Fire on the welfare state

or how the employers’ lobby is preparing the ground

The Fondation Idea, the employers’ think tank, recently vented its frustration with public spending by publishing a highly questionable study.

First and foremost, the OGBL points out that Luxembourg’s substantial public investments in education, health, family and old-age provision remain a thorn in the side of Luxembourg’s employers. And that’s nothing new. However, the fact that this recent study makes no mention of public investment in the form of tax breaks for companies in Luxembourg is simply hypocritical.

The short-sightedness of the Fondation Idea is even more evident when we recall that the same foundation, in numerous other studies, emphasizes the importance of attracting “talent” to Luxembourg. Indeed, the OGBL would like to point out that what is always praised by professionals who have recently arrived in the Grand Duchy is precisely the strength of our public system in the fields of education, security, (free) public transport and, above all, solid social security with good pensions, a good health system and support measures for families. By attacking our social system in this way, the employers are literally sawing off the branch they’re sitting on.

It should also be remembered that employers themselves contribute proportionally less than employees to the financing of our social system, thanks to repeated tax breaks (in the name of competitiveness, of course!). Over the years, the tax burden has evolved very unevenly. The tax burden on wages has increased 14-fold since 1970, while the tax burden on companies has increased only 7.4-fold over the same period. As a result, the tax burden on wages has risen by 46.6% more than that on companies.

What’s more, it’s not surprising that Idea’s study is currently focusing on our pension system, given that the Minister of Health and Social Security has announced a wide-ranging debate on the subject for next fall. The employers’ camp seems to be preparing the ground for its liberal lobbying by hiding the facts. The repeated invocation of long-term projections over 50 years – which in the past have always proved to be wrong – serves only to sow fear in order to call for regressive social policies. Providing a better pension for future generations should always be our primary goal.

The Foundation also mentions the low risk of poverty among people over 65 as an example of the generosity of the Luxembourg pension system. The OGBL stresses (and is surprised to have to mention this) that such a low risk of poverty among the elderly population is commendable. It is precisely this level that we should be aiming for, instead of criticizing it and using it as an argument to call our public system into question. The OGBL therefore wonders what level of poverty among the elderly is considered desirable by the Idea Foundation?

If the figures are properly analyzed, it is abundantly clear that poverty among the elderly still exists in Luxembourg and, in the opinion of the OGBL, must be combated consistently. Secondly, it is the evolution of the at-risk-of-poverty rate among the elderly that needs to be analyzed as a priority. This has risen sharply in Luxembourg, from 3.9% to 10.4% between 2010 and 2022. This more than doubles the at-risk-of-poverty rate for retired people. This alarming increase is greater in Luxembourg than in the rest of the European Union.

What’s more, this trend is likely to worsen in the future due to the effects of the 2012 pension reform.

It’s worth remembering that employers themselves contribute proportionally less than employees to the financing of our social system, thanks to repeated tax breaks.

In this context, the OGBL points out that the recent pension reform in Luxembourg has led to a significant deterioration, particularly in the mechanisms for calculating pensions, the dynamization of pensions and the anti-cumulation provisions. The reform also provides for the adjustment of pensions to wage trends to be reduced or even abolished if the pure pay-as-you-go contribution exceeds 24%, which could happen in the next few years. There are also plans to automatically eliminate the end-of-year bonus if the 24% threshold is exceeded.

Given the demographic challenges ahead, the OGBL is calling for a fundamental and positive reform to strengthen and secure the long-term future of our public pension system. The injustices of the 2012 reform must be corrected and the situation of pensioners with small pensions must be improved.

This can only be achieved by increasing the number of contributors, but not, as the director of the Idea Foundation puts it, by “more children, more migrants and more cross-border workers”, but by exploring new financing options.

With this in mind, the OGBL will be presenting its program for positive pension reform in the coming weeks and months. One thing is certain: our pay-as-you-go pension system is a pillar of our society, based on solidarity between generations. Today’s pensions are financed by today’s salaries, ensuring continuity of support for future generations. This approach guarantees fair and universal social security, protected from the risks associated with fluctuations in the financial markets, and protects our pensions against inflation through indexation.

The OGBL will do its utmost in the coming months to defend our public system and to ensure that it is the trade union front that strikes hard and not the notorious pension wall that the employers are once again invoking.

Article published in the “Aktuell” (3/2024)