At 9am on Wednesday, Finance Minister Gilles Roth is scheduled to depose and outline this year’s budget proposal in the Chamber of Deputies. Due to the change in administration, the plan only covers the period from May to December, which is why Roth has referred to it as a “transitional budget”.
MP Diane Adehm of the Christian Social People’s Party (CSV) is this year’s budget rapporteur and the vote of the final 2024 proposal is currently expected to take place on 25 April.
At the end of December 2023, government revenue had registered a year-over-year increase of close to 7%. However, spending had almost doubled in the same period. Without a change in fiscal policies, the central government’s budgetary deficit is thus projected to increase from 2.7% in 2023 to 3.8% this year. This according to figures (FR) from the general finance inspectorate.
Against this backdrop, PM Frieden already announced on 22 February that the deficit has to be reduced this year. That very same day, Roth for a first time announced “austerity measures” in an RTL interview, though he assured that they would not harm people’s purchasing power or business competitiveness.
Similarly, the investment strategy is to remain high, with Roth identifying “optimisation” potential of government spending in the areas of digitalisation, hiring, and real estate. As it is the administration’s utmost priority that Luxembourg maintains its coveted ‘triple A’ status, the trajectory of the public debt has to remain below 30% of GDP.
According to figures (FR) from the treasury director, the threshold in question is currently projected to be crossed in 2026.
To rebalance the budget, the proposed austerity measures would have to be significant, however. As matters stand, this year’s budget promises more new spending.
For instance, the adjustment of the tax scale to four wage indexations equals a decrease of government revenue of €480 million. Similarly, emergency measures in the construction sector require an investment of €480 million for the purchase of homes from the public market.
Also, military spending is to be increased progressively while there are still measures to be implemented from the previous administration, including the energy price cap from the tripartite agreement. €4 billion had been provided for these measures, with the new government still evaluating ways of reducing or replacing them in 2025.
This year’s budget plan will thus continue stipulating a deficit while those of 2025–2027 are expected to see more cost cuts, according to Roth. This does not bode well for the planned tax reform that the government wants to at least have prepared by the end of the legislative period. Businesses, however, are expected to see tax cuts in 2025.
In conclusion, the strategy of the CSV-DP coalition is to boost the economy to generate more revenue, which can in return finance spending.
Since the Frieden administration assumed power, opposition parties such as the Luxembourg Socialist Workers’ Party (LSAP) and the Greens have lamented that the government overemphasises growth without having a “plan B”. For that reason, they demand higher wealth and profit taxes int he future.
