Luxembourg’s government announced on Tuesday that it can afford the recently agreed €450 million tripartite support package, citing stronger-than-expected state revenues in the first months of 2024. At a joint press conference, Prime Minister Luc Frieden, Deputy Prime Minister Xavier Bettel, and Minister of Finance Gilles Roth presented the fiscal outlook and rationale behind the new measures.
Minister of Finance Gilles Roth explained that as of 31 May, state revenues were €800 million higher compared to the same period in 2023. He declined to provide further details on the sources of this increase, citing tax confidentiality.
Prime Minister Frieden attributed the agreement to “excellent teamwork”, highlighting that consensus was reached with both trade unions and employers’ associations to provide relief to households without placing new burdens on businesses. The government plans to spend €180 million this year and €250 million next year – estimates that could rise to €450 million in total, subject to change as circumstances evolve.
Deputy Prime Minister Bettel emphasised the importance of fiscal responsibility and long-term planning, warning against making unsustainable promises: “Our responsibility today is also a responsibility for tomorrow. That is why we cannot commit to everything at the tripartite, only to find later that we cannot fund hospitals, roads, or schools.” He welcomed the fact that the agreement is both socially responsible and financially viable.
Social selectivity remains central
A large share of the package will cover the minimum wage increase, funded through a tax credit, and the adjustment of tax brackets to account for inflation.
When asked whether the bracket adjustment diluted the benefit, Gilles Roth argued that Luxembourg’s progressive tax system ensures “broader shoulders pay more”, and that the principle of social selectivity remains in effect. For example, a person earning €5,000 per month will receive about the same tax credit, and see similar tax relief from 1 January, as someone earning €15,000 or €20,000 per month. However, Roth acknowledged that the progressive effect tapers off relatively early for high earners.
Roth reiterated the government’s stance that “work must pay”. Responding to criticism from the Alternative Democratic Reform Party (ADR) that increasing the minimum wage narrows the gap between minimum wage earners and others, Roth replied that “hey should simply support the tax reform, as the new tax schedule will mean more net income for the same gross”.
Alongside household relief, the government is also providing direct assistance to approximately 320 companies affected by higher energy costs, at a cost of €40 million. An additional €5 million is earmarked for the agricultural sector, and €60 million has been allocated this year to curb price rises.
Energy prices and the path to transition
Minister for Energy Lex Delles gave practical examples of how the aid will benefit households. A typical household with a heat pump can expect to save €217 on electricity over five to six months. Average gas users will see about €150 in savings, while those heating with fuel oil could also save €150, depending on when the price cap comes into effect. Savings on diesel will vary according to driving patterns.
Although some fossil fuels are being subsidised in the short term to cushion price shocks, the tripartite agreement also introduces new support for the energy transition. The Prime Minister stressed that households who have already ordered a heat pump will be eligible for an increased “Klimabonus” top-up and pre-financing, with these benefits applied retroactively from 1 January.
During the press conference, journalists pressed Minister Roth for more details on the minimum wage tax credit and the tax bracket adjustment. Prime Minister Frieden referred the media to supplementary explanatory materials for further clarification.
