Gilles Roth (Minister of Finance): Cautiously optimistic for the future.
By Jerome Bloch
©Claude Piscitelli
Let's start with the budget: in a difficult economic context, how do you integrate the increase in military spending (+400 million to reach 2% of GNI), as well as social and investment expenditures, without slipping into the red?
We are living in unstable times. War is persisting on the European continent, tensions between major powers are continuing, and trade disputes cause uncertainty. The 2026 budget is framed by this geopolitical and geoeconomic reality. The priorities of the 2026 budget remain focused on economic growth, social cohesion, housing, the fight against poverty and investment in our future. And there will be no cuts in social spending. Social cohesion is key for Luxembourg’s stability. That is what we mean by “growing together”.
Of course, defence spending is putting additional pressure on the budget, but Luxembourg, as a reliable partner, is honouring its international commitments. And we will use new and innovative ways in financing defence spending. With the issuance of a retail defence bond – we are frontrunners here, and alternative financing streams, for example through a new fund set up by the SNCI. A special focus will also be on positive spillover effects on our economy. I remain cautiously optimistic for the future. We have sound public finances. Luxembourg’s triple A has recently been confirmed by the major ratings agencies.
What are the expected outcomes of the new "Carried Interest" scheme?
The carried interest regime is a project aimed at strengthening Luxembourg's competitiveness as a financial center, especially in the field of investment funds and private assets. The sector has been calling for such a step for a long time. In July, I presented the bill, which is expected to come into force in January 2026. It provides a clear and predictable tax treatment for performance-based remuneration and enhances legal certainty for both employers and employees. Our goal is simple: to continue to climb up the value chain in financial services and therefore make Luxembourg more attractive for highly qualified professionals who receive part of their remuneration in the form of carried interest. International competition for these talents is intense. If we want funds, private equity, venture capital or infrastructure managers to continue to build their teams here, we need a framework that is competitive by international standards. The carried interest regime is part of a broader package. We are also taking measures in favour of expats, business angels and start-ups. We incentivize digitalization and the use of blockchain. The digital transformation is crucial to keep Luxembourg at the forefront as a leading financial center.
I agree, but while a "Carried Interest" targets venture capitalists, start-ups need "Stock options". One example: employees of companies active in A.I. in Luxembourg, such as Gcore or emma, are receiving U.S.-style salary offers reaching up to 1 million euros. How can they be encouraged to remain in Luxembourg without stock options?
I am in constant contact with market players and listen to them carefully. It is precisely these small paths that characterize Luxembourg. I understand that Luxembourg companies are competing on a global stage. Talents are comparing salary packages offered here and elsewhere. We take such competition seriously. That is why modernising the stock-option scheme is a priority for this government. Combined with the new expat regime and the carried interest one, it will offer additional tools to attract and retain talent, not only in finance, but also in technology, AI and other strategic sectors. The new incentives come on top of what has already been done to facilitate recruitment and make the Luxembourg economy more competitive. We made the participatory bonus scheme more attractive. We have improved the regime applicable to expats and introduced a targeted bonus to attract young talent. We have reduced corporation tax by one percentage point and abolished the subscription tax for all ETFs. And we have put in place advanced frameworks for blockchain and tokenisation, in parallel with the MiCA regulation. But we won’t stop there. For instance, in 2027 we foresee another reduction in corporate income tax as well.
"Social cohesion is key for Luxembourg’s stability."
When do you plan to reintroduce this stock-option scheme? Should you not separate the stock-option scheme for start-ups – urgently – from the stock-option scheme for high earners in order to avoid the abuses of the past?
The new stock options regime is part of the 10 points action plan for start-ups. We want to build on our past experience to create a tailor-made system for start-ups and their employees. Unlike past schemes, this new regime will not rely exclusively on a circular from the tax director, but have a solid legal basis. There will be safeguards to prevent abuses that came up with the previous regime. The new system will focus on talent attraction and retention for start-ups. I want to present this new framework in the first quarter of 2026. This is all part of the government’s commitment to continuously upgrade our toolbox for investment and innovation, to bring and keep talent, capital and ideas in Luxembourg.
Your tax reform introducing individualised taxation is expected to cost between €800 and €900 million. What will be the return on investment? (Source : CHD : https://www.chd.lu/fr/node/3083)
First and foremost, this reform will mean tax reliefs, hence more purchasing power, for a large majority of the citizens. We’re putting more money back into the pockets of families and single parents. This will benefit the local economy. A tax reform of this magnitude does not happen every year. This is a broad societal project, not just a fiscal issue. The financial impact on the State budget will be detailed when the draft law will be submitted to Parliament. Our society and our families have evolved since the 1960s. As a modern society, we should have a tax model which does not change based on whether a person is single, married, in a civil partnership or divorced. The new law should come into force, if possible, on 1 January 2028, but with a long transition period to protect those that benefit from the current setup.
Why is the "Index" considered taboo in the 2023–2028 coalition agreement? It favours the wealthy - who get 2.5% of high salaries - and can negatively affect the country’s attractiveness. Why, for example, not place a cap on the indexation system?
You cannot look at the index as an isolated element. I just mentioned a myriad of measures taken to make Luxembourg’s economy more competitive and attractive. Social stability is also an important factor in that regard. In Luxembourg, the indexation system has been a central pillar of our social model for decades. Its main purpose is to maintain purchasing power, protecting wages, pensions, and social benefits against inflation and preventing income losses and wage disputes. It has contributed significantly to social peace in Luxembourg. The index also contributes to greater predictability. This government will not fumble with the index. During coalition negotiations, purchasing power was at the center of discussions. At the beginning of my term, we therefore adjusted the tax scale by four indexation tranches. A tax further reduction took effect on January 1, 2025, which now gives households a significantly higher net income than before. In total, this equates to an adjustment corresponding to 6.5 indexation tranches, and we have also additionally reduced the tax burden on single-parent families. Since the beginning of this year, the minimum wage for non-qualified workers has also been exempted from tax. These are targeted measures that particularly benefit people at risk of poverty and those on lower incomes. Particularly as a CSV politician, I see it as a duty to ensure social cohesion across the whole of society.
"We will use new and innovative ways in financing defence spending"
What is your outlook for the next three years, in terms of risks and opportunities?
Geopolitical tensions will not disappear overnight. Defence, climate, digital security and ageing societies will continue to put pressure on public finances. But I see them more as challenges that we can turn into opportunities. Forecasts suggest that growth is expected to return to 2% in 2026. This government continues to invest in more sustainable and inclusive growth. The positive impact of the measures put in place to strengthen competitiveness and purchasing power, some of which have only been in effect since 2025, can already be felt. Therefore, I am cautiously optimistic about the future. As politicians, we must offer concrete solutions to people’s everyday problems. With new perspectives, too. The basis for this is provided by both a strong economy and a strong welfare state. Which requires a strong financial center. We have already achieved a great deal. But there is still much to be done. I am confident that, together, we will succeed and continue to strengthen Luxembourg and its people.
Thank you very much Mr Roth.