Finance: Luxembourg’s funds association has said raising investment sector taxes would damage the national economy.
Trade group Alfi has warned against the next government raising taxes on the financial sector, saying it may “endanger the competitiveness” of a key part of the Grand Duchy’s economy.
“Luxembourg is more than ever confronted with the challenge of saving at the same time the attractiveness of its financial place for promoters of investment funds and the funds for its investors,” Marc Saluzzi, head of the Association of the Luxembourg Fund Industry, said at a press conference on Wednesday.
With national elections due on October 20, Alfi said political leaders should avoid any “rash” increase in taxes levied on Luxembourg investment funds.
According to the group, the funds sector currently employs nearly 14,000 staff in the Grand Duchy, and contributes 6% to the country’s GDP and 10% to overall tax revenues.
Yet Luxembourg’s public finances have continued to worsen over the past decade. According to EU statistics agency Eurostat, the country’s public debt was €10 billion, representing 22.4% of GDP, at the end of the first quarter of this year, up from €9 billion or 20.8% of GDP at the end of 2012. That marked a steep increase from public debt of €1.5 billion or 6.3% of GDP at the end of 2002.
Alfi fears the next government will tap the funds sector to help close the budget gap.
Tempting tax increases
The association said the Grand Duchy’s “subscription tax” on investment funds already raises more than €600 million, yet does not exist in competing financial markets.
“Alfi warns against any temptation to increase tax revenues to the state by raising the tax rate,” it said in a press statement on Wednesday.
“Just as fatal as a subscription tax increase subscription would be the introduction of a tax on financial transactions (FTT)” currently being debated in Europe.
The FTT would have “serious consequences” and see institutional investors such as insurance companies and pension funds move their investments outside of areas impacted by the levy, Alfi reckoned.