Starting 1 January 2024, employees in Luxembourg will benefit from tax cuts, as the government has tabled a bill in parliament to adapt the tax scale to four index brackets. However, this is not sufficient, despite going in the right direction, Hoffmann told RTL on Thursday.
The inflation adjustment does not equate to a tax gift, Hoffmann argued, explaining that workers are simply receiving money they pre-funded. “Since the last tax adjustment, eight index brackets have taken place, but as the scale wasn’t adjusted, salaries have not been fully compensated.” The average salary still falls short by around €1,200 net per year, Hoffmann said, despite employees being entitled to this adjustment.
Other tax measures, such as the possibility of tax deductions, have not been fully adapted in line with inflation over the past three decades, the director added. This also applies to tax credits for workers and pensioners. “In 2017, 80% of people obtained this tax credit, but as the threshold hasn’t been adapted since then, today that figure is just 70%.”
If the prospect of adjusting taxes in line with inflation would cost the State too much, then the government needs to consider new tax revenues, according to Hoffmann. “The scale was considerably compressed in the 90s and afterwards,” the director explained. “Certainly, the level of exempt income has gone up, but at the same time, the top tax rate has come down.” Hoffmann suggested the scale should be “stretched” once again, continuing to rise at the bottom, while “adding instalments at the top” of the tax scale.
Hoffmann also highlighted that other forms of income, such as capital income, are taxed less, if at all. “The average earner pays around 31% in taxes, but seven times less in the form of dividends for the same wage.”
However, the CSV and the DP oppose the idea of increasing the top tax rate, or a wealth tax, in order to keep Luxembourg “more attractive” in their eyes. Hoffmann called this a slogan, and pointed to Luxembourg’s financial holding company Soparfi. “We all feared Soparfi would disappear, but it didn’t happen. If you want to stimulate economic activity, you must, above all, reduce taxes for low and medium incomes, because these earners are the ones who have the greatest propensity to spend.”
Hoffmann also emphasised the need for a discussion on salary structure for essential professions, which are often subjected to lower wages than other, less essential, roles. Although this discussion was briefly addressed during the coronavirus pandemic, it has since fallen by the wayside.
The Chamber of Employees director said it was already possible to increase minimum wage or promote new collective agreements in order to promote essential professions.
