Luxembourg’s state finances are experiencing a significant deterioration, as reported by the National Council for Public Finances.
The Council, responsible for monitoring adherence to European budget and debt rules, has revealed that Luxembourg no longer meets its medium-term household goal. Currently, this doesn’t have immediate consequences for the country, as the rules have been temporarily suspended due to the ongoing war in Ukraine. But the rules will likely be reinstated next year.
Romain Bausch, President of the CNFP, expressed his concern over the situation: “There is a significant deterioration in public finances in both the short and medium term.”
This assessment is based on the stability plan submitted by the Luxembourgish government to Brussels in the spring. The plan initially projected a deficit of 1.5% for this year. However, since then, economic forecasts have worsened considerably, leading to a likely increase in the projected deficit.
According to the spring figures, Luxembourg is currently not in compliance with European budget rules. Nevertheless, the country is temporarily exempt due to the Ukrainian war. The impact of this exemption on Luxembourg’s financial situation will depend on the progress of the reform currently underway in Brussels. The reform plans aim to ensure that Luxembourg can adhere to the new rules, even in the face of deteriorating state finances.
Bausch emphasised the importance of this reform, stating, “It is important to recognise that the observed deterioration is not an isolated incident but a structural and general trend. This finding is independent of the legislative framework currently in place.”
The deficit for this year can be attributed, in part, to the measures agreed upon during the tripartite negotiations and discussions at the energy table. Despite efforts to mitigate the deficit, Bausch stated, “We have a solid deficit, and it will persist in the coming years.” However, there is hope for improvement as Bausch mentioned: “The measures implemented in 2024 will cost 700 million euros less than in 2023, and in 2025, the cost will be 450 million euros less than in 2024.”
The deteriorating state finances raise questions about the feasibility of potential tax reforms and campaign promises made by political parties in the upcoming election. Regarding this, Bausch remarked: “The scope of possible reforms and gifts can be vast, but they must be financed from somewhere.”
