The second annual assembly of the national social dialogue within the framework of the “European Semester “procedure took place on June 21, 2023. In the presence of the government and the social partners, the meeting focused on the recommendations and the detailed country report issued by the European Commission to Luxembourg.
Whereas the last three tripartites in 2022 and 2023 attempted to address the crisis situation, the documents of the European Commission adopt a more structural approach by highlighting several observations and challenges facing the country. Therefore, the reunion on June 21st provided an opportunity for Michel Reckinger, President of the UEL, to present the UEL’s position and bring structural challenges to the forefront.
In its intervention, the UEL focused solely on the challenges highlighted by the European Commission, although there exist other challenges such as business competitiveness and the rapid evolution of wage costs. It is worth noting that according to STATEC, average wage costs are projected to rise by 5.8 % in 2023 and 3.7 % in 2024, mainly due to various index brackets.
The following issues were discussed:
- Public finances: the current enormous deficit of the Central Administration (a cumulative deficit of EUR 10 bn between 2023 and 2027) and the inevitable reduction in social security surpluses (from +1.1 mia EUR in 2023 to +0.57 mia EUR in 2027) have resulted in a persistent deficit in the public balance. In this regard, the European Commission urges Luxembourg to pursue a prudent budgetary policy, and to target household support measures more effectively.
- The sustainability of the general pension insurance scheme, which according to the European Commission, represents the main budgetary challenge for Luxembourg and threatens its long-term viability, primarily due to the significant expected increase in pension costs. This is a recurring recommendation from the Commission, which regrets that no action has been taken in recent years to anticipate this issue.
- Housing, for which there is not enough supply, and where policies are overly focused on homeownership rather than assisting a maximum number of households with housing.
- After a stagnation in productivity between 2000 and 2020, the European Commission reveals that annual productivity has decreased in 2021 and 2022, by 2.3 % and 2.0 % respectively. The UEL has taken note of the various suggestions provided by the European Commission (and at the national level by the National Productivity Board) to revive productivity, such as talent development, digitalization, and innovation. Meanwhile, the UEL has also emphasized the urgent need to reduce and simplify the regulatory framework.
- Luxembourg’s innovation performance is growing at a slower pace than the EU average, leading the European Commission to state that “Luxembourg is losing its leading role in the EU “. The UEL pointed out that the European Commission acknowledges the absence of support for R&D activities in the form of tax credits in Luxembourg, unlike in most OECD and EU countries. This is a point of concern for the UEL, especially at a time when innovation and R&D are essential to achieving the dual ecological and digital transition.
- The challenge of talent is also considered by the European Commission, given that the availability of labor represents a challenge for the country’s sustainability and prosperity.
These challenges are essential to recognize, especially in the current context of an economic slowdown. Besides, this economic outlook could further deteriorate in view of various risks, such as geopolitical tensions, protectionist tendencies, persistent inflation in all non-energy products, the impact of ongoing monetary policy tightening on private consumption and investments (and consequently on future economic growth), the effect of rising interest rates on demand in the real estate sector, the overhaul of the international tax system …
Finally, the UEL underlines the latest Economic Outlook from the STATEC, which mentions that “the STATEC had alerted the government and the social partners during last year’s tripartite negotiations that the economic prospects were darkening “, and that “the slowdown/downturn in economic dynamics can now be seen in many cyclical indicators, notably GDP, around the turn of 2022 and 2023”. Thus, the STATEC has considerably revised its GDP growth forecasts downwards to +1.5 % in 2023 an +2.5% in 2024.
The UEL hopes that the political partis will draw upon the key findings, recommendations, and other core messages of the European Commission to develop an attractive/appealing economy and set Luxembourg on the path of sustainable growth, thereby ensuring the country’s prosperity.