“Luxembourg's overall economic performance is eroding,” said , director of the Luxembourg Chamber of Commerce, at the institution’s annual business conference on Thursday morning, effectively sounding the alarm for 2023. “This is a trend that we really need to fight, even in an election year.”
“Not everything is doomed--far from it,” Thelen also said, putting things into perspective. But despite a resilient Luxembourg economy, the fact remains that “the trend is towards sluggish growth, between 1% and 2% of GDP, and this worries us because it represents almost half of what we need to finance our lifestyle--which is very high.”
In times of crisis, less growth means less revenue for the state coffers, but not less expenditure. However, in addition to measures such as free public transport, “which are very expensive”, there are also packages of measures to cushion the effects of successive crises--health and energy--the total cost of which now amounts to almost €5bn, said Thelen.
“It scares us”
Public finances, whose deficit has worsened in recent years, are under pressure. And the forecast of €28bn of public debt in 2026 “scares us”, in the director’s words.
Nor is the sluggish economic trend sparing the financial centre, which “no longer has the momentum it had in the past”. Indeed, the sector has seen a further loss of market share in investment funds, a major contributor to tax revenues.
Social security, a “cushion” in the public administration balance because of its large reserves, can be seen as a pyramid that will be inverted, with fewer contributors and more benefits spent on pensions and illnesses. “These are unsustainable trends,” commented Thelen, worried about the country losing its triple-A rating.
To avoid such an outcome, the Chamber of Commerce has--like it did in its --recommended controlling expenditure, notably with selective aid to households and businesses, contrary to what was decided in favour of households during the last tripartite agreement.
Support is furthermore needed for those “who generate the added value that will be the basis of the state’s tax revenues”, i.e. businesses. “Without businesses, the economy does not work and without an economy, a society does not work,” Thelen pointed out. The third indexation of salaries, due to take place in 2023, along with the increase in the minimum wage at the beginning of the year, are all challenges for businesses. In practical terms, “increasingly complicated” administrative procedures also represent a paralysing burden, says Thelen. “Businesses want to be left to their work,” concluded the director, calling for “healthy, more efficient growth that generates new tax revenues in the future”.
The article in French in Paperjam. It has been translated and edited for Delano.