Luxembourg’s Chambre de Commerce in Kirchberg has issued its reaction to the current bill in parliament on the establishment of an adjustment mechanism of family benefits, including pointing out that there are some inconsistencies and pressures on public finances as a result of the bill.
As part of the bipartite agreement signed on 28 November 2014 between Luxembourg’s government and trade unions, an adjustment mechanism of family benefits paid in cash and in kind was planned. Thus, from 2018, and every two years following year 2018, the progression of the median wage over the last three years will be compared to the progression of family benefits in cash and in kind. For a faster progression of median wages, the government may decide to adapt existing services or create a new benefit in cash or in kind. While the Chambre de Commerce does not question the substance of the reform, namely occasional adjustment of the amount of family benefits, it has announced that it cannot endorse the approach. It has found that there is in particular a lack of an overall picture of social transfers and existing families and criticises the lack of assessment of the cost over the long term.
Although the Chambre de Commerce does not undermine the occasional and discretionary adjustment of the amount of family benefits, it has announced that it cannot agree to the establishment of a new biennial adaptation mechanism for family assistance, without taking the socio-economic context more broadly into account.
Additionally, the Chambre de Commerce has questioned the justification to link changes in median wages and changes in family benefits. It has found the ability to "invest" in a margin in fictitious maneuver following the increase in median salaries for creating new benefits, arbitrary. It fears that the attraction of skills regarding important remuneration in Luxembourg does not lead to a slippage in public finances allocated to family benefits. If the mechanism has to be maintained, the Chamber of Commerce has requested that 5% of the highest salaries are excluded from the calculation and the methodology for adapting the minimum wage.
The Chambre de Commerce has also found a lack of coherence between the adjustment mechanisms of different benefits in terms of the applied system and the reference period. While the parental leave allowance, equal to the average monthly professional income received by the beneficiary in the 12 months preceding the commencement of parental leave, will be implicitly indexed, family benefits in cash and in kind would be adapted to the change in the median hourly wages over a reference period of three years, while the minimum wage is adjusted to inflation and based on changes in the average real wage spread over two years.
The Chambre de Commerce has therefore requested harmonisation in order to strive for greater administrative simplification and, secondly, to increase transparency, consistency and readability of the systems.
The bill provides for the adaptation of benefits in cash and in kind or the creation of a new benefit for children if a specific need is identified. While the goal is laudable, the Chambre de Commerce stated that it believes that the current design in terms of transfers, allowances and social and family support is already relatively complex, with a multitude of heterogenerous transfers, disparate and sometimes small scale, which tend to accumulate and multiply over time. The Chambre de Commerce has reiterated its calls for
the "un besoin = une aide" (one need = one aid) principle and for producing a clear picture of all social transfers.
The Chambre de Commerce said that it has argued to assert the need for social transfers based on the ability of households, ensuring fairness between generations and promoting the work to the detriment of inactivity, reducing the risk of exposure to poverty through better targeting of transfers. The Chamber of Commerce further explained that social discrimination is still largely absent from the reform intentions of the Government, to the extent that the number of social transfers are allocated regardless of the financial situation of the beneficiary households.
Finally, the Chambre de Commerce has stated that the reform creates a significant structural change and therefore considers the simulation of the budgetary impact over the long term essential, along with a generational fairness and sustainability of public finances. The impact of the adjustment mechanism on public finances is important, and there is therefore the need to analyse and evaluate it beforehand.
The projections were made until 2019, when changes in median wages are expected to remain relatively low. However, in 2020, it should reach 4.15%, creating a significant acceleration of the development of social security benefits.
