The Luxembourgish index has been hotly discussed in the past few months. In normal times, the indexation system automatically adjusts salaries, benefits and pensions by 2.5% every time inflation reaches that rate. With recent price surges, however, this adjustment would have to happen several times over the next months.
After two recent indexations on 1 October 2021 and 1 April 2022, employers are already struggling under their salary costs. Consequently, during the tripartite meetings in March, the government, unions and employers agreed on several aids for households and employers, including a freeze on the index until 23 April 2023 (with the OGBL disagreeing). In the interim, a tax credit is supposed to protect the purchasing power of Luxembourg’s workforce.
Excluding the one scheduled for April 2023, the law mentions that “any additional adaptation” would be pushed back until 1 April 2024. This could mean a sudden, substantial increase of salaries: “the Statec is expecting substantial inflation of around 5.8% this year, before dropping back to 2.8% in 2023”, the statistical institute announced recently.
The government therefore decided on 2 June to amend its law. Rather than triggering several indexations at once in April 2024, it will instead refer the issue back to a new tripartite.
This means ministers, unions and employers will have to get together once more in 2023 to discuss and renegotiate how to deal with the skipped indexations, by either staggering them further or compensating the lost purchasing power with other measures.
The OGBL union congratulated itself on this first step against “the manipulation of indexation”, which it had condemned. But it worries about a larger problem: “The manupulation of indexation is the wrong response to the problems facing the Luxembourgish economy: a price explosion and the resulting loss of purchasing power on the one hand, and a labour shortage on the other hand.”
With a general election coming up in 2023, the decision may fall to the next government. But the solution won’t be simple either way.
