Economic policy

Economic policy: Attractive environment for innovative and competitive businesses

In the last 5 years, the economic development was shaped by the consequences of the pandemic and the Ukraine war. Luxembourg has come through both crises comparatively well economically so far. This is due in no small part to resolute action by the DP-led government. The government’s Corona aid to businesses of around 1.5 billion (short-time work, direct aid and refundable aid) was unprecedented and had the desired effect: business insolvencies declined during the pandemic period before settling back to pre-crisis levels after Corona aid ended. The unemployment rate increased only moderately due to the short-time work measures to secure jobs, before even settling at a lower level than before Corona (5% in May 2023).

Since spring 2021, the inflation and energy crisis resulting from Russia’s war of aggression has presented our country with new challenges. The decisions from three successful tripartite meetings have shown that social dialogue works in times of crisis. The measures adopted, such as the energy price cap and the reduction of the TVA, also have a direct impact on the inflation rate. Indeed, in the meantime, Luxembourg has the lowest inflation among the Euro countries (3.6% in May 2023). Direct state aid also cushions the energy price increase for particularly hard-hit businesses.

Without a doubt, the numerous crises have left their mark on politics in the current legislative period. Nevertheless, important reforms and projects were implemented during this period, especially for SMEs, such as the modernisation of the right of establishment for businesses, the creation of the “Observatoire national des PME” or the drafting of the 5th Framework Programme for SMEs. “Plan d’action PME.

Persistent uncertainties continue to weigh on the economic situation worldwide. The ECB’s consistent raising of the key interest rate to combat inflation is having a strong impact on the real estate market and the construction industry throughout Europe. In Luxembourg, too, the ECB’s interest rate policy has resulted in a slowdown in construction activity. Similarly, consumer confidence has declined. This has a direct influence on purchasing behaviour. The industrial sector continues to face high energy prices and the financial industry is also feeling the uncertainties of the markets.

In these challenging times, it is up to policy-makers to set the right framework conditions to strengthen the resilience of the economy. The DP will continue to set the course for a strong economy in order to secure jobs and prosperity in our country.

For the DP, the current challenging times must not lead to the big issues of our time being pushed into the background. Achieving climate neutrality by 2050 and the emission reduction target of 55% by 2030 require great efforts from business and society. The DP is convinced that the achievement of these goals is indispensable to ensure a liveable basis for future generations. The DP is making every effort to combine the necessary transition towards carbon neutrality with strengthening the economy and improving its competitiveness.

The second major topic of our time is the digital revolution, which will fundamentally change the economy and society. How we deal with digital technologies, especially artificial intelligence, will be crucial for the competitiveness and productivity of our economy tomorrow. The DP will therefore actively help businesses to take advantage of digital technologies and, in particular, provide small and medium-sized enterprises with the necessary assistance to jump on the digital bandwagon.

Small and medium-sized businesses form the backbone of our economy. Equally, people who dare to break new ground, turn an idea into reality and start their own business are indispensable for our country. The DP would like to additionally promote entrepreneurial spirit and significantly strengthen the status of freelancers. To this end, the Directorate General “SMEs”, which is currently part of the Ministry of Economic Affairs, is to be expanded into a separate ministry, which will also include the areas of freelancers and entrepreneurship.

The DP is committed to a socially liberal and climate-neutral economic model. To achieve climate neutrality, the principles of the circular economy must be firmly anchored in the economy. At the same time, the DP has confidence in the innovative capacity of businesses and stands for the targeted promotion of new technologies that contribute to achieving the goal of climate neutrality. For DP, climate neutrality does not automatically mean doing without. Instead, the DP argues for climate-neutral economic growth that decouples resource consumption from economic development and thus combines ecology and economy. At the same time, climate-neutral growth will contribute to the prosperity of our country’s citizens and safeguard the welfare state.

Luxembourg’s economic success model is based on high productivity. According to the IMD Competitiveness Index, Luxembourg is ranked 20th in the world in 2023. However, labour productivity has been stagnating for years, albeit at a very high level. Increasing productivity is an important tool for making our growth model qualitative rather than purely quantitative. For the DP, productivity gains must not come at the expense of social gains, such as the index mechanism, but by seizing new opportunities. These consist primarily of increasing digitisation, the use of artificial intelligence, greater bureaucratic simplification and the flexibilisation of working hours in the interests of workers and employers.

In order to strengthen competitiveness in the long term, factors that are decisive for the attractiveness of our country must be constantly evaluated and proactively promoted. The DP will therefore set up a task force to promote international competitiveness, complementary to the Observatoire de la compétitivité.

