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The index jump: a leap forward?

After a marathon 15-hour debate in the Committee on Social Affairs last month, the ‘index jump’ legislation is now pending before the Plenary of the Federal Parliament.

The index jump refers to a temporary freeze on automatic wage indexation proposed by the Michel Government to help bring down labor costs and make Belgium more competitive. Originally planned to come into force at the end of March, the legislation has faced numerous delays in parliament, and it is now uncertain when the jump might be implemented.

As if to stress the urgency of the situation, Eurostat this week released new statistics which confirm Belgium’s position as the most expensive country for labor in the eurozone. Belgium faces a wage handicap of 16% or more with its neighbors and needs to drastically reduce labor costs if it wants to be competitive vis-à-vis countries like Germany, France and the Netherlands.

Will the index jump make this happen?

Probably not. Wage indexation differs per sector and is often done by increments of 2%. ‘Jumping’ the indexation now could decrease the costs of Belgian labor relative to our neighbors. However, because inflation is low across the eurozone, wages in other countries are not likely to rise anytime soon either. The net result of the index jump thus may not have the intended effect, at least not in the near future.

But while the measure might not be as effective at lowering labor costs as hoped for, it still sends an important signal that the Michel Government is serious about improving Belgium’s competitiveness. Moreover, it demonstrates the government’s willingness to face down strong opposition.

The Chamber welcomes the index jump, especially for its symbolic value, but further reform, such as streamlining employer social security contributions, will be necessary to increase Belgium’s competitiveness in the short term.