For more than two decades, the Luxembourg economy has consistently performed at the highest levels, with strong growth, high international trade surplus, low unemployment and low inflation in a stable, innovative environment for business and consumers alike.
Luxembourg’s relative outperformance, even during economic downturns, derives from several factors and policies. Diversification has been a major priority since the 1960s, when Luxembourg began to move away from its strong reliance on the steel industry into high tech manufacturing and banking. Today’s economy is a balanced blend of financial services, high value-added manufacturing, retail and e-commerce, communications and logistics services, with a focus on exporting goods and services to and throughout the European Union and beyond.
Stability is another key feature. The Luxembourg government fosters close relationships with employers and wealth-creators to identify, and understand businesses challenges. Luxembourg’s “tripartite” system brings government, employers and unions together to discuss important issues, deliberate consensuses, and work in concert. Employer-employee dialogue is institutionalized as part of the “Luxembourg model,” with an emphasis on negotiation and compromise rather than costly disruptions.
Stability of Government finances is equally important. Taxes are low, and so is public debt, which in 2010 is a mere 18 percent of total GDP, one amongst the lowest in the European Union. Corporate taxes support investment and entrepreneurship, with top rates of 28 percent, while effective rates can be as low as a single digit. Value-added tax at a standard rate of 15 percent is the lowest in the EU, helping to keep the tax burden on consumers within reasonable limits. Wage-related social charges for employers and employees are such that total employment costs are well below those of most neighbouring EU nations.
Social and fiscal stability are key ingredients for political stability and effective Government: since the end of World War II, Luxembourg has been governed consistently by a coalition of two political parties among the three major ones represented in the 60 member Parliament.