Xavier Bettel is in relaxed mode as he arrives for his 3 June interview with Delano and Paperjam’s Pierre Pailler. He gives us a brief tour of the art hanging on the walls--much of it contemporary post-modern. During the interview he is at ease enough to hang his legs over the arm of his chair, and he smiles when his mobile phone pings with a message from “AM”-- Angela Merkel.
The good mood could be explained by the announcement he made the previous day, together with health minister Paulette Lenert (LSAP), that Luxembourg would be easing its covid restrictions significantly as of 12 June.
The last 16 months of Bettel’s premiership have been dominated by the coronavirus pandemic, of course. It has impacted society, the health sector and the economy. As the state aid for businesses that have suffered during the crisis is slowly phased out--some specific subsidies have been extended until October--Bettel says that the help was a response to an “unusual situation”, and that it not going to help companies that were already struggling badly before the pandemic suddenly become a “super business.” He is cautiously optimistic about how Luxembourg will emerge from the crisis, and proud that the grand duchy was among the countries that invested most per capita in response to the pandemic.
Indeed, in the face of Covid, European states have been forced to finance themselves more through borrowing than through taxes. How does Bettel’s government intend to reduce the debt in order to maintain Luxembourg’s prestigious triple-A rating? “First of all, we are committed to not surpassing the threshold 30% of debt, and unless my calculations are wrong we have managed to maintain that. That has been our guideline since the start. The crisis has come at a cost, and we have managed to bear that cost. There was plenty that was unforeseen, we would have liked to do many things that we may not now be able to do, over the next two years, but we remain on track in terms of budget, public finances and heritage for future generations. But we are not yet at that point where we know when the crisis will end. I want to really take stock when we are at the end, or at a total phasing out [of state aid for the pandemic]. And personally, I hope we don’t have to take any additional measures.”
On the other hand, the long-promised fiscal reform has had to be postponed. “That was something dear to my heart, to be able to achieve some modernity in society with regards to taxation. But we can’t do it right now because it will cost a lot. And I certainly can’t allow [Luxembourg] to take out a loan to finance fiscal reform. There would be no logic to that. We just don’t have the economic margin to carry out the fiscal reform, and there are other challenges that are indispensable. We have obligations with regard to covid, to the environment, employment, education, health, which are more important today. Fiscal reform will happen, but it is not as much a priority as poverty, housing, transport…we can’t just say we will not do those things. It would not be responsible.” The question then is, how can we avoid a sovereign debt crisis, and what does he think of calls for the elimination of covid debt?
“It’s strange that with these negative rates they are giving us money in order to borrow. We hope that economic growth over the next few years will allow us to start paying back these loans step-by-step. But the debt is ‘clean’, if I may say. We are not in a situation where we have had to borrow because the economy was in bad shape. But we still have to keep an eye on the situation.”
He thinks that the solidarity mechanism displayed with the European recovery plan shows that member states can agree around a table “not as individual countries but as Europe.” He adds: “It’s true, however, that the reforms that some countries may have to make will not be popular but necessary. Solidarity for some may be an obligation for others.”
No chance for inheritance tax
But other aspects of fiscal reform have also made the headlines in Luxembourg recently, most notably a call last year, then withdrawn, from former CSV president Frank Engel to think about wealth and inheritance tax, and a suggestion from LSAP labour minister Dan Kersch in March this year for some sort of “covid winners tax”.
“It is time to stop perceiving provisions for inheritance as illegal. Tax has been paid on it. I will do all in my power…to avoid introducing a tax on inheritance. I am talking as Xavier Bettel, member of the Democratic Party. I don’t think it is the place of international institutions, the OECD or the International Monetary Fund, to tell countries they should impose inheritance tax. It is a political decision.”
As for recent discussions surrounding a minimum global corporate tax, which has the support of US president Joe Biden, Bettel says his government will not exclude any form of discussion on such a move. “You know, we are no longer on black lists, grey lists, whatever the colour--as long as there is a level playing field at OECD level. We are not going to do something that would invite companies to move to London and pay less tax.”
He also plays down the danger to the coalition of the Kersch comments. “We have a five-year coalition agreement. Of course, there are compromises--we introduced a bank holiday for 9 May [Europe Day] that was an idea of the LSAP. We ceded on that, they ceded on other things. Just because we are in a coalition, doesn’t mean we [the signatory political parties] should surrender our DNA. I hope that the reds [LSAP] stay red the greens [déi Gréng] remain green and the blues [DP] stay blue.
We shouldn’t stigmatise certain companies. And to say that there have those that profited from the crisis. Those that worked hardest were taxed more. For instance, a company that made spirits that started making hydro-alcoholic hand disinfectant…they may not have made more profit…but we should be proud that certain companies showed the flexibility to change and displayed initiative. But for me there were no ‘winners’ from the crisis, we all suffered during the crisis.”
