There was no mention of tax reform as such in the coalition agreement signed by the DP, the LSAP and Déi Gréng after the 2018 elections. The government simply expressed the very noble wish to pursue “a predictable and coherent fiscal policy, responding appropriately to the modern realities and challenges of family, social, economic and ecological policy.” This reform was to be built on various adjustments, including an increase in the minimum social wage and efforts to move towards a greater individualisation of personal taxation.
In the end, minister of finance Pierre Gramegna (DP) emerged with news in July 2019 and announced “a structural tax reform”. Working groups were set up at state level, and the end of 2020 was earmarked as the deadline to finalise the project.
Individualisation and sustainable development were to be at the centre of the fiscal review. Major actors, including employers' chambers and professional associations, were also lobbying for their thoughts to be heard by the finance ministry.
Then the coronavirus health crisis struck, forcing the government to reprioritise its efforts to support businesses and the socio-economic fabric. And that effort is probably not over.
So has Gramegna’s project been mothballed? Since the minister was very discreet and his teams even more discreet, no one really knows what the plan is. However, tax reform does not necessarily mean drastic tax cuts. “I am not sure, personally, that this is what the minister had in mind,” notes Alain Steichen, partner at Bonn Steichen & Partners, and a keen expert on public taxation. Steichen thinks Gramegna’s vision was much more limited than what would usually be characterised as a major reform.
Unfairly advantaged?
For many, the key measure would have been a change in the tax system between spouses, cohabitants and partners. “Are spouses unfairly advantaged? It is more a question of justice than of economy, so the answer is therefore independent of the covid crisis. If the minister is of that opinion, which is certainly a position that can be defended, then the health crisis should not prevent the reform,” Steichen adds.
And other adjustments could also be made, independently of the health context. “We can put everything in a package and call it tax reform if we want,” the tax lawyer concludes. He points out that, on the other hand, other ambitions that were perhaps cherished will probably have to be postponed. Like a review of tax brackets.
In the political arena, there are two elements that are key in the debate surrounding the announced reform. First, the fact that the 2017 reform was insufficient and requires adjustments. Second, the fact that time is of the essence. A tax reform, small or large, in 2021, will still pass. But that will prove more difficult in 2022, a pre-election year. “The timing will no longer be right,” several analysts told Paperjam a few months ago.
Political differences
“But a reform is necessary, the CSV has been asking for it for a long time,” says MP Gilles Roth (CSV). The same is true for the LSAP, since “the current tax model no longer corresponds to the reality of society.” Unsurprisingly, Déi Gréng wants tax changes “dedicated to a greener economy, the environment and sustainable development.”
All parties agreed in favour of a review of the tax system regarding telecommuting, a subject that has become even more acute in recent months, as well as the taxation of singles and single parents, and land and property. On the other hand, further taxation of high net wealth does not have unanimous backing.
Nearly all parties also support the importance of maintaining the attractiveness of the financial centre, a given in light of changing international context. The tax reform will therefore probably focus mainly on individuals. It remains to be seen whether the evolution of the covid-19 crisis will make it possible to make the project a priority for the start of the political season in September.
This article was originally published in French by Paperjam and has been translated by Delano