The Council of the European Union has published a recommendation on 3 July 2026 outlining economic, social, employment, structural and budgetary policies for Luxembourg. The recommendation sets binding net expenditure growth limits for 2025-2029 and calls for deeper pension reform, housing measures, and innovation support.
The document, adopted by the Council, notes that Luxembourg's net expenditure grew 8.7% in 2025, exceeding the recommended maximum of 5.8% by 1.3% of GDP. The cumulative deviation for 2024-2025 was marginally above 0.6% of GDP. However, projected 2026 growth of 3.5% is below the 4.7% ceiling, reducing the cumulative deviation to less than 0.1% of GDP by 2026. The recommended net expenditure growth rates are 5.8% (2025), 4.7% (2026), 3.8% (2027), 5.4% (2028), and 4.7% (2029), with cumulative growth from a 2023 base reaching 36.9% by 2029.
On pensions, the Council acknowledges the December 2025 reform that raised the contribution rate by 1.5 percentage points to 25.5%, but deems it insufficient for long-term sustainability. Pension expenditure is projected to reach 17.5% of GDP by 2070, the highest increase in the EU, with reserves expected to deplete by 2048. The Council urges further measures to ensure sustainability.
In housing, the recommendation addresses supply-demand imbalances, calling for land mobilisation, tax reform, phasing out mortgage interest deductibility, and strengthening the macroprudential framework. For transport, it advocates a coordinated cross-border strategy for commuter traffic, improved rail connectivity, integrated ticketing, and last-mile connections.
On tax planning, the Council recommends broadening the scope of the non-deductibility rule for interest and royalty payments beyond jurisdictions on the EU list of non-cooperative third countries. For innovation and competitiveness, it highlights that business R&D intensity stood at 0.45% of GDP in 2024, far below the EU average of 1.49%, and calls for stronger science-business linkages, diversification of the financial sector, and channelling household savings into innovation financing. Additionally, it recommends improving access to supplementary pensions, particularly for employees of smaller firms, and addressing legal and fiscal uncertainty.
The recommendation is part of the European Semester cycle and will guide Luxembourg's policy formulation. The Council will monitor implementation in subsequent reviews.