A strong increase in VAT revenues, marking a €688m year-on-year increase, is the main contributor to the positive economic outlook. Photo: Matic Zorman

A strong increase in VAT revenues, marking a €688m year-on-year increase, is the main contributor to the positive economic outlook.  Photo: Matic Zorman

Luxembourg’s public finances continue improving as revenue showed a year-on-year increase of €2.6bn,  finance minister Pierre Gramegna (DP) told lawmakers at the end of last week.

Gramegna on 26 November presented an assessment of public finances to the committee of finance and budget and the committee for the control of budgetary implementation, taking into account Luxembourg’s financial situation as of 31 October 2021.

“I note with satisfaction that the normalisation of economic life in Luxembourg goes hand in hand with a gradual improvement in the country's public finances. The state accounts are once again in slight surplus as of 31 October 2021 and they inspire confidence, since revenues are returning to the growth rate experienced before the crisis and expenditure is returning to a more sustainable path thanks to a responsible fiscal policy,” said Gramegna.

Public revenue stood at €18bn, indicating an increase of €2.6bn or +16.8% compared to the first 10 months of 2020. State revenue also showed improvement already covering 94.4% of the voted budget. That is well ahead of the 10th month projections of 83.3%. A strong increase in VAT revenue, marking a €688m year-on-year increase, is the main contributor to the positive economic outlook.

Unemployment continues to decline to its pre-pandemic level. At the same time, financial markets have shown a sustained performance leading to an increase of €240m in revenue from the subscription tax on investment funds compared to 31 October 2020.

But the state lost revenue from excise duty on fuel as sales declined both for petrol (-12.3% in terms of litres sold compared to 2019) and diesel (-22.5%). This corresponds to a reduction of about 21% of CO2 emissions from the sale of fuels which contributes to Luxembourg’s commitments to fight climate change. The report compared 2021 with 2019, because of the distortion of sales during the 2020 lockdown period.

Public spending by the government stood at €17.9bn as of 31 October 2021, representing an increase of 1.4% compared to 2020, largely due to the government’s ongoing economic support measures related to various covid-19 aid schemes. Expenditure related to the vaccination campaign amounts to nearly €60m.

“Given that uncertainties have increased in recent times, particularly with regard to the evolution of the pandemic and inflationary pressures around the world, good control of public spending must continue to be ensured,” said Gramegna.