The independent Flemish news site dewereldmorgen.be’s latest in its series of Left-Right debates was on the cost of labour, with one representative from the employer side and one from the labour side: Karel Van Eetvelt of Unizo, the Flemish organisation representing the self-employed, and Marijke Persoone, head of the Flemish white-collar union LBC.

The two-hour debate last month in Antwerp’s Bourlaschouwburg ranged over many subjects, including government austerity and energy costs. Questions were posed by television journalist Dirk Barrez. Here’s how the debate looked on the matter of wage costs.

Dirk Barrez: Calls for economising have come from some politicians and economists, and from the European Union, and this puts pressure on the Belgian model of free and open negotiation between the social partners – the unions and the representatives of employers. How important an issue is the cost of labour?
Karel Van Eetvelt: I think you can say that people here are reasonably well compensated for the work they provide. The question is if we understand what is included in what we think of as pay costs. Pay in this country consists of several different parts: a net part, the disposable income that is fed into the domestic economy; another part that we can regard as a postponed income, to ensure you have insurance for times when you cannot work or for retirement, but also through different forms of unemployment, and that also includes health insurance. Then, finally, there’s a part of the pay that goes towards the financing of that system.

We could discuss relative shares, but my view is that the balance in Belgium in the last few years has been pulled out of shape. The difference between the situations where you can make your own decisions and the rest has become too great. The part you get to decide about for yourself is just a fraction – one-third to a half in the case of low pay, right down to a quarter of higher salaries. You have to ask yourself if the population is so badly educated that it’s only capable of looking after that fraction of their pay.

So the difference between the costs of labour and what the worker can control is too large. How do we deal with wage cost competition from neighbour countries?
Marijke Persoone: That’s obviously a problem. If you look at Germany, real wages have gone down there by 4.5%. Germany is the largest economy in Europe; it sets the tone, and it decides the policy for other member states – a policy of wage limits and tough cuts. It works out well for them because Germany is an export country. If other countries want to have a strong economy with trade surpluses, then they have to adopt that sort of wage policy. Then we find pressure from Europe for things like working longer, limiting the length of unemployment benefits, scrapping bridging pensions, getting rid of automatic indexation.

A country likes ours is being punished because, according to the six rules from Europe, we’re not on the right track. The member states say Europe is demanding it, and Europe says it’s the financial markets that are demanding it. We’ve created the most undemocratic situation, where our tradition of open wage bargaining risks being completely hollowed out.

A policy of wage restraint leads to a reduction in purchasing power, and the purchasing power of one is the income of the other. So you fall into a negative spiral. According to a report by the International Labour Organisation, the fundamental cause of the crisis is the policy of wage restraint followed over the last two or three decades, because it removes the stimulus to the economy. How do you regard that?
MP: I think that’s correct. If you look at the US, they saw an enormous increase in productivity – about 80% between the 1980s and now – but at the same time wages went up by only 7%. On one hand, you get a huge mountain of capital, which could be used to invest in the economy, but on the other hand that’s capital that can also be used for speculation. Wages don’t follow that same progression, and consumption can’t keep up with production.

They tried to solve it by bringing about a credit economy, and that lasted until the bubble burst. Then you get a shift from private debt to public debt because the government rushed to the aid of the banks, government debt increased, and then we pay for the second time. The wage restraint policy has had a very deleterious effect on the whole process. The purchasing power of the working population goes into retreat, economic activity begins to shrink, and that’s when you find yourself very quickly falling into that negative spiral we were talking about.

Authorities estimate about €3 billion in tax goes unpaid every year. With the power to claim unpaid tax seven years into the past, that comes to €210 billion. Isn’t [going after ] that a legitimate alternative to spending cuts?
KVE: It’s not the case that the majority of businesses don’t pay tax. What businesses want is to get something back for the tax they pay. I’m a supporter of strong social security because that gives something back. It brings stability, and that’s to the benefit of business. But there’s no balance right now in the tax pressure on small and large businesses. If you look at small family businesses and large multinationals, you see a difference of 10 to 15 percentage points. That’s a lot, and we’re in favour of creating more of a balance. But we also have to recognise that multinationals operate globally and avoid hitting them too hard because then they’re going to walk away, and you’ll lose a great deal of jobs and income. The trick is to take measures that go far enough to be effective, but not so far as to drive those companies away.

MP: We always hear how you can’t tax the companies too much or they’ll walk away. The problem workers have is they can’t walk away, and the tax-man knows what your income is down to the last cent. The figures are very clear: Companies active in Belgium in 2009 made €94 billion in profit and paid an average of 11.8% in company tax. The theoretical rate is 33.99%. There can’t be many companies that pay that full rate. But if you look at the average tax paid by an employee, that’s around 25%. Imagine if companies were to pay double what they now do – that would bring in exactly €11 billion a year. I think you’ll find that’s just the sum that [Elio] Di Rupo is looking for right at this minute. I’m getting tired of hearing how there shouldn’t be any taboos when it comes to indexation or social security or working longer; it’s a different story if questions turn to even the most limited wealth tax, or the taxes companies pay.

Watch the entire debate online: www.tinyurl.com/waardevanarbeid