POLITICS & INSTITUTIONS - ECONOMY

Budget: Lux has been and remains model pupil



The 2018 budget has been presented to parliament on Wednesday 11 October. Chambre des députés

The 2018 budget has been presented to parliament on Wednesday 11 October. Chambre des députés

Pierre Gramegna presented the budget for 2018 to parliament on Wednesday 11 October.

The finance minister put the budget under the leitmotivs of “quality of life, competitiveness and continuity”. He promised continued investment in infrastructure, hiring up to 1,000 more people and “kept all legal options open” on the EU commission’s decision to ask Amazon to pay back taxes.

The numbers

General accounts of 2016 show debt stands at €11 billion or 20.8% of GDP.  The government “puts investments first to prepare for the future,” said Gramegna. He argued that the results were better than all forecasts, not because revenues rose unexpectedly but “because we had expenses under control.”

Luxembourg is growing in a favourable international environment: the OECD and IMF project 3.5% growth worldwide this year. The Eurozone has experienced consecutive growth for 17 trimesters. Statec forecasts 3.4% growth for Luxembourg in 2017, up to 4.4% in 2018.

Expenses foreseen for 2018

https://archive.org/details/LuxBudget2018forDummies

Most of the expenses are allocated to social security, social benefits and subsidies, together with other transfers, amounting to €8.7 billion. The second biggest spending slice is reserved for civil service salaries, up by €118,4 million to reach €4.1 billion. Investments take up the third place, with €2.365 billion, making up 13% of all expenses.

Projected revenue for 2018

https://archive.org/details/LuxBudget2018forDummies

The finance ministry is projecting €17.3 billion in revenues. Direct taxes by individuals and companies will make up the biggest source, with €7.9 billion. Gramegna noted that this was an increase of 4.8% despite the tax reform in 2016. Indirect taxes are projected to yield 6.8 billion, 5.7% more than in 2017.

Central administration will have a deficit of -€890 million, which the finance minister explained through the high levels of investments. State debt is currently €12.9 billion, which makes up 22.7% of GDP. In terms of social security, there is a surplus of €200 million or 0.3% per year. Public administration also will register a surplus of 0.6% of GDP in 2018, and projections see it rise to 1.7% of GDP in 2021.

Taxation

The finance minister did not announce any major innovations.

Companies who buy electric cars will get an investment tax credit (bonification d’impôt). Hybrid cars will get an allowance of €2,500 from 2018 onwards. Luxembourg can have the biggest impact on climate change through its financial centre with the green exchange. Luxembourg will invest €30 million into a project with the European investment bank (EIB) to promote green investments.

Gramegna said that the second part of the tax reform will come into effect in 2018, when couples can decide whether they want to be taxed individually or together. Furthermore, cross-border workers will be taxed in the same way as residents.

In terms of inheritance, there will be a reform which means that married people can inherit without having to pay tax even if they don’t have children.

Finally, the finance minister announced that a reform of the regime of stock-options or warrants was in the offing. The goal is to align the tax rate to half the global rate of income tax, as is currently the case with capital gains.

Investments

The budget of the housing ministry sees an increase of 3.2% in 2018, mainly due to subsidies in social housing and housing at moderate costs, which are being constructed by the fonds de logement.

The fonds de logement sees its allowance increase by €5.8 million. Gramegna announced the creation of a single office for housing (guichet unique logement). He added that €70 million are set aside to expand infrastructure for the elderly, and €63 million to support for people with disabilities and their families.

In terms of mobility, the total expenditure for public transport is set at €826.5 million.

The budget has stayed on track for the construction of the tram, Gramegna said. Between 2018 and 2021, a further €228 million are invested to finish the first leg of its route, and then continue to Cloche d’Or and Findel. The rail network (fonds du rail) is allocated €291.8 million to finance the extension of two lines between Hamm/polfermillen and Sandweiler, for the new line between the capital and Bettembourg, the modernisation of big chunks of the Northern route, the construction of the pôle d’échange in Hollerich and the new train station at Pafendall/Kirchberg.

Gramegna also mentioned investments in sports infrastructures, culture, defence and Frontex-missions.

Hiring

Gramegna said that the state would create in total 533 new State jobs in 2018. 100 of these are to be created at the inland revenue (Administration des contributions directes), and 20 at the indirect tax authority (Administration de l’enregistrement et des domaines). The police and rescue services are also getting 100 new posts. In addition, he repeated the announcement that 500 new jobs would be added in education.

Mid-term risks

The EU must stay competitive. Gramegna warned of risks in the regulation of financial markets. He said the EU commission proposal on surveillance of financial markets wants to solve a problem that doesn’t exist. The system would become more complex, slower and more expensive, ie. less attractive for international investors. Some proposals were not consulted beforehand with member states.

Gramegna said: “I have strong concerns about giving ESMA new competencies” and evoked subsidiarity.

He added that Luxembourg does not agree to simplistic and short-sighted solutions, which make the EU less competitive. He stressed the need for a level-playing field and pleaded for discussions at OECD level, where the US would also be present and involved. On the Amazon fine, the finance minister said :

“our department is analysing the decision in detail and keep all legal options open.”

The money will go into a separate account. Gramegna stressed that the EU commission decision does not put into question the Lux tax system, and that the fine is based on the period 2006-2014--before the current government came into office in 2013. He added that since then, the current government introduced a raft of reforms to regulate more clearly and to adapt Luxembourg laws to international Beps rules.