Gilles Roth: Minister of Finance. Luxembourg.

Gilles Roth, Minister of Finance

We sat with our Minister of Finance, 7 months after his nomination. We talked about his priorities, our social model, the risks and opportunities he identifies and the way he measures the progress done by the Government. Interview.

Jerome Bloch: Today, I have the pleasure to welcome Gilles Roth, our Minister of Finance. Welcome.

Gilles Roth: Good morning.

Jerome Bloch: Gilles Roth is a trained lawyer. He practiced law at the beginning of his career, and when Jean-Claude Juncker became Prime Minister in 1995, he began serving in the Ministry of Finance in various roles. In 2000, he became the mayor of Mamer, a position he had to leave when he was nominated as Minister of Finance in November 2023.
The main question I would like to ask you after seven months in office is: What are your main priorities?

Gilles Roth: My priorities stem from the government program. In the first phase, we are focusing on three main priorities: increasing citizens' purchasing power, housing, and making Luxembourg's economic and financial landscape more attractive and competitive. For housing, we have launched a complementary fiscal package to the new housing supply created through the Minister of Housing. I would like to remind everyone that 480 million euros are dedicated in the coming years to acquiring VEFA (sales in the future state of completion, editor’s note). At the Ministry of Finance, we have complemented this with a 'housing package' of tax incentive measures, including the "Bëllegen Akt" tax credit. For those who invest in housing, we offer a capital gains tax reduction to a quarter of the overall rate. Other measures include accelerated depreciation or partial exemption of capital gains if transferred from a sold property to another property dedicated to AAA energy class housing or social housing. So, there is a set of packages that will, alongside the investments made by the State, investments to be made by the National Society for Affordable Housing (SNHPM), the communes, encourage private investors to invest because the State and public authorities alone cannot do everything.

“If we have the opportunity to attract large international companies to Luxembourg, we will need to take a pragmatic approach"

Jerome Bloch: And what about purchasing power?

Gilles Roth: Regarding purchasing power, we have kept our word by adjusting the tax scale with four index-linked brackets. Two and a half will still come into effect on January 1, 2025, subject to parliamentary approval. This increases the purchasing power of all citizens who pay taxes. Tax class 1A, which mainly concerns single-parent families, will be adjusted with a reduced rate to counter the risk of poverty that Prime Minister Luc Frieden highlighted in his state of the nation speech. Finally, we are enhancing the attractiveness of the financial center and the competitiveness of businesses. This is necessary – not to do a favor to our financial center – but because 75% of our corporate income tax comes from finance.

Jerome Bloch: What are the characteristics of our financial center in 2024?

Gilles Roth: 5.3 trillion euros in assets are under management in investment funds here in Luxembourg. We are particularly sought after by companies, banks, and financial institutions that come from well beyond the European Union or community. They actually follow our business model, that is, they set up their European headquarters here in Luxembourg to serve the European Union under the framework of the free provision of services – within the framework of a capital markets union – and I am very pleased to have attended the inauguration of China Taiping, a major Chinese insurer that has just opened its doors in Luxembourg and employs 550,000 people worldwide, which is almost the size of Luxembourg. Other global financial institutions will soon be establishing themselves in Luxembourg, which is a good thing. That's why we will reduce the corporate income tax by one percent starting January 1, 2025, and we will reduce or even exempt actively managed ETFs, which is another segment that should not be underestimated.

Jerome Bloch: What about taxation?

Gilles Roth: We will act to provide incentives to attract talent and retain decision-makers in Luxembourg and bring them here. Other financial centers like Paris, Milan, or London also offer incentive programs, and when decision-makers feel comfortable in Luxembourg, they develop their company's network here. I have participated in financial missions in Switzerland and London, where the feedback was very positive regarding the more "business-friendly" approach of the new government.

Jerome Bloch: Many good news and undoubtedly a clear plan, but which still has 209 pages: that's the coalition agreement. If we take a panoramic view, what risks and opportunities do you identify this year?

Gilles Roth: The risks for Luxembourg are geopolitical: the war in Ukraine, conflicts in the Middle East. We operate in the international community, but Luxembourg does not have direct interaction to resolve such conflicts on its own. We experience their impact like other economies. Of course, Luxembourg is an open economy, dependent on other markets: if the German industry, especially in the automotive sector, is not doing well, it has a direct or indirect impact on Luxembourg. If inflation rises or political uncertainties emerge, it is not positive for a financial center. Given these factors, the main risk for Luxembourg is to see its financial center suffer from jealousy. But it also creates an opportunity, by encouraging us to constantly reassess ourselves to react and seize opportunities.

Jerome Bloch: Is the size of the country an advantage?

Gilles Roth: We are a small country of 670,000 inhabitants, multilingual, with highly qualified people and great political stability, especially compared to neighboring countries to whom we owe a lot. During periods of instability – especially financial and economic – many turn to Luxembourg. So, it's up to us to provide predictability to financial and economic actors. And I think it is quite evident in Luxembourg when our government openly states that it focuses on the competitiveness of businesses and the attractiveness of our financial center.

Jerome Bloch: A word on social budgets?