Ties between Luxembourg’s financial centre and London have also come under scrutiny following Brexit and ongoing negotiations between the UK and EU on reaching a memorandum of understanding on financial services.
“I really regret Brexit. We always had a close relationship with London, especially regarding the finance sector. We had common objectives, and we miss that partnership when taking important decisions. But London cannot have access to the European market if it has its own rules. But we need to stop saying we should punish the British for their decision. We can’t favour them, because otherwise it may encourage others. London was a partner and I think will remain a partner of Luxembourg.”
The digitalisation of the economy is vital, says Bettel. Luxemburg has committed investment for the 2020-24 pluriannual budget amounting to €1 billion. The grand duchy recently officially inaugurated the Meluxina supercomputer and has also launched its Digital Innovation Hub. “Digitisation is a reality and Luxembourg has shown we are open to new things. But Europe has to think as a continent, because China is already doing it, the US is thinking about it and we can’t just be observers, we also have to be actors. Luxembourg is a leader in things like digital payments. But if I may talk about another aspect…green finance, in which we have become, after all, a global leader. Sometimes we are too modest, says Bettel before explaining how “very proud” he is of what the government has achieved with the Luxembourg Stock Exchange. “It shows that private investment, together with public sector actors, can change and improve the world.”
But while Luxembourg can attract companies in the fintech field, for example, Bettel admits that it is no secret that attracting talent is another question. “We can attract them--look at how our population is growing-- but it is not easy in terms of housing…cost of living…”
“But when I talk about talent, it’s not just a Luxembourg problem, it’s also a European problem. Is it normal today that we have to seek out Ukrainian or Indian or American talent because we are not succeeding in training them in Europe? We have to show more ambition with regards to digitalisation in terms of training. So, digitalisation is not just about having infrastructure, it’s about the human aspect.”
The pandemic has also highlighted weaknesses in the health sector that had already been recognised, most notably an over-reliance on cross-border frontline medical staff--over 60% do not reside in the grand duchy. But efforts to reform training programmes to increase the number of nurses that can be recruited locally have also met with opposition from some unions. Bettel is full of praise for the medical staff who put in superhuman shifts during the pandemic, not just in terms of volume of work but also emotionally. “Seeing people die during your shift, with limited hope of life after being intubated was hard, psychologically.” As for the plans to introduce of a bachelor’s degree, in parallel to the existing BTS training, Bettel says that it is clear not everyone who wants to enter the nursing profession will want to take a full university programme. “It is important, therefore, to have different options. I know [education minister] Claude Meisch and [health minister] Paulette Lenert are working to find an agreement that will provide different possibilities and different career options in medicine.”
As for maintaining health policy at a national level rather than allowing Brussels more say, the prime minister says that while a global response to something like the pandemic is desirable, it is tricky enough to manage a national policy to a crisis.
How can we provide a response that covers Stockholm to Lisbon… if even Hamburg and Trier do not require the same measures being put in place?”
On the other hand, he welcomes the imminent introduction of the EU digital covid certificate--“the covcheck as we have been calling it here”--and says it shows that acting together is better than everyone having their own system. “We have to stop saying that Europe is the problem when it is often the answer.” At EU level, too, there has been a policy to order a stockpile of vaccines to safe-guard against possible future pandemics.
But the subject that has most residents concerned at the moment is housing. How does the prime minister feel when some Luxembourgers can’t afford a home in their own country? “There are two things. We have to increase availability but must also ensure we maintain quality. We cannot say we will build cages, just to make sure people have a home.” The new housing pact will allow new instruments that could allow a rapid increase in quantity, and projects to convert former industrial sites into housing are also progressing, he says. He becomes even more animated when talking about vacant houses. “I am totally, totally, in favour of taxing empty houses. Opposite me [his private home in Bonnevoie] there is a building that has been empty for 25 years. It has three apartments, but they [the owners] have no interest in renting them out. Have an annual tax that doubles, and people will soon understand we have a housing crisis caused by speculation.” A tax on empty building land is also being explored.
I think we are heading in the right direction, but if someone thinks we can wave a magic wand to solve the housing problem, they are mistaken.”
The government has also announced a series of measures in accordance with the UN Agenda 2030 goals, including emissions reduction targets. But, as we have seen, the younger generation still thinks you are not doing enough to make a real impact and many of them will be first time voters in 2023. Bettel remains unconcerned. “I don’t decide on policy to win votes. If you say young voters are in favour, there are also older voters who are against it. We decide what is best for the country. We have to have economic development that can be ecological, can be different.”
This article was first published in the July 2021 edition of Delano Magazine.