After years of debate and calls from across the political spectrum, Luxembourg will be introducing individual taxation and replace the current system known as "splitting".
As Christian Social People's Party (CSV) MP and rapporteur Diane Adehm explained, Luxembourg was one of the last countries in Europe still applying this outdated model, arguing that the reform is long overdue and better reflects modern society.
Under the existing tax regime, women who spent time at home raising children were often financially discouraged from returning to work. The reform will address this by making employment more attractive for women.
However, couples who wish to retain the existing system will be able to do so for up to 25 years. Adehm emphasised that people should not lose a benefit that influenced major life decisions.
She also addressed criticisms during Wednesday’s parliamentary debate, particularly claims that those in tax class 1A would benefit less than those in class 1.
Adehm pointed out that class 1A taxpayers have already received considerable relief in recent years.
She insisted the reform must ease the financial burden on citizens instead of being a "state-sanctioned fiscal grab", dismissing suggestions that the cost to the state budget is too high.
While the principle of individualisation has broad support, opposition parties raised several concerns throughout the debate.
Criticism from all opposition parties centred on the reform’s cost. Déi Gréng (The Greens), for example, considered it irresponsible to implement such an expensive measure in the current economic climate.
Taking into account prior cuts to corporate tax and increases in family allowances, total state spending is expected to rise to around €1 billion per year.
MP Sam Tanson pointed out that interest payments on public debt are projected to reach €934 million by 2030, more than double this year’s figure, and argued that this amount exceeds planned investment in rail and tram infrastructure, and is similar to the cost of the entire reform.
Similar reservations were expressed by Luxembourg Socialist Workers' Party (LSAP) MP Franz Fayot, who questioned whether it was wise to forgo tax revenues at a time of slower economic growth and increasing reliance on the financial sector.
Fayot cautioned that with future challenges and rising costs, the government should adopt a more prudent fiscal approach.
The LSAP also argued that such broad redistribution is unnecessary, and maintained that the tax cuts are not sufficiently targeted to those most in need.
The Alternative Democratic Reform Party (ADR) especially criticised the fact that traditional family models, where one partner works less or not at all, will benefit less under the new system.
ADR deputy Fred Keup highlighted the distinction between couples married before and after 2028, with only the former group eligible for the 25-year transitional period.
He questioned whether families should be treated differently based solely on their wedding date, even if their circumstances are otherwise identical.
Pirate Party deputy Sven Clement objected to the transitional arrangements for those in tax class 2. The finance ministry estimated that around 53,000 households in this group would be worse off under the new system.
Clement argued that rather than correcting the issue, the government is allowing both systems to run in parallel for 25 years, resulting in couples with the same professional and financial situation facing different taxation depending on their wedding date.
Despite the criticism, members from various parties commended Finance Minister Gilles Roth for his inclusive approach in drafting the law and for involving the Chamber in its development.
The tax reform was ultimately approved by a majority of 37 votes, with 11 deputies voting against and 12 abstaining.