Luxembourg’s triple-A rating is central to the competitiveness of the economy and must be maintained.

Competitive corporate taxation is a core element of the DP’s economic policy.

Refer to the chapter on Tax policy

Refer to the chapter on Tax policy

The financial centre directly generates around 30% of GDP in Luxembourg. Indirect effects are not included here. The DP is clearly behind a strong financial industry. At the same time, it is important to promote the economic diversification of our country in order to reduce our dependence on a single sector of the economy. The DP will further strengthen efforts to create holistic ecosystems in priority economic sectors. These areas include logistics, health technology, space technology and the data economy. In addition, the DP will establish our country as an economic location for businesses active in the field of artificial intelligence. Economic diversification also includes maintaining and strengthening Luxembourg as an industrial location.

The successfully concluded tripartite agreements of the current legislative period prove the importance of the Luxembourg social model in times of crisis to find amicable solutions with the social partners. For the DP, the tripartite is an integral part of Luxembourg’s successful model. 

For the DP, it is indispensable to consult the social partners in advance when drafting legislative projects, should they be directly affected by them.

Refer to chapter on Labour Law

Small and medium-sized commercial organisations generate around two-thirds of our country’s value added and employ 68% of the workforce. The DP will tangibly support SMEs as economic performers and revise the law on state aid for SMEs. The DP will swiftly implement the 5th National Plan for SMEs, which was prepared in close cooperation with the industry during this legislative period. For the DP, good SME policy means that regulations must be adapted to the needs of small and medium-sized businesses. The DP will systematically apply the “think small first” principle in legislation and provide for SME exemptions where possible. In the important future topics of energy turnaround and digitisation, the DP will advocate for practical SME-friendly solutions and strengthen accompanying government measures. For DP, promoting SMEs also means making public tenders SME-friendly and offering specific training in this regard.

The corona pandemic has shown Europe how important it is to have its own industrial production in key areas in order to avoid supply bottlenecks in crisis situations. The DP will strengthen Luxembourg as an industrial location. For DP, the industry of tomorrow is largely digitalised and energy-efficient. State-of-the-art industrial production should open up new opportunities for Luxembourg as an industrial location.

A clear and comprehensible location policy is indispensable to give foreign investors planning security. In order to prevent negative examples in the future, such as the failed industrial projects of Fage and Knauf, the DP will set clear criteria for attracting new industrial activities in an ambitious industrial strategy.

With the DP, Luxembourg will advocate at European level for a European industrial strategy that strengthens Europe’s competitiveness and promotes important industrial fields of the future such as artificial intelligence or blockchain.

Approval procedures simply take too long in our country. The DP sets itself the goal of noticeably accelerating this. Therefore, a detailed analysis of possible blockages in the processes will be elaborated within one year after the government takes office and the necessary conclusions will be drawn. The DP will better coordinate approval procedures and enable digital tracking of procedures. At each individual step, it is checked whether the principle of “silence vaut accord” can be implemented. By running different procedures in parallel, it is also hoped to save a considerable amount of time.

In addition, the DP will examine the possibility of “provisional prior authorisations”, as is already the case in Germany. With such permits, the builder can start construction at his own risk, even before the final permits have been obtained.

Many businesses complain about the ever-increasing bureaucratic burden. However, numerous initiatives from the past often did not bring the desired relief. In order to remedy this in the future, the DP will systematically examine the proportionality and practicability for businesses in advance as part of the preparation of legislative projects. An SME check should ensure that legal requirements do not disproportionately burden SMEs.

The existing legislation should also be systematically evaluated with regard to its burden on SMEs and, if necessary, adapted, for example by means of an SME clause that reduces the requirements for smaller enterprises. Clear processing deadlines, an automatic exchange of information between administrations and the most complete possible digital processing in the administrations should equally contribute to relieving the burden on enterprises.

DP will consistently take advantage of the recently decided relaxation of the European state aid rules, in particular to drive forward the energy turnaround and digitisation of the businesses. Therefore, the DP will expand government support programmes for businesses.

As part of the funding assistance in the current legislative period, the government has strongly promoted digitisation and the automatic exchange of information, thus not only significantly accelerating the processing of funding applications, but also reducing the workload for businesses. Without this, the disbursement of 80,000 applications for Corona aid to businesses would not have been possible.

The DP will expand the Guichet unique for enterprises, so that enterprises are informed in real time about the processing status of their application, as well as a complete overview, for example, of approved subsidies and establishment permits. Also with the help of artificial intelligence, the Guichet unique becomes a real counselling centre.

