New Tripartite Agreement Deals with Wage Indexations, Subsidies

On Tuesday 7 March 2023, the Luxembourg Government signed a new tripartite agreement with the Luxembourg Employers' Association (Union des Entreprises Luxembourgeoises - UEL) and the LCGB, OGBL and CGFP trade unions.

In a press release issued following this agreement, Luxembourg's Ministry of State noted that 2022 was marked by an unprecedented inflationary surge in energy prices and consumer prices in general, fuelled by Russia's full-scale invasion of Ukraine. In this context, the government, the UEL, the LCGB and the CGFP signed a first agreement (Solidaritéitspak) on 31 March 2022, after several tripartite meetings, aimed at mitigating the initial negative impact on the economy and households.

Aware of market volatility, the agreement provided for the organisation of a new tripartite meeting in the event of a deterioration of the economic and social situation or the foreseeability of the triggering of an additional wage indexation in 2023.

Faced with such a situation, the government, the UEL, the OGBL, the LCGB and the CGFP signed a new agreement (Solidaritéitspak 2.0) after various tripartite meetings in September 2022 to further support households' purchasing power and companies' competitiveness. This agreement also provided for the organisation of a new tripartite meeting in the event that STATEC determined in the course of 2023 that the removal of the measures would cause an inflationary shock at the start of 2024. In its economic forecast of 8 February 2023, STATEC confirmed this risk.

Consequently, Luxembourg's Prime Minister Xavier Bettel convened the social partners for preparatory meetings at the end of February 2023, prior to the tripartite meeting on 3 March 2023. At this meeting, the government, the three trade unions (OGBL, LCGB and CGFP) and the employers, represented by the UEL, agreed on a new package of measures, detailed in the tripartite agreement of 7 March 2023:

Index compensation for companies

In light of STATEC's projections for three wage indexations in 2023, the government will compensate companies by adjusting the average contribution rate of the Employers' Mutual Insurance Scheme by up to €60 million per month in favour of employers for whom the wage indexation is not already covered by a legal or regulatory mechanism. This adjustment is set to take place during the 2024 financial year (if the class rates are negative, this will be spread out over 2024 and 2025).

Moreover, the automatic operation of the sliding wage scale will remain in place.

Extension of certain Solidaritéitspak 2.0 measures

The following Solidaritéitspak 2.0 measures for households, previously set to expire on 31 December 2023, will be extended until 31 December 2024: the gas price cap (limiting increases to 15%); the subsidy for customers connected to a district heating network; the stabilisation of electricity prices; the subsidy on publicly accessible charging stations;  the subsidy on the price of diesel used as fuel; the subsidy for liquefied petroleum gas; the subsidy on the price of wood pellets.

Tax brackets & tax credit

From 1 January 2024, tax brackets will be adjusted to a rate of two and a half indexations. Before that, a tax credit will be introduced in 2023 (retroactively from 1 January) to compensate two indexations.

Energy bonus

The energy bonus for recipients of the cost-of-living allowance has been renewed until the end of 2024. This ranges from €200 to €400 depending on the composition of the household. Households which are not eligible for the cost-of-living allowance may also request this one-off bonus if their income is up to 25% higher than the income eligible for this allowance.

CO2 tax credit

The social compensation of the existing CO2 tax will also be renewed and will become a specific tax credit for people with the lowest salaries from January 2024.

Accommodation and property-related aid schemes

The State contribution to the financing of increased energy costs for accommodation structures has been extended until 31 January 2024. 

The tax credit ceiling for registration fees relating to property (Bëllegen Akt) will be raised from €20,000 to €30,000 (following the adoption of the relevant law). Moreover, the ceiling for interest on real estate loans relating to rooms occupied (or set to be occupied) by the owner will be increased by 50% from the 2023 tax year.

Similarly, net rental income from contracted bodies carrying out social rental management will be exempted by 75% from the 2023 tax year.

Other aid schemes

The government will continue to pay a tax credit equivalent (€84 per month) to recipients of the Social Inclusion Income (REVIS) as well as recipients of the allowance for the severely disabled (RPGH) until 31 December 2024.

The threshold from which income from operating a photovoltaic installation becomes taxable will be increased from 10 to 30 kWp.

Should the economic and social situation worsen significantly in the course of 2024, the government will convene a new tripartite meeting to analyse the situation and potential measures.