Economy Puts Strain On Luxembourg's Budget

by Ulrika Lomas, Tax-News.com, Brussels

25 July 2012

Luxembourg’s Finance Minister Luc Frieden has recently presented details of the country’s public finances at central administration level for the first half of 2012, marked by only a slight increase in tax revenues due to the tough economic climate.

According to the minister, at the end of June 2012 central administration spending stood at EUR6.6bn (USD8bn), representing an increase of EUR520m (+8.5%) compared with the same period last year. Although central administration revenues reached EUR6.2bn, up EUR27m or 0.4% compared with the same time in 2011, the result after the first six months of the year is a negative balance of EUR415.4m. Luxembourg’s 2012 budget provides for a total deficit this year of EUR1.143bn at central administration level.

Marked by a “difficult economic context”, the figures presented by the finance minister enable the government to assess the development of the public finances for the current year, the finance ministry explains, while underlining the need not to draw “hasty conclusions” mid-way through the budgetary period under review.

As regards central administration revenues, the increase of just EUR27m is attributable notably to the slowdown in economic activity, as well as to the difficult context on the financial markets, due to the sovereign debt crisis, the ministry says.

Revenues from corporate income tax fell by EUR126m (-13.2%) compared with the same time in 2011, and income from Luxembourg’s subscription tax fell by EUR25m (-7.8%) against the same period last year.

This dip in revenues was nevertheless compensated for by revenues from the country’s solidarity tax (+EUR32m), by a slight increase in income from the levies on wages (+EUR30m or +2.5%), by a rise in wealth tax revenues (+EUR29m or +23.3%), and by a rise in the taxes on mineral oil (+EUR10m or +13.9%).

Revenues from value-added tax (VAT) remained the same.

Concluding his remarks, Frieden underlined his concerns as to the latest short- and medium-term economic forecast, reiterating the importance of healthy public finances in such a situation.

It is imperative that spending is revised, taking into consideration efficiency, and that there is a reorientation of spending towards growth and the creation of jobs in Luxembourg, the minister said.