AMCHAM: What is the role of the tripartite, and who are the members?
The Luxembourg social model, called “tripartite,” is based on an institutionalized and continuous trialogue between government, employers, and trade unions on important economic and social issues with the objective to reach a consensus.
It was implemented in the 1970s, following the steel crisis that threatened to shake the foundations of Luxembourg society The Law of 26 July 1975 authorized the government to implement measures intended to prevent redundancies due to a slowdown in the economic cycle and ensure the maintenance of jobs. At the same time, it created the Economic Committee in its ‘Tripartite’ composition, responsible, among others, for closely monitoring the evolution of the economic situation and making a report to the government once a month. In 1977, because of the worsening problems in the steel sector, the government convened a “tripartite steel conference,” which drew up an action plan to maintain economic growth and full employment.
The Act of 24 December 1977 institutionalized a “Tripartite Coordination Committee.” The function of this committee is to build consensus on important socio-economic issues. A little over a year later, in March 1979, the Tripartite Coordination Committee reached a first agreement on the restructuring and modernization of the steel industry. This first tripartite managed to avoid the dismissal of several thousand steelworkers – an undeniable success.
Since then, as a consequence of the economic diversification, sectoral tripartites have been implemented and are convened each time there is a sectoral issue.
Nowadays, five institutions guarantee a permanent social dialogue: the Economic Committee, the Economic and Social Council, the Tripartite Coordination Committee, the Permanent Committee on Labor and Employment and the Tripartite Steel Conference.
A tripartite at national level is convened by the government when the issue is of national magnificence, mainly when there is a national crisis. In the decision-making process, of course the government has the last word.
The search for consensual solutions has entered our customs and is, most of the time, a win-win solution for businesses, workers, and society in general.
What was the process of the last tripartite of March 2022 like?
The National Tripartite has brought the following parties to the table in March: the government, represented by eight ministers under the leadership of Prime Minister Xavier Bettel, the three national representative trade unions OGBL, LCGB and CGFP, and UEL, representing the employer organizations.
The main topic of the Tripartite was the high Inflation in general and the exploding energy costs in particular for all economic actors in Luxembourg.
The process, which lasted several weeks, included preparatory work, a collective assessment of the economic and social situation, proposals and counterproposals, technical meetings, several rounds of negotiations and finally an agreement.
For UEL participated at the negotiation table its President Michel Reckinger, its 3 Vice-Presidents Guy Hoffmann, Fernand Ernster and Michèle Detaille, the expert in energy aspects René Winkin and the UEL Director Jean-Paul Olinger.
During the assessment phase, UEL showed the gravity and urgency of the current situation for Luxembourgish businesses and all economic sectors combined. The crisis in Ukraine, which is following the two-year pandemic, is leading to an explosion in all production costs (energy and raw materials, and intermediate goods). This situation also has an impact on households and public finances. The government and representatives of ministries and administrations have presented statistics on economic growth, labor market, loss of purchasing power and public finances.
Based on these considerations, it was clear that we face an exceptional situation requiring exceptional measures.
For several days, the parties at the table worked together to find a solution that offers predictability to businesses, is socially fair for workers and is financially sustainable. Finally, an agreement was reached that provides some predictability in uncertain times and helps businesses and households to cope with increasing energy prices without jeopardizing the competitiveness of international companies.
Was indexation the only topic on the agenda of the last tripartite?
The tripartite focused on the inflationary surge due, among other things, to energy prices and their consequences on purchasing power and the economy. Therefore, indexation was a topic, but not the only one.
Following the invasion of Ukraine, the Covid-19 pandemic, but also trade tensions and Brexit, Luxembourg businesses from all sectors, and with them the entire Luxembourg model, are under pressure: recent sanitary restrictions and loss of activity due to the pandemic, amplified problems on value chains and multilateral cooperation, omnipresent labor shortage, exploding housing cost, increased and unpredictable production costs and reduced profitability, the international challenging regulatory and fiscal environment and last but not least the potential cost of the climate and energy transition, were mentioned. Of course, there are also homemade aspects that weigh on the competitiveness of our economy.
Do the unions and the government understand the negative perception and reaction towards Luxembourg internationally caused by the indexation system?
