Index, Taxation and Labor Law

On January 31, the OGBL National Committee met again at the Maison du peuple in Esch-sur-Alzette. Coincidentally, the same day we learned from the press that the next increment (“index”) would be triggered in February. And so, naturally, the Index was invited to the first OGBL National Committee meeting of the year.

As a reminder, without the resistance and determination of the OGBL last year, the index tranche triggered in February 2023 would not have been paid to employees and pensioners until April 2024. In other words, 14 months later… and just as much loss of purchasing power for households. In fact, the so-called “tripartite agreement” of March 2022, which the OGBL strongly opposed, provided for the introduction of a minimum period of 12 months between the payment of two index brackets. This provision was unacceptable to the OGBL, which refused to sign the tripartite agreement and subsequently launched a major campaign of opposition to the measure, which ultimately led to the restoration of the normal operation of the indexation system at a new tripartite meeting in September 2022. “Without the opposition of the country’s largest union and without the opposition of OGBL activists in the streets, the September agreement would not have seen the light of day,” stressed Nora Back, president of the OGBL.

And while some voices have recently gone astray, once again attacking the system of automatic indexation of wages and pensions or questioning certain aspects of it, the OGBL National Committee made sure to dot the i’s and cross the t’s at its recent meeting. For the OGBL, the index is a red line and it will not accept any manipulation: no shifting of bands, no capping, no removal of certain items from the basket of goods used to calculate the index. In short, the indexation system must simply be maintained in its entirety, as provided for by law.

Finance Minister’s announcement is window dressing

Taxation was indeed on the original agenda of the last National Committee meeting. However, the announcement made a few days earlier by the Minister of Finance that there would finally be sufficient budgetary room to consider tax relief before the next election, presumably in the form of tax credits, came as a bit of a shock to the OGBL National Committee.

First of all, it should be noted that the existence of budgetary room for maneuver finally reinforces the OGBL’s analysis and position over the last few months, and in particular at the last tripartite meeting in September 2022. At that time, in addition to the restoration of the index, the OGBL demanded that the tax scale be adjusted in line with inflation. The government refused, arguing that public finances would not allow it.

However, the OGBL’s irritation with this announcement is mainly related to the measure envisaged by the Minister of Finance. First of all, it should be remembered that Luxembourg’s tax policy is far from fair or equitable. The simple fact that the tax scale is not automatically adjusted to inflation regularly leads to tax increases, especially for low and medium salaries. In fact, with each salary increase, for example after the payment of an indexation bracket, low and medium salaries also move up the tax scale and therefore pay more tax each time. Since the last tax reform in 2017 and until the end of the year, small and medium salaries will have experienced eight tax increases.

In other words, the tax relief provided by the Finance Minister in the form of a tax credit is really just window dressing. It is a dishonest “electoral gift”, which in reality will be financed by the excess taxes that low and medium wage earners have been unfairly paying for the last six years, because the tax scale has not been adjusted to inflation.

For the OGBL, the measure of fiscal justice that the government should take now is precisely the introduction of a mechanism for the automatic adjustment of the tax scale to inflation, in order to put a definitive end to the phenomenon of cold progression and thus provide real tax relief for low and medium wage earners.

Not forgetting, at least for the electoral programs, other measures to restore greater tax justice: additional steps at the top of the scale for high incomes, higher taxation of large fortunes and the establishment of equal tax treatment between income from work and income from capital.

Labor law: a long list of needed reforms

Last but not least, the OGBL National Committee also addressed the many reforms still needed in the area of labor law. While the issue of the organization of working time has recently received renewed attention after the Minister of Labor commissioned a study on the subject, the priorities for modernizing labor law are far more numerous.

It is becoming increasingly urgent and essential to reform the laws on social plans, job retention plans, bankruptcy, the right to training, not to mention the law on collective agreements, to name but a few. And if this list of reforms to be carried out sounds very much like a list of demands from the OGBL – which it is – it is taken, above all, from the coalition program itself. The government has committed itself to these reforms. To date, however, no legislative initiatives have been taken. The Standing Committee on Labor and Employment (Comité permanent du travail et de l’emploi – CPTE), which would be the ideal forum for social dialogue on all these necessary reforms, has not been used by the government to discuss these issues during this mandate. Regrettably.

This article originally appeared in Aktuell magazine (#1 – 2023)