The opportunity of teleworking is one of few silver linings to the coronavirus crisis. Especially for the 25,000 cross-border workers in the financial sector, it has been a relief. Will they be willing to resume their tough daily journeys to work after the lockdown?
A large majority of Luxembourg workers is happy to work from home these days, according to research by national statistics office Statec. It found 61% working from home full-time for “administrative and financial services”, with 79% alternating between remote and on-site working. Of those who have been teleworking, 60% said it was a positive experience, with most of the remainder being neutral about the change.
The financial sector trade union ALEBA estimates that about half its members are non-residents, equating to about 25,000 employees resident abroad. Add to this the tens of thousands of workers in businesses that support the financial sector, and these numbers will be considerably higher.
Tax penalty
However, cross-border workers are allowed to work from home only a limited number of days a year (29 days in France; 24 in Belgium; and 19 in Germany). If this limit is passed then workers have to pay income tax in their country of residence rather than in Luxembourg where taxes are somewhat lower.
Since Luxembourg and its neighbours went into lockdown, the vast majority of cross-border office workers in the Grand Duchy have switched to teleworking. According to Nicolas Mackel of the Luxembourg for Finance trade promotion organisation, up to 90% of financial sector employees are working from home.
This change was facilitated by the neighbouring countries lifting the income tax restrictions on remote cross-border working “until further notice”, with few indications when this might end.
Negotiations
“In recent negotiations, the Belgian government said it would we willing to double the number of days that its resident could telework into Luxembourg with no income tax penalty,” noted Dr. Franz Clement, a labour market researcher at the Luxembourg Institute of Socio-Economic Research, “but in return they wanted tax compensation and the talks broke down.” In short, despite the benefits of teleworking regarding carbon emissions, the well-being of workers, reduced strain on infrastructure, and more, the Luxembourg government decided that it wanted to maximise income tax receipts. The question is whether this is sustainable.
Yet re-imposition of the old arrangements will occur at some stage, and then the daily commuter grind will start again for the near half of Luxembourg’s workforce that doesn’t live in the country. Germany was the first country to re-open its border with Luxembourg on 15 May. However, a possible renegotiation of income tax arrangements for cross-border workers with the country is yet to start. Potentially this question will rank low on the Berlin government’s to-do list. After all, it took the Luxembourg and German governments until 2 April to agree to officially suspend the remote working tax arrangements, 15 days after the border was closed.
The number of cross-border workers has risen consistently by around 3% per annum in recent years, and transport networks are groaning under the strain. In a TNS-Ilres survey of cross-border workers commissioned by the Support Association for Immigrant Workers (ASTI) in January, 44% said public transport to Luxembourg was either “poor” or “very poor” with 30% having a similarly dim view of the road network.
As we adapt to life with the virus, each frontalier is now being given 50 surgical masks free of charge by the Luxembourg state, and cleaning of public transport has been stepped up. Nevertheless, a certain proportion of people could be unwilling to take the risk of standing in packed trains and buses as they used to. The lack of parking places in Luxembourg, and car-sharing being discouraged, means staff won’t be able to drive to work. Moving to Luxembourg is ruled out for most due to the country’s high property prices. Indeed the ASTI survey found just 8% of German frontaliers, 1% of French, and 3% of Belgian having plans to move to Luxembourg in the next five years.
Tough choices
Teleworking may need to become a long term solution, at least until a vaccine or effective Covid-19 treatments are developed. Luxembourg’s government may therefore be forced to offer financial inducements to neighbouring regions to extend current teleworking measures. Another option is asking businesses to increase salaries to compensate staff for the tax loss. If these steps are not taken, Luxembourg risks exacerbating its already serious skills shortage.