Luxembourg: government postpones indexation of wages to price rises planned for July

As it looks to tackle rampant inflation, the government of Luxembourg has decided to pause the automatic mechanism to index wages against the cost of living. While Statec, the Grand Duchy’s national institute for statistics and economic studies, had planned two indexations in 2022 – the first in April (2.5%) and the second in July – the latter was ultimately postponed for nine months following a vote by the Chamber of Deputies on 15 June. This vote was in line with the tripartite agreement signed on 31 March without the OGBL, the main Luxembourg trade union. As a result, there will be no wage increases until 1 April 2023. With the exception of Belgium, which has a similar system in place, Luxembourg is the only country that automatically indexes all wages and pensions against inflation as soon as it exceeds 2.5%. However, the country is currently experiencing its highest level of inflation since 1984, with a rate of 7.4% for the month of June according to the latest Statec data, which makes indexation of wages to inflation “impossible”, in the government’s view. To compensate for the lack of wage increases and the loss of purchasing power for those on low incomes, an energy tax credit of €84 per month will be granted to people earning less than €44,000 per year, while €76 per month will be given to those earning between €44,001 and €68,000 per year. The size of this tax credit progressively decreases for annual salaries between €68,001 and €100 000 per year. The measure is to cost the government some €530 million.