Tax reform to increase purchasing power and maintain employment levels

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In October 1997, the Luxembourg Government announced the final provisions of its two-stage draft legislation designed to benefit both companies and workers through substantial tax cuts.

On 3 October 1997, the Luxembourg Government announced details of draft legislation constituting the second stage of a tax-reform package designed not only to stimulate economic growth but also to maintain employment levels and create jobs.

Part of the reform provides for a cut in company revenue tax from 32% to 30% starting in 1998, together with a reduction in tax on operating capital. Measures designed to promote capital investments are also in the pipeline. The total cost of these reforms demanded by employers' associations comes to LUF 3-3.5 billion, and will be added to the measures costing LUF 7 billion (out of a revenue budget of approximately LUF 170 billion) aimed at easing tax pressure on employment, which were demanded by trade unions.

In broad terms, workers will benefit from a tax cut of 4% from 1998 onwards, although the reform contains a number of more selective elements: for instance, the top rate now drops from 50% to 46%, but a good number of workers whose top tranche of income was once taxed at 50% will now only be taxed at a maximum of 44%; this is due to a very substantial rise in the minimum level of income from which the maximum tax rate is applied.

Both of these Government proposals have been warmly welcomed by all social partners concerned; their criticisms focus solely on the detail.