Sustainability Council proposes tax reform to address climate targets

Luxembourg is not meeting its 2030 climate targets. In response, the Sustainability Council has taken it upon itself to put together a medium and long-term concept for tax reform.

The proposed reform, based on a European study adapted to Luxembourg's specific context, holds the potential to benefit the environment, households, and businesses.

Romain Poulles, the president of the Sustainability Council, says, "it's important to understand that everything we want to achieve is impossible if we don't tackle a sustainable and systemic tax reform."

Currently, only a minute fraction (0.03%) of tax revenues come from pollution-related taxes, with the majority (47%) originating from income tax and corporate taxes. The proposed tax redistribution would shift €2 billion from labour taxation to resource usage and pollution taxes. As a result, households and companies would experience reduced tax burdens by 2025.

According to Georges Bock from the Sustainability Council, the proposed reform would bring "reduced income tax, reduced social contributions, and a net transfer of €400 million to the bottom two turnover quintiles. After all, they are the ones most burdened by basic consumption."

To achieve this, the reform suggests increasing taxes on kilometres driven by lorries and cars, which could generate €390 million in revenue. In addition, raising value-added tax (VAT) and taxing the aviation industry, particularly the use of paraffin, might further contribute approximately €1.4 billion to state coffers.

According to the study, implementing this 2-billion-euro tax overhaul would instantly lead to a socially just and more sustainable system, reducing CO2 emissions by 12% without burdening the economy, except for the fossil fuel industry.

However, the Sustainability Council admits that the European study the proposals are based on would first have to be conducted again from scratch in Luxembourg, which would require significant political will.