Debate at the Chamber of Commerce

Parties reluctant to review wage indexation

The proposal by Carlo Thelen and the Chamber of Commerce to switch to a degressive indexation, once a year and based on a Belgian-style health index, did not appeal to the representatives of the political parties. Photo: Chamber of Commerce

The proposal by Carlo Thelen and the Chamber of Commerce to switch to a degressive indexation, once a year and based on a Belgian-style health index, did not appeal to the representatives of the political parties. Photo: Chamber of Commerce

Faced with businesses that complain about having to put up with repeated index payments, Luxembourg’s major political parties defended maintaining the status quo during a discussion at the Chamber of Commerce, with opposition mainly coming from Fokus and the Pirates.

“For some, it’s just another pizza. For others, it’s the equivalent of a cruise! I must be the only one who thinks the current indexation system is not fair,” said the founder of Fokus, Frank EngelFrank Engel, during a roundtable on Monday evening at the Chamber of Commerce. The former MEP was the only one who agreed with the institution’s idea to review the automatic indexation of salaries to adjust them for inflation.

In its booklet on competitiveness, the Chamber of Commerce has made this its flagship proposal, in three parts: a single indexation per year, a full indexation of 2.5% up to 1.5 times the median wage (€5,310 gross in 2021)--so in reality this will be maintained for 70% of employees--and a degressive “indexation” thereafter (€133 between €5,310 and €14,410 per month and then down to zero above €17,700 per month).

On Monday evening, the director of the Chamber of Commerce, Carlo ThelenCarlo Thelen, went one step further by adding the implementation of a “sustainable basket” of different products to gauge inflation and serve as a basis for triggering the index--which could, for example, have the impact of “neutralising” increases in energy costs. Fossil fuels (gas, fuel oil, diesel and petrol) account for 6.65% of the consumer price index.

Since January 1994, Belgium has set up a “health” index which excludes alcoholic beverages, tobacco and fuels. This health index, when it reaches a pivotal level, triggers a 2% indexation of gross wages and this will take place in June.

A factor of attractiveness

In the debate, the minister for the economy, Franz FayotFranz Fayot (LSAP), who returned overnight from a trip to the United States that ended in Brussels, slipped perhaps into irony when saying: “Lamborghini owners are more affected by inflation than those who have a Renault Clio”, after having defended maintaining the current system and the tripartite “because a high salary is also an attractive factor”.

The DP’s Lex DellesLex Delles, minister for small and medium-sized enterprises, also sided with the current indexation system.

The CSV’s candidate for prime minister in the upcoming October election, Luc FriedenLuc Frieden, said the system is “the guarantor of social peace”. But “social peace is hardly due to the index: 50% of the electorate think that society is unfair”, Pirates representative Tommy Klein contested.

Fernand KartheiserFernand Kartheiser (ADR) was in favour of tackling the reason for the indexation, namely galloping inflation.

Employers cost

From a political point of view, in this election year, no one really wants to have to justify to voters that they will lose purchasing power, and even more so when they are the least wealthy. “According to calculations by the Idea Foundation,” reads the latest Chamber of Commerce booklet, “under the effect of indexation, a household with an annual income of €120,000 would have benefited from a gain in purchasing power of €214 despite the surge in energy prices, whereas a low-income household (€35,000 per year) would have lost €364 in purchasing power.”

The problem is that each index bracket would cost employers €965m, of which €765m would go to private companies. And “the sectors with a high intensity of unskilled labour (personal services, commerce, Horeca  [hotels, restaurants, cafés, editor’s note], handling and cleaning) are particularly weakened by the successive indexations. According to Horesca, a hospitality sector federation, in recent months, “margins have fallen by 5% in the gastronomy sector and by 8% in the hotel sector,” says the Chamber of Commerce, which points to Luxembourg’s last place in Europe when it comes to the profitability of non-financial companies.

The figure comes from the 2022 edition of the national indicators of the Observatory of Competitiveness... which are much “worse”. Not only is Luxembourg last in terms of profitability (calculated by relating gross operating surplus to turnover) at 5.6% in 2019, but the figure “is well below the European average (10.3%) and very far from Ireland (22.9%) which dominates the ranking” “And that was before covid, Russia’s invasion of Ukraine, and the inflation and energy price rises that followed...

This story was first published in French on Paperjam. It has been translated and edited for Delano.