OECD calls Luxembourg for change: pension reform, tax adjustment and the productivity challenge

Against the backdrop of a succession of international crises, the influence of organisations such as the OECD may seem to be waning. In Luxembourg, however, its expertise remains in demand: on Monday, Prime Minister Luc Frieden openly expressed his support for the conclusions and recommendations presented by OECD Secretary General Mathias Cormann.

One of the most sensitive points was the retirement age. In Luxembourg it varies between 60 and 61 years, one of the lowest in Europe. The OECD insists on the need to raise both the minimum and standard retirement age, as well as to revise the calculation of the length of service to exclude periods of education. Frieden confirmed that there are no final decisions yet, emphasising the need for a broad discussion with society.

The OECD recommends eliminating generous energy subsidies, increasing property taxation and raising VAT. The introduction of a "high surcharge" on undeveloped land to incentivise the use of land for housing is particularly acute.

It is also proposed to revise income taxation: individualisation of taxation would encourage women to work full-time, increasing the overall activity of the population.

The organisation called for a review of fuel pricing policy: Luxembourg's "petrol tourism" should be reduced by bringing prices closer to the level of neighbouring countries. The OECD also believes that existing transport infrastructures need significant expansion and that tax incentives for new car purchases are excessive.

Productivity in Luxembourg is high but stagnant. The OECD criticises the fragmentation and heterogeneity of vocational training providers and calls for a major reform of this area. The lack of transparency in the interaction between the state and lobbyists is also identified as a risk area for economic development.

Economy Minister Lex Delles agreed with the prioritisation of the ecological transition and the development of artificial intelligence, while emphasising the vulnerability of Luxembourg's economy to global shocks.

Although Frieden enthusiastically accepted the report, he emphasised that the implementation of the recommendations would require discussion in parliament, with the social partners and, above all, with citizens. Many of the ideas echo the provisions of the coalition agreement, but the prime minister made it clear: mechanically transferring the recommendations into reality is impossible without adapting them to local conditions.

The final chord of the speech was Kormann's comment: "It is easier to recommend than to implement. This truth, especially in the context of ambitious tasks, sounds like a warning: great change requires not only political will, but also painstaking work to gain public trust.

The June State of the Nation Declaration promises to be an important milestone in this process.