Luxembourg is risking heading into its planned 2028 tax reform without a full inventory of the tax advantages already built into the system, according to a June 2026 note from the National Council of Public Finances (CNFP). The analysis put recorded tax expenditures at €1,950 million for 2026.
“The recorded data take practically no account of tax expenditures benefiting businesses and companies,” the Council wrote, adding that budgetary authorities should examine whether the official inventory was exhaustive.
In the note, tax expenditures are legal or regulatory measures that reduce or delay tax due from some taxpayers. They include allowances, deductions, tax credits, exemptions and preferential rates, reducing government revenue while lowering the taxpayer’s bill.
Their cost is not a direct budget outlay. It is estimated from assumptions about taxpayer behaviour, rather than from actual spending.
A rising bill
The recorded bill has more than doubled since the series began in 2015, reaching €1,950 million for 2026. But the CNFP said the rise reflected more than new tax breaks, because some measures had already existed for years before they were later counted.
The chart showed both a sharp increase in the recorded cost and changes in what was included in the official list. The total fell in 2024 before climbing again through 2025 and 2026.
Measures linked to direct taxes made up €1,337.5 million of the 2026 total, compared with €612 million for indirect-tax measures such as VAT and registration duties. They represented more than half of recorded tax expenditures between 2015 and 2022, before rising to an average of 73% between 2023 and 2026, according to the CNFP.
The shift made the composition of the official list as important as its headline cost, because the CNFP’s main criticism was about what the inventory still failed to capture.
What the list showed
Measured against the size of the economy, tax expenditures were expected to reach 2.1% of GDP in 2026, above the 1.5% average recorded between 2015 and 2021.
The 2026 table was dominated by measures linked to households and housing. The Bëllegen Akt housing tax credit was estimated at €353 million, followed by tax credits for employees, pensioners and self-employed workers at €270 million, mortgage-interest deductibility for a main home at €233 million and the super-reduced 3% VAT rate for certain housing works at €193 million.
The table showed the imbalance behind the Council’s warning: large household and housing measures were costed, while business-related advantages remained largely outside the official count.
Outside the count
The Council pointed to one business-relevant measure. “The investment tax credit could notably be classified as a tax expenditure,” it wrote.
The Council also said it could be useful to review the direct and indirect effects generated by tax expenditures after they had been introduced.
The note cited the Idea foundation’s November 2025 list of measures that could potentially be added to the official inventory. They included the lower corporate income tax rate for companies with profits of up to €175,000, loss carry-forwards, the investment tax credit and accelerated depreciation for rental housing.
The main-residence capital-gains exemption illustrated the problem of changing boundaries. The Idea foundation estimated the measure’s cost at €197 million for 2022, while the CNFP noted that it no longer appeared in the tax-expenditure statement since the 2023-2026 budget-planning bill.
If a tax advantage drops out of the inventory, the underlying policy may still exist. What disappears is the regular public accounting of its cost.
Before reform
The CNFP also cited the Banque centrale du Luxembourg (BCL), which had pressed for a fuller inventory in its opinion on the 2025-2029 budget-planning bill. The central bank called for a regular accounting of the cost of all allowances, exemptions and tax credits, whether or not they had already been treated as tax expenditures.
The BCL also said estimates should be updated during the current budget year, especially when new tax breaks were added after the budget bill had been submitted.
Without such data, the BCL warned, it was impossible to estimate how much tax people and companies actually paid once tax breaks were included.
The CNFP note connected the tax-expenditure question to the wider debate over Luxembourg’s budget process. In previous opinions, the Council had criticised the opacity of official forecasts and the slippage in Luxembourg’s spending path. In the tax-expenditure note, the focus was revenue the government does not collect because of choices built into the tax system.
Limited reassurance
European comparisons were treated with caution in the CNFP note. The Global Tax Expenditure Database placed Luxembourg and Germany close to 1% to 2% of GDP, below France and Spain at around 3% to 4%, Belgium at around 6%, the United Kingdom at 7% to 9% and the Netherlands at 14% to 16%.
The Council stressed that such comparisons were difficult because countries did not define, count or calculate tax breaks in the same way. For Luxembourg, a low reported figure may therefore reflect a smaller use of tax breaks, but also a narrower definition of what is counted.
The Council’s warning leaves the next tax reform to be judged not only by what it proposes to change, but by how clearly Luxembourg accounts for the revenue it is already giving up, who benefits from those choices and whether they still justify their cost.
