This interview with Luc Frieden was conducted by Thierry Labro and Marc Fassone on Wednesday 13 November 2024.
Thierry Labro & Marc Fassone: One year on, what are the positives and negatives of your experience as prime minister?
: It’s a great responsibility and a great honour to be able to lead this united government, which has a majority in parliament, unlike the instability that reigns in our three neighbouring countries. In addition to the atmosphere and the strong unity, I note that on the main points for which this government was elected--purchasing power, competitiveness, housing, the fight against poverty, renewable energy--we have made good progress! I’m very satisfied.
On the negative side, as I return to politics, I have to get used to the fact that democracy is a beautiful thing, but it’s also very complicated. Sometimes things don’t move as quickly as we’d like, because there are debates and criticisms, and you obviously have to take the time to debate.
Which criticisms have affected you the most or delayed your government action the most?
None.
As far as housing is concerned, you have put in place resources needed to halt the crisis in the sector. What feedback have you had from the field?
When the government took office, we had a double crisis: a crisis in the construction sector and a housing crisis, making it difficult to buy or rent a home. With the short-time working measures, we managed to keep employees in their companies, which is essential to get the economy moving again.
We’ve made enormous progress by introducing a number of tax measures and by developing something that didn’t work in the past but does now: getting all the ministries around the table, working with the local authorities and private sector players, architects and developers, and we’ve implemented a number of procedural measures to speed up housing.
The combination of the two aspects--some measures will be implemented in the coming months--means that things are moving in the sector. We knew from the outset that not everything would be resolved overnight. The positive spirit and unity of purpose within the government have enabled us to move forward. As far as tenants are concerned, I’ve had positive feedback about rent subsidies and tax-free assistance for young people. We need to look at all this together. We’ve managed to revitalise the market.
But we still have the impression that the market is waiting for much more, that more housing units need to be delivered... What are your deadlines? When will we have something more tangible?
There’s already been a big turnaround in the situation. When I look at 2023, there were political measures that were totally holding back the market, such as the law on leases, the absence of tax benefits, no support measures for those taking out a loan... There is a new philosophy. Next, the procedural measures will take a little time to become visible on the ground, but since the sector is familiar with them and some of them will be enshrined in law in the coming months, we will see significant progress in the next two or three years.
Democracy is a beautiful thing, but it's also very complicated.
Is 6,000 new homes a year, which was your objective, still your objective?
I never quote numerical targets for housing. It all depends on a number of factors. But we are determined to reduce the pressure that exists.
There is a measure, the special purpose vehicle (SPV), for buying off-plan properties above a certain threshold, which seems to have missed its target...
It’s an instrument of the banks, so we should be asking the banks this question. It’s not an essential part of the scheme.
A number of players are saying that the conditions for accessing it are too restrictive or not very realistic. Could the legislator already adapt the scheme?
It’s too new to draw any conclusions. But I’m always prepared to review schemes. I’m in favour of close cooperation between the public and private sectors, here as elsewhere, and that’s one of the differences with previous governments. I am ready to lead these discussions.
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With regard to boosting purchasing power, you have implemented substantial tax cuts, without threatening the triple A rating. Have you seen a positive impact on consumer confidence?
People have a lot more money available because the tax cuts have been substantial. For a two-person household with two children earning €120,000 gross, the tax cut will be 14% in 2025 compared with 2023. People are using this money to consume because life is expensive, and that was the aim. We have substantially improved people’s financial situation. For low-income earners, in addition to these tax cuts, we have introduced a trebling of the energy bonus and a 10% increase in the cost-of-living allowance. A whole raft of more targeted measures. We want to have a fairer, more effective social policy, targeting those who need it most.
Aren’t people finding it hard to make sense of all the possibilities for accessing certain measures?
I fully understand that not everyone is aware of all these measures. We have a duty to communicate even more about these measures. In the various target groups, these measures are better known, but people will see them mainly from 1 January, because a number of these tax measures--such as those for single-parent families--will come into force on 1 January 2025.
What about the planned 60% rise in the price of electricity on 1 January, reduced to 30% by state support? Could you do more to prevent fuel poverty?