The current uncertain economic situation, especially in the construction industry, has already led to a slowdown in labour force growth in isolated sectors. This situation should not obscure the fact that there is still a high demand for skilled workers in the medium term. The numerically strong birth cohorts of the baby boom generation, which will retire in the course of the 2020s, reinforce the phenomenon. The DP is convinced that labour immigration alone cannot solve the problem; the opportunities offered by digitisation and artificial intelligence in particular must be used in a complementary manner.

The DP will complement the government’s “talent attraction” strategy with sector-specific skilled labour strategies, for example in the construction or health sectors. The DP is focusing on economic missions and more modern immigration legislation. Work permit and visa procedures for required skilled workers from third countries should be accelerated and made more transparent. In addition, access is simplified, for example through temporary permits and additional “Work and Travel Visa Agreements” with third countries, which have already been concluded with Canada and Australia, for example. An on-line portal is to bundle all information for potential applicants as well as interested businesses.

The “Régime d’impatrié” and the “Prime Participative”, introduced in the last legislative period, are important fiscal instruments to attract talent. DP will make these two measures even more attractive in the future.

Refer to the chapter on Tax policy

In-company training is a central cornerstone for ensuring Luxembourg’s innovative strength and future viability. The DP will provide a higher percentage of state co-financing for in-company training in promising areas such as digitisation and sustainability.

A positive environment for start-ups is an important prerequisite to foster entrepreneurial spirit. But it is not only the start-up phase that poses major challenges for young entrepreneurs; setting the right course for the further development of the company (“scale-up”) is also decisive for success or failure. In the current legislative period, a roadmap for the promotion of the start-up ecosystem was elaborated by the government. The DP will implement this roadmap to further strengthen Luxembourg as a start-up location. In addition, the DP will introduce a so-called “tax shelter” system, similar to the one in Belgium, to promote investments in start-ups and scale-ups by means of tax incentives for investors.

In order to support start-ups active in the field of artificial intelligence to offer new products and services, possible regulatory blockades are analysed. Strict data protection must be guaranteed at all times.

Many entrepreneurs of the baby boomer generation will retire in the coming years. This will present numerous enterprises with the challenge of finding an adequate succession plan. In order to support enterprises in preparing for a transfer, the DP will impose a specific support programme (SME Package Transmission d’entreprise). In addition, the DP will launch a public investment fund to better accompany business successions. The goal of such a fund is to secure the future of medium-sized businesses and enable them to regain their financial autonomy in the medium to long term. Such a fund should be able to intervene through several mechanisms: Participation in the capital, profit sharing or a guarantee. In parallel, the SNCI is to develop new products to better accompany the transfer of a company.

The right to a second chance for entrepreneurs who have already had to file for insolvency was anchored for the first time in the new right of establishment. The draft law on bankruptcy currently being discussed in the Chamber of Deputies will also help to give entrepreneurs who want to start up again a new chance. The DP will closely follow the development of these two important innovations, and further adapt the legislation if necessary.

The DP sees the state as an innovation driver and will therefore promote innovation and the use of state-of-the-art technologies. The potentials of digitisation, especially the diverse possibilities of artificial intelligence, are to be used consistently.

Luxembourg needs continued targeted public funding for research. The orientation of public research must thereby coincide with the goals of our country’s diversification policy. The reform of the law regarding innovation subsidies has significantly simplified access to these subsidies for small and medium-sized businesses. In order to further reduce the gap between private and public research investment, innovation must be consistently supported, especially in SMEs.

The DP will therefore introduce tax write-offs for investments in sustainability and digitisation. The DP will also make the state, as a significant purchaser of products and services, more accountable in the context of contract awards. Public procurement will be aligned to focus primarily on innovation, circular economy and climate-friendly sustainability.

Refer to the chapter Digitisation and Media

The European Union has committed to reducing CO2 emissions by 55% by 2030 compared to 2005, with the goal of achieving climate neutrality by 2050. Small and medium-sized businesses in particular require accompanying measures within the framework of the ecological and energy turnaround in order to adapt to the new framework conditions and to ensure their competitiveness internationally.

In addition to an incentive policy for climate-friendly investments by means of targeted government funding programmes, businesses need concrete assistance in their day-to-day operations. The newly created Climate Pact for Businesses is an important stakeholder here. Within the framework of the Climate Pact for Businesses, the DP will develop concrete sectoral action plans with the Climate Pact partners and create a personalised advisory service for SMEs.

The DP will also create an observatory for technological market monitoring to give the various sectors an overview of the latest standards in their field of activity. In addition, “test labs” will be created where businesses can test new environmentally friendly and digital technologies according to the “test before you invest” principle.

