On 22 June 2026, the Council of the European Union published a recommendation outlining specific economic, social, employment, structural and budgetary policies for Luxembourg for 2026 and 2027. The recommendation, to be formally adopted at the Council meeting on 24 June 2026, calls on Luxembourg to tighten fiscal policy, deepen pension reform, tackle housing unaffordability, and boost innovation and productivity to diversify its economy.
The fiscal recommendations set maximum net expenditure growth rates: 4.7% in 2026, 3.8% in 2027, 5.4% in 2028, and 4.7% in 2029, cumulatively reaching 36.9% by 2029 from a 2023 base. On pensions, the Council notes that the December 2025 reform, which increased the contribution rate by 1.5 percentage points to 25.5%, is insufficient to address the projected 8.3 percentage point increase in pension expenditure to 17.5% of GDP by 2070. It urges Luxembourg to increase the low 51.9% participation rate of workers aged 55-64, well below the EU average of 69.5%.
In housing, the Council recommends tackling the supply-demand imbalance through land mobilisation and tax reform, phasing out mortgage interest deductibility, and strengthening the macroprudential framework. For transport, it calls for a coordinated cross-border strategy to address commuter traffic congestion. On tax, the Council advises broadening the scope of the non-deductibility rule for interest and royalty payments, currently limited to jurisdictions on the EU list.
To boost innovation and competitiveness, the Council highlights Luxembourg's low business R&D intensity (0.45% of GDP in 2024 versus the EU average of 1.49%) and urges improvements in SME digitalisation and science-business linkages. It also flags a 4% decline in total factor productivity from 2015 to 2025 and recommends diversifying the financial sector and improving conditions for innovation.
The recommendations impact several stakeholders. Luxembourg's government faces pressure to tighten fiscal policy while addressing long-term pension sustainability, requiring politically difficult reforms. Businesses, particularly SMEs, may benefit from measures to boost R&D and digitalisation but could face higher costs from tax base broadening. Homebuyers and homeowners would be affected by the phase-out of mortgage interest deductibility, potentially reducing housing demand. Commuters, many of whom are cross-border workers, could see improved transport infrastructure and reduced congestion if the strategy is implemented.
The Council's recommendation is part of the European Semester cycle and will be followed by monitoring of Luxembourg's implementation in subsequent years. The European Commission will assess progress in its next country report.