and 150 
million Euros to fund support for Belgian suppliers to the 
Airbus A350 XWB development (Ref b).  Ministers also agreed 
 
to reduce taxes on royalties paid on patents obtained in 
Belgium, lowering them from 34 percent to 6.8 percent, a 
move to stimulate investment in research and technology 
innovation in the country. 
 
------------------------ 
Elections on the Horizon 
------------------------ 
¶7. (SBU) The Leuven conclave took place against an 
unavoidable backdrop ? the upcoming June 10 elections. 
With the elections in mind, the coalition had two major 
goals: not imposing any obvious taxes in the immediate run 
up to voting day, and finding a way to bathe their "purple" 
coalition in green, burnishing its environmental 
credentials to draw green voters.  In addition, the Prime 
Minister wanted to demonstrate that the Liberal and 
Socialist members of his team were continuing to work 
together, thereby showing that they could do so if re- 
elected to another term.  The immediate press comment on 
the gathering suggests he was only moderately successful. 
Since the meeting took place, Vice Prime Minister and 
Finance Minister Reynders, a francophone Liberal, has gone 
out of his way to deny plans to raise new revenue, while 
his Socialist counterpart, Vice Prime Minister and Justice 
Minister Onkelinx, has publicly taken a shot at the Prime 
Minister for being too much the advocate during cabinet 
discussions, and too little the neutral chairman.  With his 
Flemish Liberal Party (VLD) at its lowest ebb (16 percent) 
since he was chosen as Prime Minister for a second term in 
2003, Verhofstadt is in for a difficult election campaign. 
 
IMBRIE