“Exercising caution in the face of international developments”: Yuriko Backes presents the situation of public finances as of March 31, 2022

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Yuriko Backes, Minister of Finance

Yuriko Backes, Minister of Finance

Yuriko Backes comments on this occasion: “The state of public finances at the end of the first quarter of 2022 illustrates the resilience of the Luxembourg economic fabric and the rebound in growth after the health crisis at the beginning of the year. These data underline the soundness of our public finances. Country, but they should not in any case be understood as an indication of the trend for the whole of 2022, as the situation as of March 31st does not yet reflect the impact of the war in Ukraine, nor that of the measures decided in the framework of the Tripartite and Energiedësch. “

The revenues collected by the Central Administration amounted to 6.1 billion euros at the end of March, or + 13.4% or 716 million euros more than at the end of March 2021. This significant growth, however, must be considered with respect to the particular context of the 2021, where the beginning of the year was still characterized by health restrictions and the interruption of economic activity at the time.

The expenditure of the Central Administration amounted to almost 5.3 billion euros as of March 31, 2022. Compared to the previous year, spending remained stable, which is explained in particular by the lower use of aid implemented under the economic recovery package called “Neistart Lëtzebuerg”. The related expenditure amounted to only 61 million euros as of March 31, 2022. In total, the state has provided around 2.8 billion euros since the start of the pandemic in March 2020 to support families and businesses.

The positive evolution of revenues, combined with generally stable expenditure, leads to a significant improvement in the central government balance. The latter goes from +56 million euros on March 31 2021 to +757 million euros on March 31 2022. However, this is only a momentary snapshot of the accounting situation.

The deterioration of the macroeconomic environment in the context of the war in Ukraine and the rise in energy prices has led international organizations to revise growth forecasts around the world downwards. Luxembourg, as a small, open and outward-looking economy, will be directly affected by this development. Together with the cost of the Solidaritéitspak and Energiedësch measures, this decline in the economic situation is likely to lead to a significant deterioration in the balance of the central administration in the coming months.

As regards the distribution of receipts, the Administration of Direct Contributions (ACD) received receipts of approximately € 3.1 billion, representing an increase of +344 million euros, or + 13% compared to March 2021.

Revenue collected by the Registration, Domains and VAT Administration (AED) amounts to € 1.9 billion. Compared to the previous year, they increased by +233 million euros, or + 14%.

As for the revenues of the Customs and Excise Administration (ADA), at the end of March these amounted to almost 483 million euros, with an increase of 79 million euros or + 20% compared to 2021. While in terms of quantity , fuel sales increased compared to 2021 it is above all diesel sales that continue to show a decreasing trend compared to 2019, confirming the effectiveness of the CO2 tax as a tool for reducing fuel sales.

As for public debt, its level decreased by one billion euros following the repayment of a bond maturing on 21 March 2022. Therefore, the public debt currently amounts to 16.9 billion euros, which corresponds to a ratio 23.7% of GDP. Luxembourg’s debt-to-GDP ratio therefore continues to be well below the 30% of GDP ceiling set in the government program and remains the lowest in the euro area apart from Estonia.

In conclusion, the Minister of Finance, Yuriko Backes, comments: “Although the data as of March 31, 2022 are encouraging, they must be qualified with respect to current macroeconomic developments. In the wake of the war in Ukraine and rising inflation, the forecasts of growth have been revised downwards. As also emerges from the data from the Stability and Growth Program (PSC) that will be presented on Wednesday, we must therefore expect a significant deterioration in the financial situation of the state in the coming months. It will therefore be necessary to exercise caution in the face of these develop and apply continued rigor in budget implementation to ensure sound public finances.

Communicated by the Ministry of Finance

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