Chamber of Commerce president Luc Frieden. The chamber on 2 June issued its opinion on a draft law to implement the so-called “Solidaritéitspak” Photo: Matic Zorman

Chamber of Commerce president Luc Frieden. The chamber on 2 June issued its opinion on a draft law to implement the so-called “Solidaritéitspak” Photo: Matic Zorman

With a draft law making its way through parliament regulating the indexation of wages until 2024, Luxembourg’s Chamber of Commerce has warned that employers could face a bill of €2.7bn to match wages to inflation in two years’ time.

The government, employer and employee groups in March had agreed that companies would have to make only one indexation payment per year in 2022 and 2023 to prevent spiralling costs. Under the index system, salaries increase 2.5% when inflation hits a certain threshold, but the energy crisis and rising prices risked triggering two or more index payments this year.

Questions remain what will happen with the indexation payments that are being delayed to 2024. Under worst-case estimated, three index tranches would be due this year, with only having been paid out in April, leading to a backlog down the line. Lawmakers have pledged that no money would be lost.

“This would imply the application of two (or even three) cumulative index tranches on 1 April 2024, i.e. a theoretical revaluation of 5% (or even 7.5%) of all salaries, wages, pensions/annuities and other allowances, on this date,” the organisation said in a statement on 2 June.

A single index payment in April 2024 would generate additional costs of €910m, the Chamber of Commerce said based on data of salaries from 2021. Raising salaries by 5% would come at the cost of €1.82bn while a 7.5% hike would mean €2.7bn in extra wages to be paid.

Competitiveness concerns

The chamber has for the system to be abolished or at least adapted so that only low-income households see their revenue increase. High earners benefit more from the scheme than those who really need the money, the organisation has said, adding that it risked damaging Luxembourg’s competitiveness compared to countries that don’t have an index system.

With companies facing higher payroll costs, the Chamber of Commerce on Thursday repeated concerns that this could lead to fewer investments from companies into their business, further hampering competitiveness. It could also deter businesses from hiring despite worker shortages already being a problem in some industries.

Regulating the index until 2024 was the key reason why Luxembourg’s largest labour union, the OGBL, opposed to so-called “Solidaritéitspak” (solidarity package) that was tied up between the government, the UEL business union and the CGFP and LCGB labour unions in April.

The OGBL on Tuesday had said the draft law to implement the package as prices have progressed significantly since April, leaving the plans outdated and insufficient.

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