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Labour costs must come down. After his alarming talks with Volvo’s CEO Håkan Samuelsson last week, Flemish minister-president Kris Peeters CD&V is more than ever convinced of this necessity. “I will tackle the issue with prime minister Elio Di Rupo on Friday,” Peeters said yesterday. “I would like to find out what can still be accomplished during this term of office. We should consider a pact on competitiveness which involves all governments. I will also discuss the matter with Walloon minister-president Rudy Demotte PS next week. Minor measures are no longer enough,” he added. In addition to labour costs, Peeters also believes that energy costs should come down and that the job market should be more flexible, “We must give our business leaders hope. To achieve that, we must tackle these issues. If this is impossible to achieve during this government term, we must start preparations to ensure that the next one can accomplish it.” Speaking from Dublin on the weekend, federal finance minister Koen Geens CD&V, a former chief of Peeters' ministerial office, said that expectations should not be too high until next year’s elections. National Bank governor Luc Coene needs not be convinced that labour costs are too high as his calculations indicate that the wage handicap with respect to neighbouring countries has increased by 13% since 1996. According to Coene that has cost Belgium a considerable portion of market share. He sees the abolishment of the wage indexation linked to the price of a basket of consumer goods as one of the best possible ways of boosting competitiveness. Liberal attacks on the system are however usually blocked by the Parti Socialiste, who want to protect buying power. Last weekend Geens also referred to domestic consumption as one of the key economic drivers, warning that a cut in wages could negatively affect domestic spending.
The changes to the index that were agreed on when this year’s budget was drafted have had a negligible effect. The Di Rupo government’s most crucial achievement in its fight for competitiveness has been its decision to freeze wages for two years. It remains to be seen whether this will eliminate the wage handicap. Peeters does not seem convinced. Another way to boost competitiveness according to Coene is the relief of social security contributions and taxation of labour. While all parties agree to the merits of taxing wealth rather than labour, the government has increased tax on wealth without offsetting it with reduced labour charges and used the wealth taxes to keep the budget on track. Coene believes relief of taxes and social security contributions on labour should be compensated with savings. Talks about high labour costs are usually countered by references to the country’s high level of labour productivity, but according to the Organisation for Economic Cooperation and Development OESO and the IMF this has also declined if compared to neighbouring countries.
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