The vast majority of the drop in fund assets this year has been due to turbulent market conditions, according to Camille Thommes of the Association of the Luxembourg Fund Industry, seen speaking at an Alfi event in 2019. Luxembourg-based investment funds pay a tax based on net assets under management. Photo credit: Association of the Luxembourg Fund Industry

The vast majority of the drop in fund assets this year has been due to turbulent market conditions, according to Camille Thommes of the Association of the Luxembourg Fund Industry, seen speaking at an Alfi event in 2019. Luxembourg-based investment funds pay a tax based on net assets under management. Photo credit: Association of the Luxembourg Fund Industry

A previously projected €300m increase in 2022 tax revenues is likely to be wiped out by this year’s stock market turmoil.

The grand duchy’s public coffers could face a shortfall of several million euro due to a drop in the amount managed by Luxembourg-based investment funds.

Assets under management declined from €5.9trn at the end of December to €5.2trn at the end of June, Luxembourg financial regulator has reported.

About 85% of the drop in assets under management was due to stock market conditions and 15% was due to net outflows, according to , director general of the Association of the Luxembourg Fund Industry.

The budget shortfall could come from the amount raised by Luxembourg’s subscription tax (). Investment funds generally are levied an annual rate of 0.05% of their net assets, which is paid quarterly.

The subscription tax generated €1.1bn in revenue for the state last year, and had previously been forecast to raise €1.4bn this year. But the fall in net assets will reduce those receipts, perhaps even below 2021 levels.

The hole will put further pressure on the public balance sheet. At the end of April, the government had already a deficit of -0.7% of GDP for 2022, after posting a surplus of +0.9% in 2021.