Until now, funding had been allocated through an agreement involving three different departments. By the end of the year, Luxembourg plans to invest an additional €400 million in the defence sector. Prime Minister Luc Frieden announced this during his State of the Nation address on Tuesday.
In 2025, Luxembourg is expected to invest €780 million – equivalent to 1.3% of national income – into the defence sector. However, the country may reach its 2% target, originally set for 2030, as early as this year. This would amount to a total investment of €1.2 billion in 2025, as indicated by the Finance Minister’s calculations.
Gilles Roth emphasised, “It’s a substantial amount—comparable to four indexations of the tax table, which would total around €480 million per year. This represents a significant additional expense compared to the budget we originally set.”
International solidarity is essential; therefore, as a NATO member, Luxembourg will comply with the alliance’s requirements. Although the country’s financial situation remains stable, the additional €400 million cannot simply be offset by cutting smaller budget items.
The €400 million will be divided into three equal parts of €133 million. One third will be financed through public debt, another third by the National Credit and Investment Society – with the minister also considering the introduction of a defence bond – and the final third will come from reprioritising existing investments.
Minister Gilles Roth clarified, “This does not mean we are halting or reducing investment spending. It simply means that planned investments must be executed within the year they are budgeted for. We only want to include investment projects and the corresponding amounts in the budget if we are able to implement them within the same year.”
One thing is clear for the Finance Minister – defence funding should not come at the expense of taxpayers or social support:
“I also want to make this very clear: as things stand today, there will be no tax increases, and there will be no cuts to social spending. The social system will not be tampered with.”
The projects to be financed with the additional funds are not exclusively military in nature. Luxembourg is placing particular emphasis on advancing satellite technology, drones, and cybersecurity.
The Minister of Finance expressed concern over the fact that certain influential circles have already suggested increasing defence spending to 5% of GDP – an amount that would equate to €3 billion per year.
“That’s an entirely different ballpark. It’s a figure even the Finance Minister (of the European Union) needs time to digest. We’ll have to see what ultimately comes of it”, he remarked.
Gilles Roth also acknowledged the challenges faced by other finance ministers, who are operating in less stable and prosperous economic conditions. Should such a scenario become reality, it would be necessary to reassess the sources of funding.
Further clarification is expected at a press conference to be held by Minister of Defence Yuriko Backes on Friday afternoon.
