Gilles Roth, Luxembourg's Minister of Finance; Credit: © SIP / Julien Warnand

On Wednesday 8 October 2025, Luxembourg Minister of Finance, Gilles Roth, presented the State Budget for 2026 to the Chamber of Deputies.

The budget, delivered under the motto “Matenee Wuessen” (Growth Together), concentrates on sustainable public finances and inclusive growth, and provides for substantial investment in a bid to boost economic growth and competitiveness, while also featuring high expenditure dedicated to defence. 

Minister Roth commented: “In Luxembourg’s model, growth and social cohesion go hand in hand. The 2026 budget invests in both a strong economy and a strong social state, with record investments in the future. It promotes growth, prosperity and well-being for our citizens and our businesses. It provides predictability, stability and confidence. Together, we are building a tomorrow for everyone.”

The minister noted that the budget comes during an unstable international climate marked by ongoing conflicts and rising geopolitical tensions, which impact both Luxembourg’s trading partners and the country’s economic performance.

According to Luxembourg's national statistics institute, STATEC, Luxembourg recorded GDP growth of +1% in 2025 (in comparison to +1.7% calculated by the European Commission) and forecasts +2% growth in 2026. Inflation is projected to fall to 1.4% in 2026 (from 2.1% in 2025) due to measures instigated to stabilise electricity prices. Employment growth currently remains below the historical average and is expected to rise by only +1% in 2025 and +1.5% in 2026. The unemployment rate is expected to decline slightly to 5.9%.

The key figures noted by Minister Roth during his budget delivery included a projection that Central Administration revenues will be €31.1 billion in 2026 (a +4.9% year-on-year increase), while expenditure is expected to total €32.6 billion (+5.7% compared with 2025). As a result, the Central Administration deficit is projected to be €1.49 billion. The minister noted that this represents a deterioration of €400 million compared with the 2025 multiannual budget but remains well below the deficit of €2.69 billion projected in 2023.

The deficit is primarily attributed to:

  • an additional €366 million in defence expenditure in 2026 compared with the multiannual budget;
  • a state contribution of €150 million for electricity network usage costs;
  • an increase of €190 million in the state contribution to the general pension insurance scheme due to the rise in the overall contribution rate from 24% to 25.5% in 2026;
  • a record level of investment equivalent to 4.8% of GDP, with an additional €500 million in expenditure compared with the average 4% annual increase of recent years.

In relation to Social Security and Local Administrations, the 2026 budget anticipates a positive balance of €996 million for Social Security and €85 million respectively. The projected deficit for public administrations is €408 million, equivalent to -0.4% of GDP in 2026. This follows a deficit of €706 million in 2025 (-0.8% of GDP).

Luxembourg’s public debt, currently the second-lowest among euro area countries with the lowest interest burden, is expected to stabilise around 27% of GDP with a downward trajectory at the end of the cycle.

The “well-being” GDP (PIBien-être) is formally included in legislation, with expenditure linked to selected indicators amounting to €4.9 billion (5.2% of GDP). This includes €3.3 billion targeting the risk of poverty, €0.5 billion aimed at disposable income and standard of living and over €0.4 billion focused on housing costs.

Defence and Development

In relation to defence spending, Luxembourg renewed its commitment to its allies and Partners with NATO commitments to defence spending reaching 2% of GNI and totalling €1.3 billion in 2026. Support to Ukraine will continue with €80 million in 2026. To finance this Luxembourg will issue its first Defence Bond worth €150 million over three years. It will also contribute €40 million over four years to a dual-use product development fund managed by Luxembourg's National Credit and Investment Institution (Société Nationale de Crédit et d’Investissement - SNCI).

Luxembourg will also continue to honour its commitment to 1% of gross national income (GNI) for official development assistance, totalling €872 million in 2026, or 1.36% of GNI.

Social Support

In terms of social cohesion in the Grand Duchy, the budget included several new measures for 2026, including:

  • a tax credit of €922 per child per year for the parent not benefiting from tax class 1a under shared family allowances;
  • monthly deduction of €750 (€9,000 per year) for insured persons meeting early retirement conditions but voluntarily continuing employment until statutory retirement age;
  • increased tax deductibility (€4,500 instead of €3,200) for contributions to the “third pillar” pension scheme.

The Children’s Future Fund will disburse approximately €1.6 billion in 2026, including over €1.1 billion for family allowances. Social transfers account for 46% of Central Administration expenditure.

The budget highlighted that by 30 September 2025, 485 homes had been purchased by the State under the VEFA project acquisition programme for €306 million. Overall, €2 billion has been allocated over four years for affordable housing via the Special Fund for Affordable Housing, including €28 million over four years for social housing. Individual support includes €45 million for rental subsidies and €30 million for mortgage interest subsidies.

The government announced it will now continue its anti-poverty policy through:

  • cost-of-living allowances (AVC) and increased energy premiums from 2025: €120 million;
  • enhanced allowances for elderly people unable to cover accommodation costs: €12 million;
  • ultra-high-speed internet access subsidy for AVC beneficiaries: €1.8 million.

