Public finances: different views of employers and trade unions

Opinions differ among the social partners on the question of public finances. The General Public Service Confederation (CGFP) considers Luxembourg’s finances to be in good shape. Consequently, CGFP has been debating comments regarding public finances that it believes to be exaggerated. This coincided with the government’s announcement of the 11th update of the Stability and Growth Programme and the finance minister’s volition to balance the public administration budget by 2014.

Supporting evidence of sound public finances

The state of finances in Luxembourg appears to be sound and the General Public Service Confederation (Confédération Générale de la Fonction Publique, CGFP) has published figures to support this. On 31 December 2009, Luxembourg’s national debt amounted to a little more than €3.2 billion, equivalent to 8.51% of gross domestic product (GDP), or €6,549 per head of population. However, on that date, the government’s financial interests in the three companies ArcelorMittal, SES Astra and BNP Paribas alone would return to the state more than €3.3 billion, which according to CGFP is an amount greater than the national debt itself. This is in addition to the fact that the state has financial interests in many other companies, CGFP noted. Furthermore, making reference to the Maastricht criteria, CGFP believes that Luxembourg’s national debt is well below 60% of GDP and will not increase in future years by more than 20%. Compared with countries like Germany, France and Belgium, whose debt is about 73%, 76% and 97% respectively, the Luxembourg situation is more than comfortable, the trade unions believe.

The same comparison can be made concerning the public budget deficit, according to the trade unions. The unions therefore wonder about the reason for the agitation that is dominating the political debates on these questions.

In the current situation and despite the public expenditure policy followed in the fight against the economic crisis, CGFP believes that no increase in taxation or suppression of social security benefits would be justified. Thus, the confederation is calling for the government to act responsibly.

Chamber of Commerce offers a different scenario

The Chamber of Commerce (Chambre de Commerce) does not share this analysis and has offered its own scenario on a more alarmist note. The employer organisation deplores the lack of control over national expenditure that is not directly related to the economic recovery plan. Regarding the trend from one year to another, the Chamber of Commerce notes that Luxembourg’s current expenditure is systematically and largely above the trend observed in its three neighbouring countries Belgium, France and Germany, and in the eurozone. A major cutback of the state’s consumer expenditure and non-priority expenditure is now inevitable, according to the Chamber of Commerce. Decisive action is required, especially in relation to the better targeting of welfare benefits.

While it supports the state’s major investment effort, the Chamber of Commerce points out that, in view of the country’s limited size, its strong dependence on the financial services sector, and the precariousness and volatility of a large part of its fiscal revenue, Luxembourg’s debt capacity is, without any measure, comparable to that of larger states. Consequently, the debt limit of 60% of GDP applied to larger countries has less relevance for Luxembourg. The national debt level envisaged by government experts on the basis of macroeconomic forecasts and the public finances trend over the period 2009–2014 is unacceptable, according to the chamber. The chamber estimates that, with an unchanged expenditure policy, the public debt would amount to some 40% of GDP in 2014 – a level that is highly risky for a country like Luxembourg.

Premature tripartite negotiations

In the current context, where there is no consensus on the country’s economic situation, the CGFP believes that tripartite negotiations would be taking place prematurely. For CGFP, it would be better to wait for the publication of more reliable figures. However, the employer side does not share this opinion, with the Federation of Craftspeople (Fédération des Artisans) in particular only recently stating that the delay in negotiations has already been too long. Moreover, in CGFP’s view, subjects such as civil servant status, pay cuts or a discussion on the indexing of wages and pensions are not for discussion. For CGFP officials, all subjects directly relating to public services should not in any event be included in the tripartite negotiations. Furthermore, instead of an attack on existing benefits, CGFP is advocating a ‘national effort’. One of the new avenues for achieving this, according to the union, would be the fight against tax evasion. The financial resources that would be recoverable from tax evasion could prevent any tax hike.

Odette Wlodarski, Prevent