On Thursday morning the director of the "Chambre des salariés", Sylvain Hoffmann, shared his thoughts on the tax scale in Luxembourg.
Appearing on RTL Radio, Hoffmann said tax bands should regularly be adjusted in line with inflation, as was the case back in the 90s. "Any failure to adjust tax rates to inflation is a hidden tax increase," he explained.
Although the tripartite's decision to adjust the tax scale to 2.5 indexations next year is a welcome one, the Chamber of Employees has expressed concern at the fact that no fewer than eight index tranches had seen the same adjustment in recent years.
Minister of Finance Yuriko Backes has repeatedly said that adjusting the tax scale to eight indexations would be "irresponsible" and would result in over a billion euros less for the state coffers. Hoffmann responded it was equally irresponsible to tax employees more in times of crisis without adjusting the tax scale. He explained the adjustment would naturally be more expensive as it had been left for a long time. "If it is adjusted regularly, it would not be so expensive all at once."
Tax credits are not fulfilling promises
The Chamber of Employees also criticised the retroactive tax credit, stating that the end recipients will not receive the equivalent to an adjustment worth two index instalments. Hoffmann said the tax credit was poorly calibrated and based on tax class 1. He explained it wouldn't even work properly for that tax scale, but particularly earners in tax class 1A, such as divorcees, or those who have lost a spouse, would actually be worse off than if the scale was simply adjusted.
Hoffmann added that the solidarity tax had been forgotten, so people would have to pay more of it in accordance with index tranches. "It is probably not very easy to relieve the tax burden on citizens quickly and easily, as the government wishes," he admitted. However, Hoffmann believes the government could have fine-tuned the plan with closer attention to detail, if they had done a retroactive adjustment of the scale instead of tax credits.
An unfair adjustment?
In contrast to the socially graded tax credits decided at last year's tripartite meetings, which ended this April, a simple adjustment of the tax scale could effectively relieve higher incomes more, admitted Hoffmann. However, he emphasised that medium incomes would benefit the most, as the progressive increase in the rates on the scale is strongest between €11,000 and €50,000.
The Chamber of Employees will continue to demand a fairer tax system, Hoffmann added. "This effectively starts with the tax scale, you have to widen the brackets at the bottom, drawing them closer to the top, so there is tax relief and added top rates," he said. But even this would not be sufficient: capital gains would be taxed less than wages, not to mention inheritance, "which is practically not taxed at all in Luxembourg," he concluded.
Is the government playing for time?
Nearly two months after the most recent tripartite agreement, tax credits are still not an issue for the relevant parliamentary committee in the Chamber of Deputies. Weekly newspaper "d'Land" recently raised the question as to whether the government was deliberately playing for time ahead of October's parliamentary elections. The later the tax credit comes into play, the more money people will receive in one go. Hoffmann simply commented it would be "good to approve it as soon as possible," as many people had already shared their complaints with the unions.
Gilles Baum, DP MP and chairman of the special parliamentary commission, responded: "I see no calculation or bad intention in it." He added that the commission had already received explanations from the Ministry of Finance and the tax administration, and was now awaiting comment from the Council of State. Baum said it could occur on Friday, or it could be delayed to after the holidays, but without the Council of State's opinion, he could not proceed.