"Citizens and businesses are feeling the effect of this war very differently," Prime Minister Luc Frieden declared at the outset of Tuesday's State of the Nation address, framing the speech around the consequences of the energy crisis triggered by the US-Israeli war in Iran and the need for national solidarity in response.
Frieden painted a somber picture of the economic situation. Growth has averaged just over 0.6% since the pandemic, unemployment is rising and almost all sectors have lost momentum. "Almost all sectors have lost dynamism — craft, construction, retail and hospitality", he said. "The financial centre remains the driving force of our economy, but it faces increasingly intense international competition."
As expected, the Prime Minister made no new announcements in connection with the upcoming tripartite talks, though he noted that the state is already covering a large share of network costs for citizens and companies, to the tune of €150 million. The message to the social partners was one of collective responsibility. "If we all see ourselves as part of the same whole, these different realities do not divide us but bring us together. Then we do not stand against each other, but together. Then our nation stands united."
He was equally direct on the stakes involved: "We create growth together, or we stagnate together — with all the ensuing consequences." However, he emphasised that while the government is ready to discuss all these issues with the social partners, it is not an issue that can be addressed with crisis measures.
"Almost all sectors have lost dynamism – craft, construction, retail and hospitality. The financial centre remains the driving force of our economy, but it faces increasingly intense international competition."Luc Frieden, Prime Minister
Frieden was clear that without growth there can be no new jobs. To support businesses, the government is maintaining a tax credit for investments and start-ups. The Digital Learning Hub is also to expand its offering for young people, and higher education is to be strengthened, with renowned foreign universities set to establish a presence in Luxembourg.
Notably absent from the speech was any reference to the state's finances, despite the fact that state debt is now close to 30% of GDP and the budget remains in deficit.
Frieden opened his address by acknowledging the deteriorating state of the international order. "Events beyond our borders, sometimes far away from us, have direct and tangible consequences for our country," he said. "This holds true in good times. But it is equally true in times of international crises."
With inflation at risk of rising further due to energy prices, the Prime Minister confirmed that the economic fallout would be addressed in a tripartite format with the social partners.
"Events beyond our borders, sometimes far away from us, have direct and tangible consequences for our country. This holds true in good times. But it is equally true in times of international crises."Luc Frieden, Prime Minister
Frieden was keen to emphasise that no one would be left behind. The most important social reform announced is the introduction of a cost-of-living supplement from 2027, which will merge five existing benefits, including the cost-of-living allowance, the energy allowance and financial assistance for retirees, into a single, automatically adjusted payment. New targeted aid to combat child poverty was also announced, with support of up to €3,000 per year for low-income families.
"The most important reform, which will enter into force in 2027, is the cost-of living supplement. It will merge five existing benefits, including the cost-of-living allowance, the energy allowance and the new financial assistance for the retired."Luc Frieden, Prime Minister
Frieden reaffirmed the government's commitment to a solidarity-based healthcare system, ruling out a two-tier model. "We do not want a two-tier system", he said plainly, while also acknowledging that waiting times must be addressed. The government intends to facilitate more outpatient procedures outside hospitals going forward.
"In the future, we will facilitate certain outpatient procedures, also out of hospitals."Luc Frieden, Prime Minister
On taxation, the Prime Minister confirmed that from 2028 there will be a single tax bracket, with the reform centred on the treatment of the child factor. Finance Minister Gilles Roth is working to build a broad consensus around the changes.
From January, child benefit will increase by €45 per month, rising to €60 for children over 12. The government is also extending the childcare service voucher system, taking on nearly €80 million in costs previously borne by families, saving the average family around €3,000 per child per year.
"We want to make sure that every child has access to a childcare facility, regardless of their parents’ situation. Here too, we are easing the burden on families by taking over nearly 80 million euros that were previously financed by the families themselves. As a result, a family will save on average nearly €3,000 per child per year."Luc Frieden, Prime Minister
The government is introducing a minimum age for social media use in the name of healthy screen-life balance. If no European-level solution emerges by the end of the year, Luxembourg will act unilaterally at the national level. Mobile phones have already been banned in schools, and the Minister of Justice has introduced draft legislation to combat digital violence.
Frieden returned to the ten-point action plan on housing he had presented in his first State of the Nation address, noting that seven of the ten measures have already been implemented or submitted to parliament, with the remaining three to follow by year's end. The principle of silence means consent, under which planning applications are automatically approved once a deadline passes without a response, was highlighted as a key simplification. The government is also taking assuming responsibility for creating more affordable housing.
"We were, we are, and we remain convinced of the relevance of these measures. They will inject new momentum into the housing market in the medium term."Luc Frieden, Prime Minister
On public safety, Frieden highlighted the efforts of the Ministry of Home Affairs to bring policing closer to citizens, built around four principles: more personnel, more presence, more proximity and more prevention. Before the summer, the government intends to equip the police with stronger legal tools through the reinforced Platzverweis, the expanded dispersal order that has been making its way through parliament. "This way, we are strengthening security and the feeling of security, with a police force that is close to the people and supports our coexistence", he said.
The Prime Minister also announced plans to create a stronger legal framework for municipal services.
Culture Minister Eric Thill will present a new action plan for the Luxembourgish language during this legislative term, alongside the completion of the Sproochmaschinn language engine's translation function. "Language creates a bond between people and with the country," Frieden said.
"Language creates a bond between people and with the country – a country where our political system too reflects the way we live together."Luc Frieden, Prime Minister
For the Government, the answers are clear: we want to protect the environment and tackle climate change. The pre-financing of photovoltaic installations is now a reality and the system is being extended to subsidies for electric vehicles, heat pumps and home renovations. And we are extending them until 2030. The government is also introducing draft legislation to allow the construction of photovoltaic installations along motorways.
Luxembourg is developing a defence industry strategy built on its existing strengths, with a dedicated bill to be introduced before the summer. "We will build neither tanks nor missiles, but we will support targeted innovation that may also have civilian applications, particularly in the fields of space and cybersecurity," Frieden said. A €150 million investment fund for start-ups and a new Defence Campus in Dudelange are also planned.
"We will build neither tanks nor missiles, but we will support targeted innovation that may also have civilian applications – particularly in the fields of space and cybersecurity."Luc Frieden, Prime Minister
Wanting to transform Luxembourg into a knowledge society, the government wants to be at the forefront of the latest technologies, with the Prime Minister naming autonomous driving as a key priority.
On artificial intelligence, the government is pressing ahead with ambition, viewing AI as opening up new possibilities for Luxembourg to position itself as a hub for research, innovation and entrepreneurship. Frieden was nonetheless clear that the technology must remain in service of people rather than the other way around. "AI has to be in service of people," he said, setting out the government's guiding principle as it moves to harness the technology's potential across the public sector. Last year, Luxembourg signed a partnership with Mistral AI, with ministries set to receive access to the LeChat AI chatbot in the coming weeks, to be extended to all public administrations thereafter, accompanied by dedicated staff training.
"Over the coming weeks, ministries will get access to the LeChat AI chatbot. This access will then be extended to all administrations. And we will support public sector staff through dedicated training programmes."Luc Frieden, Prime Minister
Frieden closed his speech under the title "Together. For everyone" a theme of togetherness that ran through the entire address, encompassing growth, solidarity, perseverance, security and the shared future of Luxembourg's society, a society that stands together.
