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Eurofound's EU PolicyWatch collates information on the responses of government and social partners to the COVID-19 crisis, the war in Ukraine, rising inflation, as well as gathering examples of company practices aimed at mitigating the social and economic impacts.

Factsheet for measure LU-2022-14/2255 Updated – measures in Luxembourg

Energy tax credit based on income level replaces second wage indexation

Crédit d'énergie

Country Luxembourg , applies nationwide
Time period Temporary, 01 April 2022 – 30 April 2023
Context War in Ukraine, Green Transition
Type Tripartite agreements
Category Responses to inflation
– Support for energy bills
Author Patrick Thill (LISER) and Eurofound
Measure added 13 May 2022 (updated 26 September 2022)

Background information

In the context of the price increase, the government has undertaken to introduce a new energy tax credit in return for the shift in the index bracket scheduled for August 2022, as well as the increase in the CO2 tax on 1 January 2022 and 2023. This credit is socially targeted, in order to compensate, or even overcompensate for the loss of household purchasing power in the case of the lowest salaries. This compensation replaces the second revaluation of the wage index scheduled for 2022.

Content of measure

This measure is progressive according to the level of income:

  • For salaries and pensions between €936 and €44,000 per year, this credit will amount to €84 per month
  • For salaries and pensions between €44,001 and €68,000 per year, this credit will amount to at least €76 per month
  • Beyond this income bracket, the credit will gradually decrease to €0 for salaries and pensions exceeding €100,000 per year.

In addition, the Government undertakes to pay a tax credit equivalent (TCE) to each beneficiary of the basic lump sum per adult due under the amended law of 28 July 2018 on social inclusion income (REVIS). This tax credit equivalent will be paid to each beneficiary of the income for the severely disabled (IGD). The amount of the ECI amounts to €84 per month for the compensation period. The Government also decides to provide for an additional financial envelope of €10 million in State financial aid for higher education as from the academic year 2022/2023, a financial envelope, which will be distributed over the basic grant, the mobility grant and the grant on social criteria.

Concerning the financing, the only information in the state budget is an open budget line: "Supply of the climate and energy fund", without indication of a maximum amount

Updates

The following updates to this measure have been made after it came into effect.

19 July 2022

The energy tax credit for employees and pensioners with an income of less than €8,334 per month and for self-employed persons with a net profit of less than €100,000 per year is extended for the 2023 tax return.

Use of measure

Currently no information available on the number of people concerned.

Contents

  • Income protection

Target groups

Workers Businesses Citizens
Applies to all workers Does not apply to businesses Other groups of citizens
Pensioners
Students

Actors and funding

Actors Funding
National government
Social partners jointly
National funds

Social partners

Social partners' role in designing the measure and form of involvement:

Trade unions Employers' organisations
Role Consulted Consulted
Form Consultation through tripartite or bipartite social dialogue bodies Consultation through tripartite or bipartite social dialogue bodies

Social partners' role in the implementation, monitoring and assessment phase:

  • Social partners jointly
  • Main level of involvement: N/A

Involvement

Discussions in the framework of the Tripartite meeting held on 22, 23 and 30 March 2022. The trade unions wanted additional wage indexation bands on this point to absorb some of the price inflation. In the face of the government's opposition, the debates validated the creation of an energy tax credit for people with incomes of less than €8,334 per month for employees and pensioners, and a net profit of less than €100,000 per year for the self-employed.

Views and reactions

The main trade union: Confédération Syndicale Indépendante du Luxembourg (OGBL) refused to sign the agreements, as they claim they contribute to an attempt at social deconstruction.

This refusal is due, on the one hand, to the fact that the OGBL could not give the government a "blank cheque" for a manipulation of the index until 2024, knowing all the more that prices are currently extremely volatile because it does not accept that massive aid to companies, the most important of which is not targeted and undifferentiated, namely the postponement of several index brackets, should be financed by the purchasing power of almost all employees, pensioners and their families.

OGBL firmly denounces the government's attempt to divide the workforce in Luxembourg, whether between residents and cross-border workers during the negotiations (one of the government's proposals was simply to exclude cross-border workers from the compensation mechanism) or between small and medium salaries within the framework of the compensation model finally adopted.

Sources

Citation

Eurofound (2022), Energy tax credit based on income level replaces second wage indexation, measure LU-2022-14/2255 (measures in Luxembourg), EU PolicyWatch, Dublin, https://static.eurofound.europa.eu/covid19db/cases/LU-2022-14_2255.html

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Disclaimer: This information has not been subject to the full Eurofound evaluation, editorial and publication process.