Opinion: Check subsidies better, faster and in advance



This post is an excerpt from Erik's column in financial newspaper De Tijd. Find the full dutch version here.

 

The payment of subsidies is susceptible to fraud and inefficiencies.


Almost one euro in every seven that the Flemish government spends is a subsidy. Whether that money is being used correctly is checked too little and too late. The same applies to federal, Walloon and European subsidies. This is especially true in times of major economic challenges, where every euro is significant.

  • The issue: Grants are distributed without control and follow-up.

  • The proposal: Pre-check the efficiency of grants through blockchain technology. That strengthens the credibility of the system

However, systems do exist to improve control over the use of subsidies, but our governments still face enormous challenges. The flood of money that has been poured out on our country to rectify the consequences of the pandemic has not even been absorbed, now billions have to be invested again in strengthening defence, the switch to more energy independence and dealing with the consequences of climate change.


Then there are the structural problems that this country has been struggling with for decades: substandard public transport, a huge shortage of social housing, endless waiting lists in healthcare. The list is almost endless.


Nowhere in the world does so much money disappear to the tax authorities as in Belgium. You can expect two things from a country that takes so much money out of the pockets of its working class. One: that it better addresses the challenges described above. And two: that it handles resources with due care.


Take subsidies paid out as an example. The Flemish government alone paid out 7.2 billion euros in subsidies to companies and associations last year. Not including the corona support, this is an increase of 5 percent compared to 2020.


"The technology already exists to check the conditions for the subsidy and the correct spending both in advance and in real time."


That in itself is not bad news: subsidies are a way to adapt and improve society. But things often go wrong. The non-profit associations of MP Sihame El Kaouakibi received 1.3 million euros in subsidies over the years, which were subsequently - it seems, the investigation is still ongoing - partly used fraudulently. In response to that case, Minister of Finance Matthias Diependaele (N-VA) admitted that the Flemish subsidy system has two structural problems: vulnerability to fraud and a possible lack of efficiency.


Diependaele announced that there will be more checks to see whether subsidies achieve their goals and whether they are not being misused. "If we grant a subsidy now, we will check after two to three or a maximum of five years whether it achieves the social goal that we want to achieve," the minister told the VRT.


Technology


Two to five years? That won't stop a new El Kaouakibi case, which we know is just the tip of the iceberg. Checks must be faster and more efficient. The technology already exists to check the conditions for the subsidy and the correct spending in advance, with pre-audits, and in real time.


This technology uses closed loop systems, whereby after the necessary pre-audits, no cash is paid out, but the subsidies are converted via blockchain technology into virtual coins, which end up in a closed system. This way, everyone involved can follow every step of the spending, with the virtual currency being converted into euros at the end.


You can even make this available to every citizen, which increases control over the correct spending. Because it is undeniable that because of the possible reputational damage, the abuse of subsidies is regularly covered with the cloak of love. Even on a large scale, such as the misuse of millions of euros in European agricultural subsidies in Hungary. What a difference with, say, the US, where the wrong use of subsidies is systematically severely punished, with even long prison terms.


"Sending the message that the spending of billions of taxpayers' money may be controlled in five years is not such as to restore confidence in a redistributive government."


An additional advantage of this system is that verifiable behavioral nudging can be linked to the subsidies: for example, that part of the subsidies must be spent locally. Which in turn is good for the local economy, which will absolutely need more support in the coming years.


Sending the message to the population suffering from high inflation and declining purchasing power that the spending of billions of taxpayers' money in these economically turbid times may be controlled in five years' time is not such as to restore confidence in a redistributive government. What's more: it undermines support for that redistribution. Recent polls show what that can lead to: traditional policy parties are evaporating and extreme ones are winning.


Transparency is key more than ever. The technology is there. Use it.

 

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