Search
  Minimize
  
 

 

 

  
Recent Posts Minimize
Labor costs: top election issue for US companies

The American Chamber of Commerce in Belgium (AmCham Belgium) is deeply concerned by the impact of ... Read More..


OECD delivers a wake-up call to Belgium

Belgium has earned another ignominious distinction: with a tax wedge of 55.8%, it has the highest ... Read More..


A fair bit of explaining!

Following the introduction of the Fairness Tax in July 2013, AmCham Belgium has been in clos... Read More..


  
 
 Policy Blog

Automatic indexation again on the agenda

Date: 17/02/2012 15:54:00

Inflation, indexation and wage costs. All have had a negative impact on Belgian economic competitiveness in the last few years. Yet, wage indexation taboos are likely to perish on the eve of the National Bank of Belgium’s indexation report scheduled for release in mid-March.

According to data released by the Federal Planning Bureau, January’s inflation rate reached 3.6%. As usual, it will directly lead to an increase in wages and the broadening of the wage cost handicap vis-à-vis neighboring countries. Time to finally reform the indexation system, suggest the political parties.

Luc Coene, the governor of the National Bank of Belgium (NBB), said this week that the inflation rise has to be swiftly curbed if Belgium wants to regain its competitive position in Europe and beyond. To this end, he has proposed three different approaches.

Firstly, the automatic indexation systems could exclude expensive energy products. Heating oil, gas and electricity can easily be removed from the index basket of consumption prices which not only impacts the evolution of wages, but also increases the cost of other services like postal costs and train tickets. Secondly, Coene has suggested that the time between revising the index – now around four months – could potentially be prolonged. Finally, the legislators could take into consideration the level of wages and make them increase more slowly, particularly for higher incomes.

The Liberals, effectively blocked by the government agreement from appealing for the complete removal of automatic indexation, are very willing to reform the system. According to Open VLD, this move is highly recommended to curb both job losses and weakening exports. The party suggests to add to the index the so-called white products (supermarket-owned labels) and minimize the influence of energy products on the index basket. Likewise, the Christian Democrats are ready to negotiate adjustments in the existing indexation system, but would prefer to launch the debate after the budget review process next week.

Surprisingly, the Flemish Socialists also initially expressed their interest in reforming the system which has to be designed to reflect the reality. Yet, they are against removing energy products from the index basket. “The index has no point when excluding the most important goods and products. However, it is of key importance to have prices under control,“ suggests Minister of Economy Vande Lanotte. Contrary to these proposals, the Walloon Socialists prefer to stick to the government agreement and leave the indexation issue untouched. Prime Minister Di Rupo officially announced on February 16 that automatic indexation will not be brought under discussion. However, the government is going to give a special priority to curb rising energy prices.

In the meantime, inflation is gradually becoming a key issue for the Belgian economy. According to the Federal Planning Bureau, the inflation level in 2012 is expected to reach 2.7%. Already, the Belgian inflation rate is higher than in neighboring countries and it is feared that high inflation will increase wages and wage costs even more (the so-called wage-price spiral). This increased wage cost differential with neighboring countries will, in turn, have a negative impact on the wage cost handicap in the private sector, leading to weaker competitiveness and productivity of Belgian companies.

NBB is planning to release the eagerly anticipated Indexation Report by mid-March 2012.


AmCham Belgium’s position
Being strongly in favor of reforming the automatic indexation system, AmCham Belgium awaits the NBB’s Indexation Report with great interest. The Chamber, positioned at the heart of commercial affairs in Belgium, fully understands concerns of US and Belgian companies regarding high wage costs and the growing wage cost handicap. Moreover, companies are facing constant frustration at being confronted with a system that doesn’t allow any budgetary room to reward better performing employees.

Operating in a fiercely competitive global and European economy, Belgium cannot afford to lower its competitiveness and productivity, both of which make the business and investment climate less attractive. The automatic indexation issue has been widely present in AmCham’s publications as well as during meetings with top Belgian decision-makers. To learn more about our position on automatic indexation, please see the 2011 Priorities for a Prosperous Belgium.
 






  Comments

No comments.
     
Please log in to leave a comment.
  
 
 
 
     
 
European Council of American Chambers of Commerce US Chamber of Commerce