The country's total population is around 600,000, but around 200,000 living in the three neighboring nations cross the border each day to work in the tiny state.
The announcement comes just hours after the swearing in of Prime Minister Xavier Bettel who will form a coalition government with two other parties. This summer, the government introduced free transport for every child and young person under the age of 20. On top of that, there's an extremely low far of only €2 (S$3.1) for two hours of travel, which in such a small country covers nearly all journeys.
Bettel's Democratic Party is ruling in coalition with the left-wing Socialist Workers' Party and the Greens. Although home to around 110, 000 people, the capital witnesses 400,000 commuters coming to the city to work.
In a bid to ease the pressure on the country's road network, all public transport tickets will be abolished from summer 2019.
A free shuttle service is provided for secondary school students between their homes and school and earlier this year free transport was introduced for under 20s. But details of the plan still require some hashing out as there's yet to be a decision on what to do about the existing first- and second-class compartment on some trains.
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Bettel only just scraped back into government in the recent election.
Luxembourg Prime Minister Xavier Bettel promised to prioritise the environment.
The Christian Social People's Party (CSV) - which was led for 19 years by European Union chief executive Jean-Claude Juncker - remained the largest party in parliament, but lost seats, as did the LSAP and the Democratic Party.
The policy of the new government that has caused the most debate, however, has been that of legalising the purchase, possession and consumption of cannabis for recreational use.