The Tripartite Agreement Should Be Applauded But Bigger Issues Await

Even before Donald Trump’s administration's and Israel's ill-advised attack on Iran instigated the siege in the Strait of Hormuz, the cost of almost everything seemed to be on a steadily continuous rise.

Today, food, fuel and even fun carry price tags which are either frustratingly expensive or, for many, depressingly out of reach. This is not a problem limited to living in the Grand Duchy and inflation has affected different people in different countries in different ways but it has developed into a major issue which Luxembourg’s government was forced to address.

Alongside Luxembourg’s regular indexation of wages and pensions - triggered when cumulative inflation reaches 2.5% compared with the previous reference level - the government announced in December 2025 that it would cover a portion of electricity network charges for a period of three years (a move mostly instigated due to the ongoing conflict in Ukraine) and more recently that it would temporarily introduce a series of measures in relation to the pricing of diesel, petrol, oil, gas and electricity (as a result of the conflict in Iran), as well as additional tax credits and an increase to the minimum wage.

These measures sit alongside existing support mechanisms such as the cost-of-living benefit allowance and the rent subsidy, which are available to those who meet the criteria.

Of these, the regular wage indexation often draws the most negative responses depending on one’s place as an employee, an employer or both, and particularly if you are the owner of a small-sized business. 

Intended as a way to help residents cope with rising costs, small business suffer most as their operating costs and margins are ordinarily smaller, and finding an additional 2.5% to cover wage and contribution increases ultimately results in either a long term loss in profit and/or a forced increase in pricing.

There also seems to be a division based on those who have lived in Luxembourg for a measurable period of time and those who are relatively new to the country, with the newer residents finding the idea of an inflation-related increase attractive and the more seasoned residents being aware that indexation often results in costs rising further to compensate.

But let’s [Letz] try to be reasonable. In many ways this problem is arguably more preferential than leaving people to fend for themselves in the face of everything becoming more expensive and wages stagnating. 

Now, in the face of the ever-growing cost-of-living crisis, the state announced a set of solutions in its Tripartite Agreement which I believe should be applauded, albeit with a sensible dose of caution.

In comparison to countries such as the United Kingdom, the level of state support provided by Luxembourg for people struggling to make ends meet is almost otherworldly, especially for a country which is primarily based in the centre-right lane of politics. Yes, Luxembourg can offer such social support by virtue of both its high GDP and its small population size but the critical thing is that it does not have to, at least not to the level at which it does.

The problems these kinds of support create, particularly wage indexation, are mostly in high-level earners and pensioners receiving the same indexation-related increases as those at the lower end of the income ladder. The cost-of-living benefit and rent subsidy are sensibly capped based on household income and it perplexes me that wage indexation does not follow this methodology. Granted, it would not resolve the issues smaller business have with meeting their wage indexation obligations but surely by not having to increase pensions above a certain threshold this would free up budget resources to support those smaller businesses through solutions such as tax credits.

There are approximately 119,000 people living outside of Luxembourg who receive a pension from the Luxembourg state (source: Luxembourg's National Pension Insurance Fund (CNAP)). Fundamentally, these people are not affected by the cost of living in Luxembourg, yet they benefit every time there is an indexation triggered by the level of inflation in Luxembourg. They also no longer contribute directly to the Luxembourg economy, which needs an ongoing input of money to help many of the country’s businesses pay their employees, those who currently prop up the pension system partly for the benefit of those living outside of Luxembourg.

I do not dispute that inflation does not exist in the countries where these people now live and, as the official Guichet.lu guidance states, “non-resident workers who have paid into the Luxembourg pension system enjoy the same rights as resident workers” - a point which should be upheld given that many of these “cross-border pensioners” are former cross-border workers, but those who exceed a certain threshold should, in my opinion, not be receiving any indexation on their pension payments.

Questions have been raised about how Luxembourg can afford to fund the Tripartite Agreement of increases to minimum wage, energy subsidies and additional business support. When questioned by opposition MPs about the estimated costs of between €430 and €450 million in 2026 and 2027 for the “Resilience Package 2026”, Luxembourg Finance Minister Gilles Roth said the government can afford to finance the additional expenditure because, as of 31 May 2026, Luxembourg had around €800 million in additional revenue compared to the same period the previous year; 7.5% more than had been estimated in the state budget.

Despite the Tripartite Agreement requiring several meetings to reach a consensus and despite the valid questions surrounding the cost of the package, I personally believe the Luxembourg government deserves praise for introducing these measures. And let us not forget, this is no left-leaning, socialist government in the classic sense.

The United Kingdom has had the Left back in power following fourteen years in opposition but it has done relatively little to help those faced with the cost-of-living crisis. It may not be the Labour Party of old but it was elected to find and action solutions to help its residents. So far, it has failed.

As a country, Luxembourg is in a very privileged position compared to almost all others. No, it is not a perfect place to live. Yes, it suffers from issues of poverty, inequality and rising costs - particularly in housing and accommodation, but why shouldn’t a country like Luxembourg take advantage of its fiscal situation to ease the burden of its residents? 

The long term sustainability for the government’s measures has been rightly highlighted, and it is very unlikely that unexpected revenue in the range of hundreds millions of euros will continue to happen every year, but Luxembourg’s public debt is around 26.5% of GDP, well below the EU average of around 80 to 85% and significantly lower than that of our neighbours in France (116%) and Belgium (108%) (source: Trading Economics). The sensible thing is to use this to the country’s advantage while it can still be done with a significant margin to manoeuvre.

But let us not lose sight that the major economic issue on the horizon for Luxembourg, outside of the ramifications of the housing crisis, is still the funding of its pension system. Pension reforms were introduced by the government in January 2026 but everyone knows that they are not enough to prevent the issue of funding arising again in the not too distant future. This is very much the proverbial can being kicked down the road.

The problem for this government and those which will follow is that the questions which need to be answered about the pension funding are as difficult to ask and answer as those about the housing crisis, and right now the government seems to have little desire to answer either of those. 

This is because both issues are rooted in how Luxembourg has operated at a societal level for decades, and how older generations are benefiting from systems being propped up by current and future generations which will very unlikely benefit from them in the way of their predecessors. Factor in the refusal to discuss the topic of introducing inheritance tax and we have a powder keg of problems waiting down the line.

But right now, in the face of mounting costs and worry for many, the Luxembourg government has taken a considerable step to use its power and resources towards making a difference for those who need it. This should be applauded.

The question is, will it do the same before we hit the wall of pension funding and housing costs?