Luxembourg: Developments in working life – Q1 2016

Tax reforms welcomed by social partners, failed negotiations over working time legislation, a slight decrease in unemployment levels, and reforms to parental leave allowance are the main topics of interest in this article. This country update reports on the latest developments in working life in Luxembourg in the first quarter of 2016.

Tax reforms welcomed by social partners

One of the main events of this quarter is the tax reform, announced on 29 February, that will introduce many changes to the tax system. The aim is to ensure that Luxembourg remains an attractive destination for international business while strengthening the purchasing power of individuals. The final plans, discussed by Luxembourg’s Prime Minister on 26 April, include the following changes.

  • A gradual reduction in corporate income tax from the current rate of 21% to 19% in 2017 and 18% in 2018 (and 15% for young start-up companies) with the aim of boosting competitiveness.
  • A progressive increase in the individual tax top rate from 40% to 42%.
  • A rise in various tax advantages: for example tax credits for single-parent households will rise to €1,500, and tax credits for employees and pensions will be adjusted depending on income.
  • An increase in the tax deductibility ceiling on mortgage interest on principal residences. 

Overall, trade unions have said that they are satisfied with the tax reform plans, as well as with the decisions announced in February and March 2016 to index-link student grants and regularly increase family allowances in line with shifts in the median wage.

The Luxembourg Employers’ Union (UEL) commented that the vast majority of the tax changes are consistent with the social ambition behind the reforms of a fairer social redistribution and better targeting of tax benefits. UEL stated that the changes are in response to demands made over a long period by socioeconomic actors. However, the union also called for strict controls on government expenditure to remain on the agenda, particularly as the country is currently undergoing a time of financial boom.

Draft working time legislation

Negotiations over the reform of working time legislation have hit a stalemate. In March, after unproductive talks with employers and trade unions, the Minister of Labour announced that he would draft a legislative proposal for consultation among the social partners. The contentious issues relate to working time flexibility. The reference period during which working hours can be varied is currently one month, and employers want the greater flexibility that would come from extending it to four months. This demand is unacceptable to the trade unions who are are calling for a reduction in working hours by introducing a sixth week of paid leave.

Employment situation

The Luxembourg economy grew by nearly 5% in 2015, according to STATEC, Luxembourg’s official statistics body. Unemployment has fallen slightly since the beginning of 2016 from 17,945 in February to 18,368 in January (-423). In the last year, the unemployment rate has decreased slightly to 6% overall, and to 8.7% for young people. However, the rate is still relatively high as highlighted in the Panorama Social report for 2016 (PDF) from the Luxembourg Chamber of Employees (CSL). The report welcomes a slight narrowing of the gap between the incomes of the richest and poorest persons, but warns about the potential proximity of many employees to the poverty rate.

Parental leave reform and other issues

In the area of working conditions, Bill No. 6832 on parental leave is being considered by Parliament and advisory bodies. The bill proposes raising the age of children for whom parents can take parental leave from five to six years. For adopted children, the age would be increased to 12 years.

To improve health and safety in the workplace, social partners and public bodies have signed a charter called Vision Zero. It sets out four principles and seven golden rules designed to reach the goal of zero deaths and zero severe injuries in the workplace.

According to a joint study by the Luxembourg Chamber of Employees (CSL) and the University of Luxembourg, the prevalence of bullying at work increased slightly in Luxembourg between 2013 and 2014, but slightly decreased in 2015.

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