RTL Today - Taxes, financial support: How are Luxembourg's parties aiming to improve household finances?

With the legislative elections just days away, the various political parties have outlined their strategies to enhance the financial well-being of Luxembourg residents and cross-border workers. Our colleagues from RTL Infos took a closer look at each party's election pledges.

Economic matters have emerged as a contentious topic during the election campaign. Foremost among electoral promises is a major reform aiming to introduce a single tax bracket, a plan that has sparked vigorous debates.

Central questions revolve around the potential abolition of tax brackets and the pace at which this change should occur. There is also ongoing deliberation regarding the taxation of high incomes, with concerns about how to strike a balance between fiscal attractiveness and the equitable treatment of substantial fortunes. Additionally, the role of tax relief mechanisms and various allowances designed to reduce tax liabilities is under scrutiny.

The priority: A major tax reform

The primary focus of the parties is a significant tax reform initiative, initially promised in 2018 but deferred due to a series of crises over the past three years. The goal now is to replace tax brackets (1, 1a, and 2) with a fairer system of individual taxation. Currently, Luxembourg's taxation system provides substantial advantages to couples, while single individuals, widows and widowers, and single parents often bear the brunt of this "pro-family" tax policy.

A majority of parties, including the Democratic Party (DP), Luxembourg Socialist Workers' Party (LSAP), Green Party (déi gréng), Left Party (déi Lénk), and Pirate Party have committed to introducing individualised taxation. Their collective approach aims to establish a single tax bracket that is "neutral with regard to people's lifestyles."

"No one should be at a tax disadvantage because of their family situation (married, partnered, widowed, etc.)" stresses the DP, which wants to introduce the new bracket "gradually." The Green Party views this shift as a means to alleviate "the burden on households earning triple the minimum wage or less."

To cater to parents, the LSAP proposes the introduction of a "tax credit for each child in the household," which could be shared between separated parents. The Christian Social People's Party (CSV) seeks to "increase tax allowances for families with children," proposing €1,000 per child under 11 and €2,000 per child aged 12 to 18.

The Pirate Party has pledged to place all single-parent families in tax bracket 2 should they come into power — a measure also supported by the Alternative Democratic Reform Party (adr) and Liberté-Freedom.

A tax scale for all?

During election season, political parties often introduce proposals that could bring advantages to a wide array of citizens. The fundamental question emerges: Can policies be designed to benefit everyone? This is the quandary to which each political faction has provided its own response.

On one front, several parties are advocating for tax reductions for those with lower incomes. The Pirate Party, FOKUS, and LSAP, for instance, are keen on exempting the minimum social wage from income tax. Additionally, LSAP and the Pirate Party are aiming to shift the progression of the new tax scale in an upward direction. For adr, raising the net minimum wage above the poverty line is a priority, with the intention to implement this through tax credits.

The Green Party is championing a new tax scale that would alleviate the tax burden on households earning "triple the minimum wage or less." Meanwhile, the Left Party is committed to reducing progressivity, particularly in favour of lower-income individuals.

In contrast, the CSV is proposing a general tax reduction strategy. This entails elevating the entry threshold for the tax scale from €11,265 to €15,000 and increasing it to €30,000 for single parents and widows/widowers (currently at €22,500 annually). The plan also involves expanding the existing income brackets by €2,500 upward increments, effectively reducing taxation for a broader spectrum of earners. Furthermore, workers receiving the social minimum wage would stand to benefit from a sliding-scale tax credit under the CSV's proposal.

High-income taxation divides coalition

Within the DP-LSAP-Greens coalition, one significant point of contention revolves around the taxation of high incomes. While the LSAP and the Green Party are contemplating the potential reintroduction of a wealth tax (abolished in 2006), the DP is staunchly opposing such a measure, stating, "The DP has consistently rejected individual wealth taxes. Such a tax would entail a disproportionate administrative burden and negatively impact the country's allure." Joining the DP in opposition to a wealth tax are the CSV, the Pirate Party, and FOKUS.

Conversely, the LSAP and the Green Party are advocating for higher taxation on high incomes. The LSAP proposes raising the tax burden to 49% for incomes exceeding €500,000. The Left Party also aims to increase taxation on high incomes, proposing a top tax rate of 50%. The CSV has put forward a similar idea, suggesting an additional tax bracket at 43% for incomes exceeding €500,000 annually.

These positions stand in marked contrast to the DP's stance, which firmly "rejects any further elevation of the top tax rate" to maintain attractiveness for both domestic and international employees.

Tax credits, reductions and other targeted support

The tripartite agreed to supply aid in the form of energy bonuses and tax credits to households during the inflation crisis, making it possible for citizens to defend their purchasing power. This intervention proved that targeted support can be more effective and fair than general measures, leading many parties to base their defence of purchasing power on specific plans.

The LSAP has outlined a policy aimed at young people, granting a monthly tax credit of €200 to young workers over a five-year-period. Another suggestion is a reinforced CO2 tax credit supplied to the bottom 40% of households based on earnings. The party has also proposed a "degressive tax credit linked to the number of dependent children" which would be granted to people earning a gross annual income under €100,000. This would accompany a "taxable income reduction for dependent children who are not part of the household."

The CSV is also offering measures to help young people, proposing a "starter kit" representing three years of tax relief for a young person entering the workplace for the first time. Other suggestions include extra tax deductions when filing taxes, aimed at the general population.

The Pirates are promoting work income, proposing that any bonuses up to €5,000 granted by companies should be exempt from tax. They also support the same treatment for the 13th month.

Fokus offers support for tenants, suggesting "a certain percentage of rent should be tax deductible." The Greens are also in favour of tax advantages to help with rental or housing costs. Like the LSAP, they support a "social cushion" for the CO2 tax effects, through increasing the associated tax credits. Their manifesto also includes a fiscal climate bonus to be deduced from contributions for home savings contracts (such as renovations, energy-efficient production systems, etc). On the other hand, the Greens wish to tax future capital income which is only half taxable at present.
For more on the parties' manifestos, as well as other news on the upcoming elections, read here.