POLITICS - YVES CRUCHTEN

Yves Cruchten became president of the LSAP in January 2022. The party wants to push an ambitious tax reform

Conversation Yves Cruchten ELECTIO NS 2023 “We will take a few

steps towards a major tax reform”

2023 is the year of elections in Luxembourg. The LSAP wants to push a long-announced tax reform by then. But is there enough time to apply such an ambitious project? LSAP president Yves Cruchten talks about rethinking the current tax system.

Interview LISA CHRISTL Photo GUY WOLFF

The tax reform announced in 2019 has not yet taken place. The LSAP now wants to push this topic as quickly as possible. Why? Because we see that tax revenues are bubbling up, especially on payroll taxes. And we currently don’t have an inflation-adjusted tax table. The tax burden on workers is constantly rising, and that needs to be corrected.

But we are now one year before the elections. The next elections are due in June and in autumn 2023--is there really enough time? Especially because we are currently in multiple crises? That is, of course, the dilemma we are in. We are in a very unusual situation. In September, the finance minister [Yuriko Backes, DP] presented us the figures for the current year in the Commission, which could not be better. Over €900m in additional revenue is expected for this year. Of this, about €600m will come from wage tax and €300m from VAT. On the other hand, four weeks later, the same finance minister came to the Chamber of Deputies and predicted that next year, we will probably have a deficit of €2.8bn, and she foresaw a debt that should increase by another €2bn. All this within four weeks.

How do you explain that? Well, we assume that the budget that was prepared was made very, very, very carefully. Perhaps the expenditure was overestimated somewhat, and the income underestimated.

You also never know what the economic situation will be like next year. Will we still have growth? Will we fall into a recession? What about energy prices, inflation overall? That makes it difficult to predict, of course. But that is why we, in the coalition, have promised ourselves that we will take a few steps now towards a major tax reform. And that we would then gradually keep an eye on the financial situation of the central state. If this improves compared to what the finance minister has now predicted for next year, then we will sit down together again and make further adjustments to the tax legislation.

Of course, this will partly be a topic for the upcoming elections. We already had a big debate in the Chamber of Deputies

SHORT CV

Yves Cruchten has been a member of the LSAP since 1999. From 2000 to 2005, he was general secretary of the Young Socialists, then he was elected municipal councillor in Käerjeng (formerly Bascharage). In 2010, he took over the general secretariat of the LSAP. Since 2013, he has been a member of the Chamber of Deputies. In January 2022, Cruchten became president of his party. on tax justice in the summer. This involves much more than just adjusting the income tax scale. Much more needs to be done, so we probably won’t be able to implement everything. Certainly, the next government will have to adopt some of these individual reforms.

You mentioned the issue of tax justice. What exactly do you mean by that? What are you demanding? Our system is not unfair, per se. We have a progressive tax scale. Nevertheless, we still see injustices in our system, and these must be eliminated. One could say: ‘We want everyone to make their fair contribution.’ But we still see many injustices today. For example, labour is taxed far more than capital. The tax burden is also shifting more and more to households and less and less to companies. So the state draws more revenue from households and less from businesses. This must be corrected. And we have made several proposals to this end.

For example, we have proposed a new tax table that reverses the current tax table. You must know that in today’s table, you pay tax from a certain income and then you move up to a new bracket if you earn more. That’s 2% all the time. But towards the end of this tax scale, it slows down, and you only go up by 1%. We want to reverse that, so that, at the beginning, you enter the tax scale a little slower, and then, later, when you earn

EVOLUTION OF PUBLIC DEBT

more, it increases by 2%. We believe that this new tax scheme we are proposing would be a good basis for introducing the individualisation that the coalition still wanted to implement.

When we talk about tax justice, we also need to talk about the distribution of wealth. The current law could be considered inadequate now, as there are no real changes. Should a reform of the property tax also be introduced, in your opinion? The government has recently presented a reform of the property tax and it is going in the right direction. The tax burden is not increased. There are a few adjustments. But the calculation of this property tax is being completely redone. And the new property tax no longer only looks at the size of the property, but also on the location. Is it closer to the city of Luxembourg and to the city’s urban belt, or is it more of a rural area? And, above all, it’s about looking at what can be done with the plot of land: can you put a single-family house on it, or is there place to do a 10-flat building? In other words, buildability will be the decisive factor in this new property tax. And, in addition to this tax, the mobilisation tax has now also been announced, which aims to tax unused building land progressively. Over the next 15-20 years, this will bring about a development. Everyone who owns unused and undeveloped building land will have to ask themselves whether they would not be better off doing something with it, i.e., selling it, building on it or living on it.

