On Wednesday 26 April, after the state of the nation speech by prime minister Xavier Bettel, it was Gramegna’s turn to inform parliament on the budgetary update for 2017 within the multiannual framework.
“Europe is back”
Stating at the beginning that the numbers and forecasts of both growth and debt had been established by Statec, which he stressed was an independent institution, Gramegna wanted to pre-empt any criticisms by the opposition that the numbers could be contested (in vain, it has to be said). He added that the national economic and financial committee would be institutionalised, under the joint authority of the finance and economics ministry, to get more coherent data.
Gramegna attributed Luxembourg’s sound budgetary situation to good economic growth in Luxembourg (and in the EU), and naturally to the government’s own economic and budgetary policies.
The finance minister added that, whenever he was travelling around the world, he was telling people that the EU economies were growing again, and that many problems had been solved, or at least partially solved (like the Greek crisis).
Economic indicators were going up and unemployment across the EU was going down. Inflation was creeping slowly towards the 2% target that the European Central Bank has set itself, and share prices were also going up.
Luxembourg’s finance minister deplored several times in his speech that the Anglo-Saxon press was consistently ignoring these signs of recovery and continued to spread doomsday scenarios for EU member states’ economies and of the survival of economic and monetary union as a whole. He told them to look at the numbers, and at what EU governments had achieved since the start of the economic and financial crisis in 2007. The first round of the French elections had indeed produced a far-right candidate, but so far it was not a catastrophe.
Stunning growth levels
Luxembourg could register annual economic growth levels of over 4% of GDP in 2014-2018.
Statec forecasts growth of 5.2% for 2018.
Importance of funds industry
Part of that growth comes from Luxembourg’s funds industry, the second largest centre in the world only to the US. Over €3.7 trillion are managed in Luxembourg this year, which is a new record.
Insurance and re-insurance businesses and banks in the area of wealth management are doing well. The CSSF could report an increase of 15% in policy sales between 2015 and 2016, and profits have also developed positively, which Gramegna said he “was happy about as they mean more tax revenues”.
Luxembourg’s bourse has established itself as leader for green bonds; 50% of global green bonds are traded in Luxembourg. The finance minister mentioned that he had just signed a deal with the IMF and the World Bank to locate the Green Cornerstone Bond Fund in Luxembourg, which will finance green infrastructure projects, and invest $2 billion in emerging markets.
Finally, he stated that the newly created Luxembourg house of fintech should help innovation in the digitalisation in the fintech sector.
Changes in mentality
Gramegna said he had noticed a real change in mentality in the ministries: not every euro did necessarily have to be spent. The state was also making savings (1% over the period 2016-2021).
Public debt and budgetary (im)balances
For the whole public administration, Luxembourg can show a surplus of 1.2% of GDP in 2016—and this in spite of a loss of revenue of €700 million in e-commerce. Gramegna argued that this left the necessary room for manoeuvre to introduce the tax reform in 2016.
The local authorities and social security can point to a surplus, respectively, of €212 million and €959 million.
However, the deficit of the central administration is at -0.4% of GDP (-€215 million) in 2016, and is set to grow to -1.8% (€1.04 billion) in 2017. The deficit is projected to decrease after 2018, to -0.6% (-€416 million) in 2021.
Debt stays at 20% under the objective of 23% of GDP “under any scenarios of hypothetical external schocks” such as political risks in the EU, a change in tax policies in the US or too fast inflation, said the finance minister.
In 2017, state investments are over €2 billion for the first time ever (+14.6%) compared to 2016. They will reach on average €2.5 billion over the next years. The finance minister wanted to stress that only a quarter of those (total €8 billion) will be financed through loans.
These levels of investments are in line with the recommendations and general policy guidelines of the European commission.
Importantly, Gramegna indicated that he was in favour of reforming budget calculations as set out in the stability and growth pact, namely that investments “should be treated separately”.
No austerity in Luxembourg!
The finance minister insisted, to cheers from MPs, that there would be “no austerity in Luxembourg”.
The grand duchy’s structural budget balance has been changed from 0.5% to -0.5% of GDP. Gramegna said that the country still fulfils its medium-term objective (MTO).
Gramegna concluded that in absolute and in relative numbers, Luxembourg’s debt levels were lower than in 2013. The coalition government was working to “get the country in tip top shape”.