Luxembourg is changing its taxation system

The Luxembourg government is embarking on one of the biggest tax reforms of the decade. Under the 2023-2028 coalition agreement, a single tax category - based on the current Class 1A - will be introduced in the country from 2028. The decision, which has the support of almost all parliamentary parties, was discussed on Thursday at a meeting between Finance Minister Gilles Roth and the OGBL-LCGB trade union association.

One of the key innovations will be the automatic adjustment of the tax scale each time the mechanism of wage indexation is triggered, i.e. when inflation rises. Such a measure, according to the minister, will ensure that an increase in nominal income will not artificially push citizens into higher tax categories - one of the chronic defects of the current system.

The unions themselves called this adaptation a "long-standing demand" and welcomed the initiative, although they regretted that the mechanism was not introduced sooner.

The single tax category is also designed to reduce taxes for the majority of the population. For those who would lose out in the transition to the new system, there is a transition period extended from 20 to 25 years - a compromise that the unions found reasonable, although they expressed a desire to abolish time limits altogether.

Despite support for the key points, the representatives of the OGBL and LCGB emphasise that structural inequalities in the tax system remain. This refers primarily to the preferential taxation of capital, property income and large fortunes, compared to labour income and pensions. The trade union statement emphasises that the reform bill submitted to parliament for 2026 does not redress this imbalance.

The unions demand a deeper restructuring of the system: to increase fiscal pressure on high incomes and capital, which in the current model actually receive tax preferences. They also insist on fiscal fairness not only within wages, but also between different sources of income.

In general, the reform is a step towards simplification and greater predictability of the tax system, but the problem of fair redistribution of income remains open. And, as the unions point out, if the state really wants to build social trust, it is necessary to affect not only wages but also savings.