Business federation proposes postponing wage indexation in Belgium

Business federation proposes postponing wage indexation in Belgium
FEB-VBO CEO Pieter Timmermans pictured during the "Focus Conjoncture/Focus Conjunctuur" press conference of the VBO-FEB (Federation of Enterprises in Belgium - Verbond van Belgische Ondernemingen - Federation des Entreprises de Belgique) in Brussels, Wednesday 06 July 2022. Credit: BELGA PHOTO HATIM KAGHAT

The Federation of Enterprises in Belgium (FEB), an employers' organisation, is calling for a halt on part of Belgium’s unique wage indexation system for a period of one to two years, in a bid to safeguard the competitiveness of Belgian businesses.

According to the Flemish newspaper De Standaard, the FEB is calling for urgent action to avoid economic disruption as a result of rapidly escalating inflation and challenges to businesses.

For years, Belgian business owners have complained that the automatic wage indexation system, which automatically increases workers’ wages with inflation and other factors, is untenable faced with rising inflation. Businesses fear escalating labour costs which could potentially lead to a wage-price spiral effect.

In a survey conducted in June, Belgian companies revealed that around one-third of companies had been forced to push back scheduled investment and recruitment due to additional budgetary restraints put in place by the indexation system.

The PEB’s managing director, Pieter Timmermans, says that if nothing is done, Belgium risks becoming the “sick man of Europe” by 2024 or 2025.

“While high inflation is confronting Belgian businesses with major cost challenges, the De Croo government is coming up with expensive plans…While the elephant in the room, the deteriorating competitive position, is ignored,” Timmermans said.

The FEB states the current actions of the government are only adding to the pressures placed on the economy. The main culprit in the falling competitiveness of the Belgian economy, the federation believes, is Belgium’s indexation system. Timmermans expects wages in Belgium to rise by as much as 11% in 2022-2023, 5% more than in neighbouring countries.

The pressure on businesses is only aggravated by the rising materials costs, energy, and transportation, all casualties of the economic shock from Russia’s invasion of Ukraine. Operating costs are set to rise by around 20-30% compared to last year. The FEB argues that it ought to be the government that absorbs this shock, not companies or employees.

Alternative measures

The FEB’s proposals are not without precedent. Across Belgium’s southern border in the Grand Duchy of Luxembourg, the government has already postponed part of its wage indexation for a couple of years. The Luxembourgish authorities are instead implementing tax reductions for low-income families.

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In an article published by Knack, Timmermans expressed his desire for the government to arrange consultations with employers and trade unions to discuss the possibility of postponing indexation and implementing alternative measures.

One such alternative put forward by Timmermans is indexation with a price ceiling. For example, employers would index wages up to €3,500 per month, to avoid raising wages for the most wealthy. Unions, on the other hand, are unwilling to entertain this idea until several changes are made to the existing indexation system, such as adjusting safety margins and surcharges.

Overall, the FEB is calling for government expenditure cuts across the board in order to help payback government debt and eat away at the deficit. “Every time the government spends extra money, it justifies it with that 80% employment rate target, but is it really doing anything to reach that figure? No,” said Timmermans.

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