There is a consensus between the unions and UEL that we do not share the same view on the indexation system. The unions, as do many people working in Luxembourg, see automatic indexation as an acquis, a social attainment. Of course, it provides for additional social stability: we do generally not see strikes in Luxembourg.
So, UEL notes positively that indexation increases the purchasing power of our workers in these difficult times. On the other hand, given the importance of personnel costs in the cost factors of companies, this indexation will have an impact on the competitiveness of our companies (increase in the global annual wage cost of 800 million EUR), and in particular, for the labor-intensive sectors; this is of concern to us.
All Luxembourg companies, whether they export goods and services or whether their market is limited to the national territory, find themselves in a permanent competitive position with companies from neighboring countries, which are not subject to the same constraints, such as wage indexation or minimum wage adjustments. Moreover, in addition to private-sector wages, the cost to the community of (para)public employee salaries and many public expenditures will increase (including family benefits from now on).
From a macroeconomic perspective and following basic economic rules, salary increases should be linked to productivity increases. Luxembourg has a high level of productivity, mainly due to the financial sector and therefore high salaries, but no productivity increases since the year 2000, as opposed to its neighboring countries that have overall lower productivity but with yearly increases during the same period.
In general, salary increases directly increase services prices. To limit the adverse effects of uncontrolled inflation fed by automatisms, UEL favors de-indexing the entire economy.
The indexation system as we know it in Luxembourg is unique in the world. In situations of limited inflation, negotiated salary increases in the neighboring countries can keep up with our wage indexation. This is, of course, not true in the context of a crisis and therefore burdens international competitiveness. The government is aware of the situation, and so far, it has taken sides with indexation. Nevertheless, the current crisis has illustrated the antisocial difference between inflation and the effective loss of purchase power. To be continued.
What has been decided in the last tripartite?
The Tripartite has agreed on a social package adapted to the current crisis and the unpredictability of socio-economic developments in the coming months.
This “Solidaritéitspak” provides a package of measures that support low to medium-income households for the loss of purchasing power and enable companies to cope with the direct and indirect consequences of rising energy prices. Financial aid to energy-intensive businesses will help surpass the crisis and prepare for the environmental transition. The cumulative cost of the above measures amounts to EUR 827 million, spread over the budget years 2022 and 2023. While this amount represents a significant burden on the state budget, this massive support will benefit the country’s economy.
UEL welcomes the predictability given to businesses over 2 to 3 years by limiting the mechanism of salary indexations to one in every 12 months. Of course, we would have appreciated stronger signals to strengthen the competitiveness of Luxembourg as an international business location. But the compromise can be put in an appearance.
In a nutshell, as laid down on the government website, the following applies to households:
- the new energy tax credit for low- to medium-income households;
- the energy allowance for low-income households;
- the stabilisation of electricity prices by increasing the state’s contribution to the “contribution to the renewable/cogeneration compensation mechanism”;
- the subsidy for gas network costs;
- the fuel price reduction by 7.5 cents per litre until the end of July 2022 and heating oil until the end of 2022;
- the freezing of rents until the end of 2022;
- the anticipatory introduction and adjustment of the rent subsidy;
- the revision of the PRIME house aid scheme and the introduction of a “social top-up” in this aid system;
- adjustments to the system of state financial aid for higher education;
In addition to the predictability of the index and the reduction in fuel prices by 7.5 cents per litre, companies will benefit from the following support measures:
- an aid scheme aimed at offsetting part of the additional costs linked to the rise in electricity and natural gas prices for the benefit of companies qualified as large energy consumers;
- an aid scheme to compensate for part of the extra costs of higher energy, fertilizer, and input prices for companies active in primary agricultural production;
- an aid scheme to compensate for the extra costs of the greenhouse gas emission trading scheme (ETS) for 2021-2030;
- a new support program called ‘Fit4Sustainability’ benefiting small and medium-sized enterprises will be set up as part of a climate pact for businesses (‘Klimapakt fir Betriber’);
- the introduction of a new aid scheme to support companies in decarbonization projects and a new risk-sharing mechanism for these projects;
- the introduction of an aid scheme for the purchase of clean vehicles;
Moreover, in order to facilitate access to bank credit for eligible companies with liquidity needs due to the current geopolitical situation, a guaranteed loan scheme like the one launched at the beginning of the COVID pandemic will be implemented.