Healthcare and Education

Elsewhere, healthcare expenditure amounted to €275 million from the Hospital Fund (+99%) and €21 million for vaccine procurement (+42%) to strengthen prevention, with support for the unemployed consisting of €1.3 billion from the Employment Fund, including 50% for employment initiatives, €43 million for training, €15.3 million for youth unemployment and €51.5 million for long-term unemployment.

The Education budget for 2026 will rise by +€108 million (in comparison to 2025) to €4.7 billion in 2026, including €268 million (+€108 million versus 2025) for the construction and modernisation of secondary schools and other youth infrastructure.

Childcare subsidies will be raised to €7 per hour, with a total spend of €871 million, along with €78.2 million for expanded music education (+€14.2 million). Financial support for students will reach €181.3 million.

Culture

€343.4 million has been allocated to cultural initiatives for integration, inclusion, empathy and solidarity, including €27.2 million for Beaufort and Vianden castles and the Martelange Slate Museum, which will run until 2029 and €133.8 million annually for museums, theatres, cultural centres and music. Sports subsidies equate to €8.8 million for federation support, €5 million for basic and quality+ club subsidies and €2.1 million for municipal sports coordinators.

Finance Sector

Across the Finance sector, the government noted that “a strong social state requires a solid economy”. Its Investment priorities for 2026 include changes to make the “carried interest” regime more attractive, focus on new technologies includes FundTechAccelerator and AI Experience Centre, along with Intergenerational Sovereign Fund investments in alternative assets (15% of holdings), including cryptocurrencies (1%).

€424 million will be invested in AI, cloud, data, quantum and space technologies until 2029. Partnerships include €11 million with Mistral AI and €378.3 million for the University of Luxembourg, the Luxembourg Institute of Science and Technology (LIST) and the Luxembourg Institute of Health (LIH). €2.4 million over two years has been budgeted for quantum communication infrastructure and the Space sector will see investments including a new Space Campus and €264 million over four years for ESA programmes

Support for SMEs and Start-Ups has also been enhanced through an expanded participatory bonus scheme, more attractive expatriate regime, the Jobstarters bonus and continued SME support via SNCI zero-interest competitiveness/permanence loans.

Media

The Media and Communications Service budget will see an increase of €94.5 million in 2026 to support the digital transformation of local radio stations. Additional funding includes €3.6 million for the Luxembourg Independent Audiovisual Authority and €1.3 million for Filmfong to support the video games sector, alongside €60 million for tourism promotion.

The Ministry of Agriculture will receive €225 million in 2026, including €20 million for the construction of horticultural greenhouses. Viticulture will see innovations such as partially de-alcoholised wines, a flat-rate income tax of 3% over 30 days, and a minimum hourly wage of €18 for seasonal workers.

With an eye on a ensuring a modern, sustainable and secure country with a strong State, the government stated that “Growing countries require modern infrastructure and services”.

In this regard, the government is prioritising digitalisation, with a total of €1.3 billion over four years. This includes €40 million in 2026 for new CTIE IT projects, €17 million over four years for the development and ongoing improvement of MyGuichet and €17 million in 2026 for state financial administrations.

Climate Policy

The government reinforced that it would maintain its ambitious regarding climate policy and will allocate €3.4 billion in 2026 for the national energy and climate plan (€13.6 billion over four years), with investments aimed to drastically reduce greenhouse gas emissions through renewable energy development. Energy-efficient renovation and sustainable construction will receive €476 million over four years and €450 million for photovoltaic installations, including state pre-financing. Additional allocations include €10.3 million for smart charging stations, €56 million for the “Klimabonus Mobilitéit” (“Climate Mobility Bonus”), €150 million for electricity network usage costs and €36.5 million over four years for energy-efficient renovation of functional buildings. 

Mobility

In relation to mobility, the budget sees Rail and Tram services benefit from an investment of €3.4 billion, which will be invested over four years in the railway network, including €743 million from the Rail Fund in 2026, with the tram network receiving €73.8 million next year. The bus system will see €2.5 billion invested over four years for school transport, Mobibus, Adapto services, and RGTR network buses. 

The road network will benefit from €2.6 billion over four years via the Roads Fund and Luxembourg airport will be allocated €44 million for a new virtual control tower, €202 million in capital injections into Luxairport SA (with €100 million from the state budget) and €21 million from 2025–2027 for the Fuelfarm expansion.

The government also announced 160 new public service positions in decentralised coworking structures in 2026 and improved remuneration via the salary agreement (€153 million), along with 220 new positions within the Police and CGDIS and upgraded equipment for the police in 2026. The CGDIS will receive €166.5 million, including €27.7 million for infrastructure modernisation.

Moreover, the Justice budget see an increase of €15 million to €375 million, including €7.4 million for legal aid. Support for communes includes ICC revenues of €1.66 billion, state allocations of €3.36 billion in 2026 and €270 million over four years for basic infrastructure.

In conclusion, the government stated that the 2026 “Matenee Wuessen” budget “promotes growth through solidarity and solidarity through growth” and “is a budget for economic recovery, trust, prosperity and well-being, for both current and future generations, ensuring a united and resilient Luxembourg”.

In closing his presentation of the State Budget for 2026, Minister Roth remarked that “people are at the core of our social model” and said the government is ready to support “a country of modernity. For the rich, for the poor, for all good.”