The tripling of the energy allowance is a strong response. We have also ensured, in the state budget, that the prices paid by retirement homes do not increase, at least in a transitional phase. I understand people’s concerns. What\s important is that we become more independent of the outside world, and in particular of fluctuations in the price of fossil fuels. That’s what we’re going to be working on with the relevant ministers. We are going to use the same method that has worked so well with housing: getting private and public players around the table and reducing a number of procedural complexities.
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Some players are suggesting that the state, as a shareholder in Encevo, should play its role as administrator so that the company can absorb part of this increase. Is this also a lever for you?
Encevo is a company that decides for itself what it does. There are European rules. The government has only a limited influence on pricing, but it can act through taxation or social aid.
You have just announced the creation of an inter-ministerial committee to prevent and combat poverty.
We’re not waiting for this group to start or finish its work: the fight against poverty is one of the government’s priorities, and has been since the beginning. I was very surprised to see that poverty, and child poverty in particular, had risen sharply in recent years, and I said to myself that we needed a stronger policy to counter this. I don’t want it to go on like this.
We have taken very strong measures. The use of these various forms of aid will be automated, notably on the basis of the ‘once only’ principle. This means that all those who would have been entitled to a cost-of-living allowance but did not apply for it will receive it automatically. This will substantially improve the financial situation of these families from next year. This committee will be in place to monitor and add other things.
In its analysis of public finances, published at the beginning of November, Morningstar DBRS says that revenue will be higher than the government expects, mainly thanks to income tax. You give on one side, but take back on the other?
We are taxing income less! What is true is that the financial sector, essentially because of the difference in rates, has generated more tax and the state is benefiting from this. It’s also the result of a new spirit on the part of the government to support businesses and boost competitiveness and purchasing power. In 2023, the growth rate was a negative 1.1% of GDP.
We are doing everything to ensure that competitiveness translates into more economic activity, and we hope that growth will be above 2%, which is essential to finance a strong welfare state, our defence effort and our energy transition. Bringing all these aspects together drives my government policy. Economic, social and ecological, not one against the other. Together, we will succeed in modernising and strengthening this country in an extremely unstable world.
On 11 November, the Court of Auditors published two reports, including one on institutions linked to the state. The report shows that public procurement rules were circumvented, and that financial transactions were sometimes not conducted prudently... What are your thoughts on this?
I appreciate the work of the Court of Auditors, which is very important in a state governed by the rule of law. I attach the greatest importance to its reports, which the government will examine in detail. If adjustments need to be made, they will be. This is a new government. It’s very good that the past is being examined. The various departments need to look at it and take a stand.
We have made a substantial contribution to improving people’s financial situation.
What exactly is the Frieden Method?
The prime minister’s role is very clear: he coordinates the government’s action and ensures that it is united. That’s the mission, according to the constitution, and my daily line of conduct. I ensure that the programme is implemented. I have a lot of discussions with the ministers, and I follow the issues closely. I like this coordination work. I’m someone who likes to understand the different issues, and it’s a great challenge to take an interest and follow the issues in all their complexity. It’s fascinating. I’m a very active captain.
You set deadlines for them...
Absolutely, because I want the programme we’ve committed to to be implemented on time. Collegially, because I think the ministers have done an excellent job in the first year. Each of them, in complex areas, has implemented some very important things. There’s still a lot to do--we’ve been elected for five years.
What are the major projects for the next 12 months and what are your ambitions?
They remain the same: to boost competitiveness in order to have a strong social and ecological state. One is a precondition for the other. Working on a more competitive environment. Lowering business taxes from 1 January will be a decisive factor. Reducing procedures for renewable energies or housing will allow many sectors, particularly the craft industry, to have more work and create jobs. Increasing purchasing power will remain a priority.
Alongside the economy, the fight against poverty, housing and aid for renewable energy, there are other necessary elements, such as security. Internal security in particular. The government is sometimes criticised for this, but it is taking strong measures. Because without internal security, there can be no social cohesion. There is also external security. There is a war on the European continent and a terrible conflict in the Middle East. We must do everything we can to increase our collective defence capacity. Without a coherent migration policy, with humanity but also a certain amount of reason, there will be no economic or social progress. That’s my guiding principle.
Have you had any feedback on the proposals in your speech in Poland on deepening the European Union?
