Luxembourg Unveils 'Responsible' 2012 Budget Bill

by Ulrika Lomas, Tax-News.com, Brussels

07 October 2011

Luxembourg’s Finance Minister Luc Frieden has recently submitted to the chamber of deputies the country’s 2012 budget bill, pertaining to revenues and expenditure in the coming year, underscoring the government’s commitment to pursue responsible fiscal policy while at the same time buttressing the social security system.

Commenting on the budget bill, Frieden first of all alluded to the global economic situation, underlining the difficult and volatile context, marked by the effects of the sovereign debt crisis, in which the budget was drafted.

During his presentation, the finance minister emphasized that the government’s main challenge is to outline a bill based on a fair balance between social expenditure on the one hand and developing the Luxembourg economy on the other.

Reviewing the key figures contained in the country’s 2012 budget bill, Frieden explained that he had assumed gross domestic product (GDP) growth in 2012 of 2%, slightly higher than that forecast for the eurozone (1%-1.5%), although below Luxembourg’s estimated performance for this year (3%). Inflation, he stated, is expected to stand at between 2% to 2.5%.

Alluding to the fact that Luxembourg, together with Finland and Estonia, is among the very few eurozone member states not to have violated provisions contained in the stability and growth pact, Frieden revealed that Luxembourg’s public debt is currently around 18% of GDP, way below the fixed public debt threshold in the EU of 60%. Frieden underlined the importance of making every effort to ensuring that the ratio of public debt in the long-term is limited.

According to the Luxembourg government, the 2012 budget bill provides for tax revenues of EUR12.5bn (up 5% compared to the 2011 budget). Corporate tax has been fixed at EUR1.6bn, income tax at EUR2.6bn, indirect tax (value-added tax) at EUR2.4bn and subscription tax at EUR630m.

In total, the budget bill provides for spending of EUR13.7bn (up 6%), of which social transfers and social services constitute the largest portion of spending (35%), followed by public sector worker pay (20%) and investment (13%).

According to Frieden, the budget bill constitutes “an adequate response” to the demands of the current context.

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