On Thursday, MPs voted on a number of tax aids agreed by the most recent tripartite meeting, ranging from economic and carbon tax credits, to the adjustment of the tax scale. Here is how these measures will affect real wages.

In the coming weeks, Luxembourg employees will receive an increase in their salary or pensions, thanks to the new tripartite law which will come into effect this week.

The first increase is due to the economic tax credit agreed by the tripartite to protect purchasing power and reduce the "cold progression" eating away at wages and pensions. It represents a tax reduction of approximately 5%, which can add up to the following per month:

  • around €13 per month for the non-qualified minimum social wage (€2,508.24)
  • around €20 per month for the qualified minimum social wage (€3,009.88)
  • around €35 ​​per month for a gross salary of €4,000
  • €44 per month for salaries between €4,600 and €9,500 gross

The tax credit is retroactive to 1 January 2023, so the amount due for the first half of the year will be added in a single instalment to employees' next pay check. If the law is published on 29 June, the payment will be added to July salaries; if not, it will be triggered the following month.

Salaries will continue to rise in 2024

In 2024, the tax credit will be replaced by a permanent adaptation of the tax scale, which is likely to offset the "cold progression" by a tax cut of 6.3%. This represents roughly 2.5 wage indexations.

According to government estimates, here is its effect:

  • A single person without dependants, earning €3,000 gross per month, will earn €285 in purchasing power, or almost 24€ per month. 
  • A single person with €5,000 of gross income per month will pay €705 less in taxes in 2024, or €58 per month.
  • A one-child family will earn €6,750 in gross income, or up to €645 less in taxes.

Luxembourg's unions, particularly the OGBL, hope to later obtain compensation worth eight indexations, instead of just two and a half. "We did not manage to achieve all we set out to - we made our position clear, but this in itself is an important first symbolic step. We will continue to push for a full adaptation," said OGBL president Nora Back following the meetings.

A small boost from the CO2 tax credit

The new bill also includes the creation of a CO2 tax credit. Although it is more modest than the previous tax credit, it is designed to compensate for the CO2 tax cost for those earning the lowest salaries, according to the government.

According to the text, the CO2 tax credit will represent €12 per month for people earning less than €40,000 per year (€3,330 per month). It adds up to €144 per year for employees, retirees and the self-employed.

However, it has a descending effect and will be of less value to those earning more. For example, an employee or pensioner receiving €60,000 gross per year, or €5,000 per month, will be entitled to €6 per month of CO2 credit. Aid will not be granted beyond a gross salary of €79,999 per year.

The CO2 tax credit and the adaptation of the tax scale will however be limited by two other changes:

  • the reduction in the amount of the employee tax credit at the start of 2024 (-8€ per month for an employee at the qualified minimum social wage)
  • the CO2 tax increase on 1 January 2023: jumping up from €30 to €35 per tonne of carbon.