Using fiscal policy to diversify Luxembourg’s economy

Finance is a sector that has the ability to generate large amounts of money without requiring large amounts of manpower. It’s a boon, but it’s also a bane. In the past few decades, Luxembourg has been able to top the list of per capital GDP in Europe through the development of this rather abstract industry, all while becoming an increasingly easy target for the critical European media.

OECD measures such as the much discussed BEPS are ushering in a new era of international fiscal policy. Our political leaders are looking to create hospitable conditions to entice international groups to set up “tangible” operations on Luxembourg soil. And even though finance and banking still provide a wealth of opportunities, the weathervane is turning.

Is Luxembourg ready for change? With a centralized location near all European financial hubs, top IT infrastructure, a multilingual population, and a stable political and (until recently) economic scene, it’s a puzzle why Luxembourg’s industry make-up has remained so homogenous for so long.

Maybe it’s due in part to the fact that business travelers never see the real Luxembourg. They are most often treated to a tour which goes from train station to airport through Kirchberg, awash in banks and related financial service providers. Never do they see the vibrant street life of the city center, the picturesque ramparts, the rolling countryside. Nor do they get a glimpse of Luxembourg’s high tech industrial plants and cutting-edge research centres. Never do they imagine that Luxembourg could be anything more than a humdrum banking center.

But then again maybe our visitors’ perceptions are not only to blame. We have to look at all aspects of the issue. For example, opportunities for higher education in sectors other than finance, law, and accounting are scarce. Recent graduates in engineering, medicine, IT, or other similar fields do not see Luxembourg as a place to make a living or a life.

I believe that Luxembourg can begin by using one of its most trusted tools, fiscal policy, to begin to diversify its economy and attract more brick and mortar business.

The infographic below illustrates three fiscal policy points that, in my opinion, could help Luxembourg fulfil its potential.

By Jamal Afakir

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