Luxembourg's planned tax reform will cost €880 million in 2028, but Finance Minister Gilles Roth says stronger revenues give the government room to deliver it while keeping spending under control.
Speaking to RTL's Roy Grotz ahead of the 2027 budget presentation on 7 October, Roth described the reform as "an investment in people's purchasing power".
He said the budget would show that the government had the financial headroom for it, while cautioning against treating a recent rise in tax receipts as a permanent windfall.
Roth said revenues had grown strongly through the summer and could finish this year 8% to 9% above last year's level. That would follow growth of more than 12% in 2024 and around 3% to 4% in 2025, according to figures he gave in the interview.
He attributed much of the strength to the financial sector, including taxes linked to banks' profits and the growth of Luxembourg's fund industry.
"The problem in Luxembourg at the moment is not necessarily revenue", he asserted.
The government must also keep its many spending commitments under control, he added. Roth said he would give MPs an update on revenue through 30 September before presenting the budget figures for this year and next.
The proposed tax reform would move towards a single tax class and change the treatment of households in which both partners work. Roth argued that the current system no longer reflects family life, including the circumstances of divorced parents who do not have custody of their children.
He offered two examples of what the changes could mean.
A married couple with children and €50,000 in annual taxable income, split 60/40 between the two earners, would have €2,188 more a year after tax, he said. For a couple with the same income split and €125,000 in annual income, the gain would be about €5,000.
Roth said lower income households would receive a larger benefit as a percentage of their income, even if higher earners gained more in absolute euros.
The reform is part of a wider package intended to raise purchasing power.
Roth said child benefits would increase from 1 January, at a cost of €150 million next year, while childcare support would become more favourable for families. He also pointed to planned measures addressing poverty and the cost of living.
Roth further reaffirmed the government's commitment to Luxembourg's wage indexation system, under which pay is adjusted in response to inflation.
"The index mechanism, as it exists now, will not be changed", he said, calling it part of the country's social model.
He said the social minimum wage would rise by €200 net a month from July 2027 and pledged that future increases to that wage would remain free of income tax through the end of the parliamentary term.
On public spending, Roth said ministers had agreed to be cautious about adding new posts.
He distinguished new positions from replacements for employees who retire, but said staffing still had to respond to needs in policing, defence, and schools. He also stressed that security funding would be available following drone incidents near Luxembourg Airport.
Protecting critical infrastructure "must not fail because of budgetary resources", he said; if necessary, the government would make savings elsewhere.
The interview also turned to the financial centre that underpins much of Roth's revenue outlook.
He said Luxembourg funds held around €9 trillion in assets as of the previous week, a figure he described as unprecedented. The annual subscription tax on funds now brings in between €1.2 billion and €1.5 billion, he said, alongside other taxes generated by the sector.
Roth defended the role of Luxembourg's financial regulator, the CSSF, amid discussion of a possible shift towards centralised European supervision in Paris. He argued that the regulator's expertise and responsiveness were advantages for an industry serving investors far beyond Europe.
Luxembourg would continue to defend its position in the negotiations, he said, though he acknowledged that the outcome remained uncertain.
Asked about speculation over a possible sale of the majority shareholder's stake in BIL, Roth sought to reassure customers and staff. "The Luxembourg state will keep its shares in BIL, not sell them", he said.
He declined to speculate on the intentions of the bank's main shareholder, Legend Holdings, and reiterated that any sale would require approval from the European Central Bank.
For Roth, the challenge running through the budget and financial sector debates is to preserve the revenues that fund public services while delivering the government's promised relief. A budget, he said, is an "action plan for the country and its people".
