“No, but I am very happy that so many Belgians have done that,” Prime Minister Alexander De Croo (Open VLD) said in an interview in this newspaper last year. Unlike the more than 600,000 Belgians, the Prime Minister did not sign up for the government voucher. “I can only be happy when ministers realize successful projects,” he also sounded sporting, after it emerged that Finance Minister Vincent Van Peteghem was being marketed by CD&V as a ‘hero’ of saving Belgians.
But with the elections around the corner and a direct electoral battle between De Croo and Van Peteghem in East Flanders, it is not very attractive for Open VLD to let Van Peteghem score again with the issuance of a tax-friendly government voucher. The latter could only be satisfied when the Debt Agency announced at the end of last year that it would like to raise 13.5 billion euros for the refinancing of the national debt in 2024 with a one-year government bond. It also plans to refinance 45 billion euros of long-term government debt.
State voucher in June?
Van Peteghem therefore proposes to issue a government bond in March with a ceiling of 6 billion euros and possibly a second one in June – in the election month – with a similar ceiling. Until then, the law allows a government bond to be issued with a withholding tax of 15 percent instead of 30 percent on the interest. According to Van Peteghem’s cabinet, this tax benefit is necessary to reach the 13.5 billion.
Open VLD disagrees. The party points out that it is now cheaper to borrow in the long term than in the short term, and that the treasury would lose income by issuing another issue at a reduced withholding tax.
On Sunday evening, CD&V distributed a note from the Debt Agency among the members of the government core in which it clearly states that it is not advisable to refinance more than 45 billion euros in the long term this year. “Belgium, together with France and Italy, would achieve the third most negative budget balance in the eurozone in 2024,” reads the note that our sister newspaper De Standaard was able to view. “It would be very unwise to draw the attention of the financial markets to this fact by suddenly providing more long-term issuance in the 2024 financing plan.”
Open VLD reads in a note from the National Bank that an issue of 13.5 billion euros does not in itself endanger the stability of the banks, but that it is best spread and “it is preferable that not the entire amount will be collected before the maturity date of the government bond issued in September 2023”. So for Open VLD, a new one-year government bond is best issued in September or December, after the elections. CD&V says that this demand will be met by placing a ceiling of 6 billion euros on issuance in March, while the Debt Agency would like to raise as much as possible as quickly as possible.
Impact on budget
The Debt Agency points out in an internal note that the lower withholding tax was crucial for the success of the previous government bond. That note shows that the net return on a new issue at a withholding tax of 30 percent would amount to a maximum of 2 percent, while with a reduced withholding tax the saver would achieve a net return of 2.34 to 2.42 percent. The precise amount of interest is always determined just before issuance. For comparison, the net return on the government bond in September last year was 2.81 percent.
The last word has not yet been said about the impact on the budget. The Debt Agency once again considers it likely that the majority of tax-free money will flow from savings accounts to taxed government bonds. Open VLD fears that money from term deposit accounts – subject to 30 percent withholding tax – will flow to the lower-taxed government bond. According to the Debt Agency, to refinance debts in the short term, it is much cheaper to do so via a government bond instead of treasury certificates that mainly go to institutional investors. A government bond has a positive budgetary impact of 54 million euros.
Other coalition partners are also not immediately eager for a quick new issuance of the government bond. “Why is that necessary and why now?”, say the Greens. Green vDeputy Prime Minister Petra De Sutter will also compete with Van Peteghem and De Croo in East Flanders in June. The same applies to Vooruit faction leader Joris Vandenbroucke, who is also the party’s financial expert. “The previous government bond has proven that it did not encourage the banks to structurally increase the interest on savings accounts,” he says. “We are neither fervently in favor nor fervently opposed.”
“Why now?”
There is little chance that the decision will be made this week, because there are no core meetings planned for this holiday week.
