Gilles Roth on deficit, tax reforms, and Luxembourg's economic future

On Saturday, Minister of Finance Gilles Roth sat down for an interview with our colleagues from RTL Radio. Minister Roth highlighted that Luxembourg's 2024 central state budget closed with a deficit of "only" €99 million – significantly lower than earlier projections.

The final figure marks a notable improvement from the €300 million deficit estimated in late December. During coalition negotiations a year earlier, forecasts had even projected a far larger shortfall of €3.2 to €3.6 billion.

Roth acknowledged the recurring discrepancy between budget forecasts and actual results, noting that such variations are difficult to avoid. He attributed the volatility largely to Luxembourg's corporate tax structure, where just 650 businesses contribute 75% of corporate tax revenue. The minister confirmed he is collaborating with the tax administration to improve profit tracking mechanisms.

Despite the positive outcome, Roth urged caution, warning against excessive optimism. "Now is not the time to spend recklessly," he said, emphasising the need to maintain financial flexibility for future obligations.

Barring a major economic crisis, Roth expects Luxembourg's national debt to stabilise at 25–26% of GDP – well below the 30% benchmark. This, he stressed, solidifies the Grand Duchy's position as one of the few EU member states consistently meeting fiscal discipline targets.

Tax reform: Transitional phase proposed for Class 2

Minister Roth reaffirmed the government's commitment to implementing a tax reform centred on consolidating Luxembourg's multiple tax classes into a single system. Initial proposals will be presented to parliament in July, followed by consultations with social partners. The reform aims to establish a balanced tax rate that avoids disadvantaging taxpayers.

Currently, Tax Class 1 (single taxpayers) begins taxation at €13,000, while Classes 1A and 2 (married couples or those in a civil union) start at €26,000. Roth suggested the new unified rate could align closely with Class 1A's structure, ensuring no immediate losses for single parents, seniors, or widows. However, Class 2 taxpayers may face a transitional phase to mitigate sudden increases.

The reform could also incorporate pending wage indexations – 6.5 have already been adjusted – into the revised tax framework.

Construction incentives to expire as planned

Roth opposed extending tax benefits for the construction sector beyond their June 2024 deadline. Measures like accelerated depreciation, reduced registration fees (50%), and the quarter-rate valuation for capital gains were introduced to stimulate demand during slower periods.

With the sector now stabilised, Roth warned that prolonging these incentives risked fuelling price inflation. However, he stressed that the final decision rests with the Chamber of Deputies.

BIL rumours: Minister declines to comment

Addressing speculation about BIL, Roth emphasised that he had to be cautious regarding what he says publicly due to the stock-listed status of its majority shareholder, Legend Holdings. He confirmed the state's 10% stake would remain unchanged.

Roth reiterated his advocacy for streamlining financial sector regulations to bolster competitiveness, stating that he is "among the few EU finance ministers" to do so.

Roth proposes "defence bonds" to meet NATO spending targets

Minister Roth emphasised the need for Europe to strengthen its autonomy while maintaining transatlantic cooperation, even under a Trump administration. He pointed to past EU countermeasures against US trade tariffs as evidence of Europe's ability to act decisively.

Regarding defence spending, Luxembourg currently allocates €780-800 million annually. Roth acknowledged meeting NATO's 2% GNI target would require an additional €400 million, but stressed this should fund strategic sectors like satellites, drones, and cybersecurity that offer economic benefits beyond traditional military spending.

To finance these needs without excessive borrowing, Roth outlined two approaches: First, by reprioritising existing expenditures, suggesting infrastructure projects could be staggered rather than implemented simultaneously. Second, through potential "defence bonds" as a dedicated financing mechanism. He explicitly assured these measures would not impact social welfare programmes.

Roth affirms CSV unity amid social dialogue debate

When pressed to side with either the parliamentary group leader of the Christian Social People's Party (CSV) Marc Spautz or Minister of Labour Georges Mischo regarding social dialogue, Roth maintained party unity, stating "I am Team CSV – we need a captain on the bridge."

Roth said that while everyone had the right to make themselves heard and also express their opinion publicly, he believes it would be "more constructive," to find consensus internally and then present a unified front to the outside.

The minister stated that it is the right of trade unions to protest and assured that he would "take it seriously" when employees feel that they are being treated unfairly. However, he also pointed to several implemented measures addressing labour concerns: the tax table adjustment for 6.5 wage indexations, establishing a tax-free minimum wage, and expanded support for single parents.