I spoke about it with some of my colleagues on the fringes of the informal European Council in Budapest. They found it interesting. It was worthwhile. These proposals go beyond the coalition programme and the current legislative period. But as prime minister, you have to present a long-term vision. Obviously, we are not alone in implementing it.
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Europe is divided on how to manage the future, and a number of countries are turning in on themselves, which I regret. The electoral results in the other two Benelux countries do not give us the means to make rapid progress on European integration. But together, we have a small chance of becoming a more important geopolitical and economic player in the face of China and the United States. There is an urgent need to unite Europe. Luxembourgers must realise that what is happening around us is an enormous change. Europe is losing ground.
The Draghi and Letta reports, which are piling up, all say more or less the same thing: that the integrated internal market needs to move forward more quickly, which is in Luxembourg’s interest, as do the capital markets, which is what you are defending. From a pragmatic point of view, how can we make faster progress on this issue?
I’m very pleased that a subject that was taboo in the past--but which I put on the agenda in Luxembourg--is now back in the spotlight: competitiveness. I was elected for a programme based on competitiveness in the economic and social interest. I am campaigning for this at European level. Last Thursday [7 November, editor’s note], we repeated to the re-elected president of the European Commission, Ursula von der Leyen, that we demand that these reports form the basis of her action over the coming years. Less regulation, but more effective regulation.
We have put too many regulations on top of each other. This is stifling our businesses, which are becoming less efficient than Chinese or American companies. I don’t want all technological or industrial companies to develop outside Europe... But I do want Europe and Luxembourg to be a place where companies can develop, whether in green technologies or the positive impact of artificial intelligence. I’m very proud that we can have a quantum computer in Luxembourg that will enable new developments.
At Fedil Industry Day, the CEO of IEE, Paul Schockmel, pointed out that the Chinese subsidise their economy considerably, that the Biden plan, which will be taken up at least as it stands by Donald Trump, does the same for the United States and he suggested that Europe should also do the same so that everyone ends up at the WTO. Would you support this approach?
The WTO rules are no longer being applied. I regret that. Faced with a rapidly changing world, Europe needs to redefine its policy on international trade, corporate taxation and regulation. We are not a federal state, but we must not lose ground. I would like to see a more ambitious industrial policy and a trade policy that is not naïve. We need to be much more determined. Europeans have been too naïve. I also want competition law to enable strong European companies to emerge. And finally, I want the European capital market to be developed, because we have far more savings than the American market, but far less investment in the economy.
At the helm for a year
More purchasing power
- Adjustment of the tax scale by 6.5 index brackets, including 2.5 brackets from 1 January 2025 thanks to the tabled bill.
- Tax relief for single parents, widowers and citizens aged over 64.
- Increased tax deductibility of interest on home loans.
- Maintaining the cap on electricity prices at half the increase in prices by 2025, accompanied by socially targeted financial support.
Support for the construction industry and a greater supply of housing
- First package of measures to stabilise the housing market--purchase programme for non-buildings of around €480m for the period from 2024 to 2027 in place, increase in the “Bëllegen Akt,” increase in tax exemption on income from social housing from 2024.
- Short-time working from January to July 2024 to alleviate the crisis in the construction sector and preserve jobs.
- Second package of measures to build more and faster, with a focus on historic administrative simplification (harmonisation and simplification of general development plan (PAG) and special development plan (PAP) procedures, gradual introduction of the ‘silence means agreement’ principle, digitisation of all applications for individual authorisations, ministerial consolidation).
- Creation of affordable housing: development of pilot projects with the private sector to build rapidly in the short term, increased state budget for the construction of affordable housing (€900m for 2024-2026).
For a more competitive economy
- Reduction in corporation tax (IRC) from 17% to 16%, or from 15% to 14%, depending on the size of the business, from 2025.
- Exemption from subscription tax for actively managed ETFs (exchange-traded funds) from 2025.
- Adjustments and introduction of various incentives to retain and attract talent (e.g. participation bonus, impatriate scheme).
- Simplification of administrative procedures (e.g. for seasonal workers).
This article was written in for the magazine, published on 20 November. The content is produced exclusively for the magazine. It is published on the site to contribute to the full Paperjam archive. .
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