Residential and commercial buildings are responsible for a high proportion of CO2 emissions. The DP will provide targeted support to businesses for the energy-efficient refurbishment of their building stock through funding programmes. DP will make consistent use of the new opportunities provided by European state aid law for climate-friendly investments. Funding programmes in the field of energy efficiency, research and environmental protection are being newly established or expanded. DP will continue the support programmes for the electrification of the vehicle fleet and the installation of electric charging stations.

The DP will also continue to drive the decarbonisation of industry in close consultation with the industry sector.

DP will firmly anchor sustainability criteria in public tenders. At the same time, accompanying offers are being created for SMEs so that they can adapt to these new requirements.

Refer to the chapter on Sustainability

Refer to the chapter on Sustainability

Medium-sized businesses are often so busy with their day-to-day operations that they do not find the necessary time to deal sufficiently with the topic of digitisation. Important initiatives, such as Letzshop, DigitalHandwierk or the SME Package Digitalisation funding programme, are already bearing fruit. Efforts need to be stepped up to enable SMEs to reap the benefits of a real data economy and the many opportunities offered by artificial intelligence. The DP will therefore develop a digitisation strategy for SMEs in the Haut Comité PME.

The topic of cyber security has been underestimated by many businesses, yet cyber attacks are a real risk. SMEs are particularly vulnerable. The DP will therefore launch a new SME Package Cyber Security funding programme to support small and medium-sized enterprises in cyber security measures.

Refer to the chapter Digitisation and Media

Medium-sized businesses in particular are increasingly complaining about the lack of commercial space to develop their activities. In 2021, the sectoral plan “Activity Zones” was adopted to expand the available areas. The DP will mandate a commission to quickly acquire the necessary land for this and to quickly go through the necessary approval procedures and impact studies. In addition, the DP will strive for a densification of the existing activity zones and focus more on a bundling of facilities (for example parking space) in order to organise the zones as efficiently as possible. The DP will also create a cadastre of all activity zones to provide a central overview of land availability. The concept of the circular economy is to be applied systematically to activity zones.

The DP wants to create a supply of quasi-turnkey plots for different activities (trade, craft, industry) in the business parks. For these plots of land, various procedures are to be carried out in advance together with the municipalities, which are independent of the specific characteristics of the potential company to be located. This saves businesses valuable time.

The DP is open to the idea of cross-border activity zones.

The DP will liberalise retail opening hours and allow general Sunday opening without the need to request it via an exemption rule.

DP will continue to advocate at EU level for a free choice of supplier for trade. The contractual obligation to purchase products through certain intermediaries leads to price increases on the Luxembourg market and violates the principle of a well-functioning EU internal market.

The European Central Bank’s interest rate policy to combat inflation has indirectly resulted in a significant slowdown in construction activity, especially in the residential property market. Around 3,700 businesses with over 55,000 employees are active in the construction sector. The government has adopted a catalogue of measures to prevent unemployment and maintain construction activities.

For the DP, supporting the construction industry is central to ensuring that urgently needed housing is created and that in the future there will be enough skilled workers to implement climate measures such as the construction of photovoltaic systems and the renovation of old buildings. DP will closely monitor the situation in the construction sector and, if necessary, take new measures within the shortest possible time.

Affordable and suitable commercial space is hard to find, especially for young craftsmen. The DP will therefore create a craftsmen’s yard, which will enable craftsmen to work together in multi-purpose halls and benefit from synergies.

Sustainable development of a company is indispensable to ensure long-term entrepreneurial success. According to a study by the Luxembourg Chamber of Commerce, only 12% of businesses have their own CSR strategy, even though many businesses are pursuing this goal (23% are in the implementation phase, 39% in the planning phase). Specific funding programmes in this area have already been introduced in the current legislative period. The DP, in close cooperation with the House of Sustainability newly founded by the professional chambers, will strengthen the accompaniment of businesses in the field of CSR.

The social and solidarity economy now has a firm place in the business landscape. The legal form of the SIS (société d’impact social) has become established. Currently, many stakeholders in the social and solidarity economy are still operating under the legal form of a non-profit association (ASBL). However, this legal form is often not appropriate for the activities carried out and carries a high personal liability risk for board members. The DP will launch an awareness campaign to convince the stakeholders concerned of the advantages of a SIS and offer concrete support in case of a change of legal form.

In the past, initiatives were repeatedly launched to develop long-term economic strategies. In order to avoid a new attempt in every legislative period in the future, the DP, in cooperation with the business representatives, will outsource the elaboration and monitoring of these future strategies from the Ministry of Economy to an independent institution.