The Council of State has confined its analysis of the tax reform to questions of constitutionality and technical consistency, raising six formal objections in the process. On one key point, however, Finance Minister Gilles Roth received much support: the planned 25-year transitional period for individuals in tax class 2.
This provision is designed to prevent couples in which one partner earns more than three-quarters of the household income from being disadvantaged under the new single tax class system. While the reform will likely create a distinction between couples who married or entered a civil partnership before the reform and those who do so afterwards, the Council of State considers this constitutionally sound.
In its reasoning, the institution noted that taxes are calculated on an annual basis in addition to framing the concept of definitively acquired rights. It also referred to the 'stable jurisprudence' of the Constitutional Court: for discrimination or inequality before the law to be established, the two groups being compared must be in a comparable situation, which the Council of State does not consider to be the case here. The transitional period, it added, is based on objective and pertinent criteria, though it suggested the Ministry of Finance could equally have calibrated the duration of the transitional phase according to the length of the marriage or partnership.
The six formal objections raised by the Council of State relate to legal uncertainties and inconsistencies, largely concerning provisions affecting married non-residents with taxable income in Luxembourg. While technically complex, these objections are not expected to represent a fundamental obstacle to the reform moving forward.
On the civil law question of the financial support obligation between married couples, the Council of State did not address it directly, though it noted that under the current system it is primarily the lower-income partner who is at a tax disadvantage.
The Council of State did, however, flag the most important risk associated with the reform: its cost. The Ministry of Finance estimates the reform will cost €850 million in 2028 and €910 million the following year. The Council of State pointed to the opinion of the National Council of Public Finances, which it described as decidedly brief, and which warned that, as a result of the tax reform combined with increased defence spending, the budget deficit could reach between 2.3 and 2.7% of GDP in 2029, compared to a projected 1.1%, unless offset by austerity measures or additional revenue.
With virtually no fiscal room for manoeuvre left, the message is clear: there is still considerable work to be done.
