On Tuesday 4 November 2025, Fondation IDEA Asbl published its response to the 2026 budget documents presented to the Chamber of Deputies on Wednesday 8 October 2025.

According to the foundation, the budget documents contain a wealth of information on the current and projected state of Luxembourg’s economy, as well as on the Government’s prospective fiscal policy. Consequently, they are highly useful for understanding where the country currently stands, where it appears to be heading and which measures and resources public authorities intend to mobilise to guide it there.

The foundation noted: “On closer inspection, certain passages are rather ‘surprising’ and deserve to be highlighted.”

The Luxembourg-based independent think-tank’s report focused on four main areas of interest:

Access to Housing

IDEA noted that improving access to housing is once again presented as a priority objective of fiscal policy and Minister of Finance, Gilles Roth’s speech on 8 October in which he emphasised the need for “more affordable housing” and highlighted that the Special Fund for Affordable Housing should mobilise “two billion euros over the next four years” to support the supply of affordable homes.

IDEA commented: “It is somewhat ‘intriguing’ that the €2 billion of investment planned for affordable housing between 2026 and 2029 is identical to the amount announced (Fir 2025-2028 sinn insgesamt 2 Milliarden Euro virgesinn”) in the presentation of Budget 2025. Moreover, a comparison of the investment figures for the Special Fund for Affordable Housing between Budget 2024 and Budget 2026 reveals an ‘investment gap’ of nearly €700 million over the period 2024–2027. This discrepancy can be explained by lower-than-expected actual investment levels in 2024 and 2025 (by €336 million) compared with Budget 2024 and by a downward revision (-€357 million) in Budget 2026 for the 2026–2027 projections relative to the initially stated ambitions.”

Real Estate Market Activity

Referencing 2026 Budget proposals, IDEA highlighted that on page 68 of volume one, the forecast for registration duties for 2026–2029 notes that “the level of real estate market activity” would be “comparable in 2027 to the level observed in 2022, reflecting a substantial catch-up effect”.

IDEA commented: “While this assumption may seem encouraging at first glance, it implies that the end of the real estate crisis is not yet in sight. If market activity, measured by the number of transactions, is expected to reach 2022 levels only by 2027, this means that, despite a significant increase relative to 2023 and 2024, activity will remain well below the levels observed between 2014 and 2021, prior to the rise in interest rates.”

Fiscal Risks

Further referencing the 2026 Budget proposals, IDEA remarked that a list of “risks whose realisation could have significant consequences for public finances” is presented on page 60 of volume two and the “national tax reform”, namely the elimination of the various tax classes (individualisation), is included in this list and is considered likely to generate “potential revenue losses”.

IDEA commented: “It is notable that the individualisation of personal income taxation is not presented as an opportunity but as an explicit fiscal risk, alongside ‘economic shocks’, the ‘loss of AAA rating’ and ‘European socio-fiscal reforms’ (BEFIT, revision of the Tobacco Excise Directive, revision of the Social Security Coordination Regulation, etc.). In a context of pressure on social accounts (health and maternity insurance, pension schemes), high macroeconomic uncertainty, central administration deficits and after several significant tax reductions (e.g., more favourable income tax scales, successive increases in the deductibility ceilings for mortgage interest, creation of multiple tax credits such as the young worker and rental premiums, new regime for expatriates, reduction in the corporate income tax rate, reorganisation and simplification of the minimum wealth tax), the individualisation reform appears, in some respects, to be a fiscal choice that should, prudently, be avoided or, responsibly, neutralised. Without such caution, the budgetary strategy risks an internal contradiction: advocating fiscal discipline while choosing a ‘risky’ and costly tax reform despite relatively fragile public finances.”

General Pension Scheme Under Pressure

IDEA stressed that the general pension system is under pressure due to the ongoing and projected deterioration of the load ratio. They said that following a series of consultation meetings with social partners (Sozialronn), the Government decided on a set of measures aimed at “slowing the trajectory of deterioration of the general pension scheme”. They noted that, specifically, these measures are intended to maintain the pure distribution premium below the overall contribution rate until 2029 and to delay the use of the compensation reserve for the payment of pensions from the general scheme.

IDEA commented: “Although the measures decided following the Sozialronn have been incorporated into the budgetary forecasts, the effect of each component of the pension reform is not separately quantified.”

IDEA said it is possible to estimate the short-term “gross” budgetary impact of certain measures:

• the increase in contribution rates (from 24% to 25.5%) is expected to raise around 500 million euros per year for the National Pension Insurance Fund (CNAP);

• this increase will raise public expenditure by approximately 160 million euros per year through the State’s contribution to financing the general pension scheme (from 8% to 8.5% of all pensionable remuneration);

• relative to maintaining the 24% rate, this increase will initially moderate the State contribution to the financing of special schemes, since the contribution corresponds to the difference between special scheme expenditures and contributions (increased from 8% to 8.5%) of pensionable remuneration;

• the foregone tax revenue due to increased contribution exemptions is estimated at 60 million euros per year;

• the tax cost related to raising the maximum deduction ceiling for individual pension schemes from 3,200 to 4,500 euros is estimated at 20–25 million euros per year;

• the cost of the retention allowance, which encourages early retirees to continue working, is estimated at 10 million euros per year;

• the deferral of the year-end bonus, initially until 2032, represents an opportunity cost of around 150 million euros per year to public finances.

IDEA remarked: “In short, the pension reform stemming from the Sozialronn appears curiously calibrated and may carry windfall benefits.”

Economic Agent Facing Pension Reform

In addition to the “instant” budgetary measures (higher contributions, deferred suppression of the year-end bonus, deductibility of individual pension contributions, etc.), IDEA noted that the reform also includes a “training” element.

They highlighted that study years, recognised as supplementary periods, will be made more flexible to “better adapt the pension system to contemporary life and education trajectories”. According to IDEA, currently, only study years between ages 18 and 27 are counted; under the new rules, a maximum of nine study years after age eighteen will be recognised. This allows individuals over 27 years old who continue their studies before the reform takes effect in 2026 to use these years for early retirement (from 60 years), which was previously impossible. This creates a windfall effect, potentially amplified by a Matthew effect.

Moreover, IDEA stated that other unexpected windfall or perverse effects may arise from the generalisation of progressive pensions and the retention allowance, given the complexity of implementing progressive pensions, the established rules for early retirement with concurrent employment and the gap between contribution and replacement rates.