The International Monetary Fund's (IMF) annual report on Luxembourg, published last week, offers relevant insights ahead of the upcoming tripartite talks between the government and social partners. The analysts note that the Luxembourgish economy has still not regained its momentum, although the financial centre has remained resilient. Public finances are deteriorating, while the Grand Duchy remains exposed to short-term risks, particularly due to the war in Iran.
The IMF recommends curbing expenditure, especially regarding the state's wage costs. It also continues to advocate for more flexible work organisation and an increased supply of affordable housing.
The report's authors view certain aspects of the planned tax reform positively. Tax relief and the introduction of a single tax class could reinvigorate the labour market by strengthening purchasing power and encouraging people to work. However, the IMF shares the concern of the National Council of Public Finances that there is no counter-financing for the reform. It recommends measures to reduce revenue loss and improve the progressiveness of the tax scale – meaning that higher incomes would be subject to higher tax rates.
"Costs mean relief for the people, and one must also keep this in mind during these times. People also need more purchasing power", said Minister of Finance Gilles Roth in a brief response to a question upon his arrival at Tuesday's preparatory talks for the Tripartite.
The Finance Minister also welcomed the "positive" opinion from the Council of State on the tax reform. He noted that the few formal objections were of a "technical nature" and could therefore be "sorted out".