“ That is why we, That is why we, in the coalition, have promised ourselves that we will take a few steps now towards a major tax reform”

Due to the many planned expenditures that have been necessary in the pandemic and the current crisis, the debt extends upwards over the next few years, according to the ministry of finance.

Source Ministry of finance

(GDP) 30%

25%

20%

15%

10%

5%

0

2019 2020 2021 2022 2023 2024 2025 2026

Level of public debt, excluding measures Financing covid-19 measures Financing energy crisis measures 7%, to be staggered between 4% and 9%, depending on the profit and size of a company. We also believe that the CO2 tax must be progressively increased after 2023. As far as VAT is concerned, we don’t really want to make a big reform.

These are all very concrete measures. What will happen with these measures? As I said, some of these measures will be implemented next year. And we will continue to work on that. And if our party is at the negotiating table after the next elections, we will take out this paper again and discuss the individual measures with the potential coalition partners in order to implement as many of them as possible.

You have developed 21 concrete proposals. What do you propose to modernise and reform the current tax system? These 21 proposals are targeted measures. For example, we have made proposals on how to relieve the tax burden on single parents. The same applies to people who are responsible for children who do not live in one’s own household. These two measures will already be implemented in next year’s budget.

But we have also made other proposals. For example, we have proposed a tax credit for young professionals, because we believe that--especially at the beginning of a professional career--young people often have to shoulder more financially, but wages are usually comparatively low. That is why we proposed a tax credit of up to €200 per month in the first five years of a professional career and up to an annual income of €100,000. This would help young people.

We have made proposals to ease the burden on widows and widowers, who fall out of the favourable tax class 2. There is a waiting period which we want to increase to five years.

And we want greater taxation, for example, fairer taxation between income from capital and income from work. We have made a whole series of proposals, such as the elimination of the rule that only half of the income from dividends has to be taxed. We also want a reform of capital gains. As far as the taxation of companies is concerned, we want solidarity taxes, which are currently around You have also sat down with trade unions on the issue. What role does the exchange with them play? It is important to us that we also have an exchange with all the actors, so that they can explain their point of view to us. We have discussed the respective proposals. The trade unions want to adjust the tax scale to inflation; that is justified. But that would immediately cost €700m. Our idea, as I explained, is to introduce a different tax table. That is why we want to discuss this with the trade unions. And we have received a partly positive response to it.

“ We still see We still see injustices in our system, and these must be eliminated”

What role does the attractiveness of the financial centre play in connection with a tax reform? We have hardly made any proposals that would have a major impact on the financial centre. We have already introduced taxes in the past. We were always told: ‘If you do that, the Luxembourg financial centre will collapse.’ But none of that has

The LSAP sat down with the unions to talk about tax reform. Here with the OGBL

happened. The financial centre is, of course, responsible for a good part of the revenue that the state receives every year. And we socialists don’t want to endanger that because with it, we can, of course, also finance politics. In the case of corporate taxation, however, the banks are, of course, not excluded, but these are not proposals that would in any way reduce the attractiveness of the financial centre.

Do you think that the taxation of remote work should be reviewed, especially regarding cross-border taxation? Yes. So we need two things. We need agreements with our neighbouring coun-

“ The state draws The state draws more revenue from households and less from businesses”

tries--we have already achieved some improvements. But we also need to achieve this with all our neighbours. We have also made the proposal that people should be able to deduct a certain part of their home-office expenses from their taxes. We think that up to €672 per year should be deductible for home offices, just like for other things. I do believe that home office should be encouraged. We see the chaos on our roads every day. We have had good experiences. Maybe not everything is always rosy in the home office, but we have had some good experiences in the pandemic, and I think we should build on that, and then find the weak points in the home office, fix them. But, in my eyes, this should be promoted.

We have already raised the issue of the budget several times. Is there really enough room in the budget for such an ambitious tax reform? In the next budget, we have tax reductions of about €350m. I believe there will be room for manoeuvre. The government--and we have agreed on this--is doing it carefully and in stages. A major tax reform, as promised with many measures, will not take place. It will be progressive. We have also made proposals that will generate tax revenue because we know this must be financed somehow. We don’t know what the situation will be in six months, but we will check it month by month and see how the state finances develop. And as soon as we see possibilities, we will act. The prime minister [Xavier Bettel, DP] has also announced that as soon as there is room for manoeuvre, individual measures could begin again.

What role will tax reform play in your election campaign? It will certainly be one of the issues but, in my opinion, not the biggest one. I believe that we will have other topics on the agenda in the election campaign, such as the overall economic development, but also the direction of Luxembourg in the next 20-25 years.