In the end, the measures are selective. And adding indexations in October 2021, April 2022, and April 2023, as well as the probable increase in the social minimum wage in January 2023, we note that employers are indeed taking their responsibilities by financing these measures directly themselves, apart from the compensation of the index which the State bears.
Can you give us more details about the energy tax credit?
The energy tax credit (CIE) is a measure decided by the government to compensate low- to medium-income households for the temporary loss of purchasing power (and not for the loss of the index) due to the postponement to
- April 2023 of the July/August 2022 tranche
- any additional increments to be applied for at least 12 months.
This measure is not only a support for companies but also a tangible incentive for the country’s competitiveness, the preservation of jobs, and the continued development of the labor market.
Indeed, due to high inflation levels, wage indexation has kicked in twice these past few months, in October 2021 and April 2022, with a possible third bracket to come in July/August 2022; all in all, a 7,7% salary increase within nine months.
Based on the most recent data, Statec has independently calculated the evolution of the purchasing power of households for the years 2022 and 2023, taking into account the postponement of the index bracket from July/August 2022 to April 2023, the increase in the CO2 tax in January 2022 and January 2023, the measures already decided in the framework of the “Energiedësch” of 28 February 2022, as well as those retained in the context of the recent negotiations at the level of the Tripartite.
Based on these calculations, it appears that all these measures, taken together, not only compensate for but also overcompensate for the loss of purchasing power caused by the current economic situation.
As regards the CIE, it appears as follows:
- for salaries and pensions between 936 euros and 44,000 euros gross per year, the CIE will be 84 euros per month;
- for salaries and pensions between EUR 44,001 and EUR 68,000 gross per year, it will amount to at least EUR 76 per month for this income range, and then gradually reduce to 0 for salaries and pensions exceeding EUR 100,000 per year.
What is UEL’s strengths and weakness assessment of the attractiveness of Luxembourg as a business location for global companies?
Luxembourg is today still in a good position – especially in international comparison – to succeed in the world of tomorrow: we have highly skilled professionals from all over the world, strong public finances AAA certified, resilient and productive companies, and political decision-makers looking to the future.
This strength of today must make it possible to translate the following risks into opportunities and succeed in the following challenges:
- “Bottlenecks” that thwart sustainable economic growth: mobility, housing (spectacular price increase), lack of manpower (demography in the Greater Region, growing competition for talent, etc.).
- The long-term sustainability of public finances, especially challenging with regard to the demographic factor applying to our social security (pensions, long-term care insurance, health insurance, etc.);
- The potential cost of the climate and energy transition (importance of effective investments in this area).
- Public revenues: some very volatile and/or exposed to the climate transition (“Tanktourismus”) and/or international tax agreements (impact very difficult to identify at present).
For this to happen, we all must pull together in the same direction, ideally using the very same Luxembourg business plan.
Which policy actions and initiatives are the UEL advocating to help and support the business community in Luxembourg?
UEL is committed to attracting, developing, and mobilizing sustainable talent, working closely with all stakeholders involved.
The priority will be our country’s ability to attract, train and mobilize the talents of tomorrow. In this context, I believe that AmCham and the American community in Luxembourg can play an essential role as a bridge between North America and Europe.
Talent is sustainable when it is long-lasting, scalable and committed to the transition to sustainable development. I am thinking of the individual skill of managers, employees and self-employed people and the collective talent of companies creating tomorrow’s prosperity; and of course, our team talent, between private and public organizations, specific to Luxembourg, in public-private partnerships. It is a question of preserving existing skills and developing new ones. Sustainable employment consists of existing and future professions and will help us embrace the digital and environmental transition – a dual challenge!
Michel Reckinger, the mechanical engineer with a degree in business administration, is President of UEL and General Manager of the family business Reckinger Alfred S.A., a heating, sanitary, ventilation and air conditioning installer with 350 workers, in 4th generation, since 1911.
Jean-Paul Olinger, the economist, is the Director of UEL.