While purchasing power plummets throughout Europe, in Belgium wages continue to rise. This is because the salaries of civil servants and private sector workers are indexed to inflation. The same applies to pensions and social welfare. Every 1 January or four to five times a year, depending on the industry or sector, salaries increase according to the “smoothed health index”. Its calculation is slightly different from inflation, as it does not take into account the price of alcohol, tobacco or petrol.
The indexation of wages to inflation was introduced gradually at the beginning of the 20th century. It has survived the changes in the labour market, globalisation and the oil shocks which led Belgium’s neighbours to abandon similar systems. Today, Belgium is the only country in Europe, along with Luxembourg, to benefit from such a scheme.
During each economic crisis, the same debate resurfaces: should this mechanism be modified? Belgian employers are regularly calling for a freeze in automatic indexation, arguing that the policy puts them at a disadvantage versus their neighbours.
Today, with inflation reaching over 12%, the highest rate since 1975, employers’ unions want to establish an income ceiling above which indexation would be reduced or abolished. On the other hand, 73% of Belgians believe that the mechanism is insufficient, due to the explosion in energy prices, according to a survey in Le Soir newspaper.
However, the results are visible. According to forecasts by the Bank of Belgium, the purchasing power of Belgians should increase by 0.3% in 2022. This compares to a fall of 6.8% in the neighbouring Netherlands.