Gilles Roth: They represent 47% of total state budget expenditures, and this will not be challenged by our government. I know it doesn't please all economic actors, but the Prime Minister recently reiterated that he is committed to maintaining the indexation measures. It is a factor of stability and social cohesion. We will have to live with it. But if inflation is counterbalanced by a pre-established system, that of indexation, it's a good thing when we apply an effective "short-paths" policy. We know how to defend our interests, and with a comfortable majority in Parliament in terms of seats, I am quite confident in our ability to improve the country's competitiveness and attractiveness. Moreover, the feedback I have received from the public and the economic and financial world has been quite positive and encouraging for my part.

Jerome Bloch: The advantage in Luxembourg for those interested in politics is that it is easy to download the coalition agreement from the government's website. It clearly states that the indexation will not be questioned for the next five years. At least, there is no time wasted discussing it, and we can move forward. One question: You mentioned that 75% of revenues come from corporate taxes in the Finance sector. If we asked residents and citizens on "Grand Rue," they might not realize this. How can we better inform the public about the reality of our economy?

Gilles Roth: The risk of a divide between Luxembourgers and the international community, I do not underestimate it, but we shouldn't dramatize too much. I was the mayor of a municipality for 23 years, where the rate of non-Luxembourgers exceeded 50%. And I think we managed, in the commune of Mamer, to create a very popular and easy-going environment. Everyone gathers in the park in Mamer, whether they are Luxembourgers, English, Americans, Greeks, or Romanians. If politics can frame this population mix a bit, also in terms of different nationalities, it will go in the right direction. Secondly, in Luxembourg, we need talent. We rely heavily on cross-border workers who come to work in Luxembourg. That's why I'm also looking for a solution to encourage people to continue working in Luxembourg because we cannot do without all these cross-border workers who do an exemplary job. And third, we obviously need to attract recruits beyond the Luxembourg population for major law firms, audit firms, and other emerging fields like artificial intelligence. That is why I want to implement tax incentives, in line with the government program, to attract expatriates, allowing the country to function dynamically in the long term. I do not see any risks as long as we are aware that the country cannot function solely with native Luxembourgers. We have realized this throughout our history. We were under French, Belgian, and Dutch influence, but we always knew how to benefit from it.

Jerome Bloch: I indeed confirm that Luxembourg is certainly a model of integration but we must remain vigilant. We saw that ADR gained a seat last year in Parliament and another one this year at the European level. Do you think the population is aware of our economy's high dependence on the finance sector?

Gilles Roth: I think so. Subconsciously, at least. When people talk abroad, they are happy and proud of the attractiveness of our financial center. I am the Minister of Finance of a country with 670,000 inhabitants, but also of a country that is the second-largest hub in terms of assets under management worldwide. This is why a Luxembourger or a person residing in Luxembourg can pursue a career in finance. I believe that subconsciously, people are really aware of this asset, but you rightly raised the question; we will also need to invest to attract other highly qualified sectors of the economy, such as fintechs or artificial intelligence, in all sectors, but also in other areas like digital transition, energy transition, where Luxembourg, with its expertise, can find niches to ensure the long-term sustainability of our economy. If we have the opportunity to attract large international companies to Luxembourg, we will need to take a pragmatic approach. We say: "Here are the conditions; here is the vademecum. You must comply, and once you do, you get the approvals, and everything should move quickly”. I get the impression that this was not or no longer the case during the last two legislatures. That's why we must work towards greater administrative simplification across all areas.

Jerome Bloch: You were Mayor of Mamer, where one of the country's industrial jewels, Ceratizit, is located, which I recently visited. People forget that employment in Luxembourg also includes industry, with thousands of jobs. One last question: how do you measure the performance of each initiative, and how do you keep your eyes on the main objectives you mentioned at the beginning of the interview?

Gilles Roth: I would say that my political performance is articulated in relation to the meticulously developed government program of 209 pages, at Senningen. I measure my actions by ticking boxes once the measures that translate these political orientations into practice are implemented. Of course, every political orientation requires an action plan, and that's my way of working. Afterward, we need to verify on the ground whether the implemented measures hold up and listen to the feedback we receive at the political, economic, and social levels. As Minister of Finance, my duty is to ensure the competitiveness and attractiveness of the financial center, but also to measure the benefits for the country. We must also measure, with the money collected, what is done in terms of social criteria because, behind a financial center, for example, there are 62,000 people working. We need to maintain high social standards, otherwise, people won't come to work here and measure the implications of the money collected in terms of social cohesion in Luxembourg, in terms of infrastructure investments, and in social fields where, I remind you, we devote 47% of our budget expenditures. I am confident with the constructive spirit of the government members and with the support of a large government majority in our ability to achieve our objectives. I always strive to reach a consensus, a reflex that probably comes from my experience as a mayor. Not unanimity, but a consensus so that the measures put in place are supported by the widest possible majority within the deliberative body, whether it is the municipal council or, at the national level, Parliament.

Jerome Bloch: It is true that it is part of the political culture in Luxembourg, where consensus is constantly sought. You launched discussions on housing in February, March, April, before presenting your initiative in May. We anticipate the same approach for tax reform, pension reform. A lot of work ahead for which I wish you much success. Thank you very much.

Gilles Roth: Thank you. I will come back!