Luxembourg Ministry of Finance has published its activitiy report for 2020 entitled "The Ministry of Finance in times of pandemic".
“COVID-19 is both a revealer and a catalyst,” commented the Minister of Finance, Pierre Gramegna. “It confirmed the merits of the government's strategic choice to focus on sustainable finance and digitisation. The financial centre and the economy as a whole have thus been able to face the crisis by making massive use of teleworking, thanks in particular to efficient infrastructures, put in place in recent years, as well as initiatives carried out within administrations and companies to digitise their organisations and operating methods. The undeniable drop in pollution levels during confinement further underscored the impact of human activities on our environment and the urgent need to make the functioning of our economies more sustainable, through the strengthening of corresponding investments. The pandemic will have further accelerated our collective efforts to achieve a successful transition in these areas."
Like the financial sector, the ministry and its administrations were able to adapt successfully to the new reality of teleworking overnight. The IT teams reacted quickly to set up additional digital solutions, in order to allow the teams to adapt flexibly to the needs of this new work regime. “All these efforts have made it possible to guarantee the continuity of operations in this difficult context,” emphasised Minister Gramegna.
A key component in this context was the exceptional work of the teams from the Ministry and the Administration of Direct Contributions (ACD) to put in place amicable agreements with Germany, Belgium and France, which have been extended on several occasions, to allow circa 200,000 cross-border workers to have greater recourse to teleworking, without this having any impact on the level of taxation. This has allowed the economy to continue to operate in this difficult environment, while ensuring legal certainty and predictability.
The genesis of economic responses at national and European level also occupies an important place in the annual report. The teams of the ministry and its administrations played a leading role in the development of the two economic support packages “Programme for the stabilisation of the economy” and the “Neistart Lëtzebuerg”, which with a global value of €11 billion, have come to the aid of the most affected economic sectors, in particular by protecting jobs and the purchasing power of citizens. With €4,928 per capita, Luxembourg is the country which has adopted the highest measures in the European Union.
In this regard, it is important to note the introduction of a range of fiscal measures, such as the suspension and extension of certain deadlines provided for in direct and indirect taxes. "Without the active and decisive support of the Administration of Direct Taxes as well as the Administration of Registration, Estates, and VAT, these measures would have been difficult to achieve," said Minister Gramegna. "Another remarkable achievement was the establishment, by the State Treasury, in record time, of the State guarantee scheme on new business loans for €2.5 billion", specified the Minister. All these measures, together with the massive recourse to short-time working, not provided for in the budget for the year 2020 and taken in the face of the challenge of the pandemic, of course widened the State deficit, which without this exceptional situation would have been as in 2018 and 2019 close to equilibrium.
The Minister of Finance took the opportunity of this activity report to thank all “the teams of the ministry and the administrations under his supervision, who despite the use of telework and the reduction of physical interactions, have worked with zeal and diligence to 'development of packages of measures and their effective implementation."
Aware of the importance of sustainable finance to get out of this crisis, the teams from the Ministry and the Treasury stepped up their efforts in this area during 2020. Luxembourg was thus able to launch, as the first country Europe, a reference framework for sustainable bonds, which meets the highest market standards, and is the first in the world to comply with the latest recommendations of European taxonomy. It is on the basis of this innovative framework that the State Treasury proceeded in September 2020 with the first issue of a sustainable sovereign loan, to the tune of €1.5 billion, listed on the Luxembourg Stock Exchange. The Grand Duchy of Luxembourg is thus the first European country, as well as the first country in the world with an AAA rating, to launch such a product.
Another key measure to accelerate the development of sustainable finance has been the introduction of a reduced subscription tax rate for sustainable investment funds, investing in sustainable activities in line with European taxonomy. “This tax measure will inspire our fund industry to act and anticipate. This is how Luxembourg will stay one step ahead in terms of sustainable finance", underlined the Minister.
2020 was also a prolific year in terms of new measures in the fight against tax abuses, including the repeal of the stock option circular with effect from 1 January 2021 and a real estate levy from 1 January 2021 to counter certain abuses resulting from the use of the tax regime applicable to SIFs and other funds for investments in the real estate sector in Luxembourg.
For Minister Gramegna, “all these measures accelerate our efforts in terms of sustainable development, while guaranteeing an inclusive and sustainable recovery."
Despite the health crisis, the ministry and its administrations continued their recruitment efforts. At the end of 2020, there were 2,083 staff employed, which represents a growth of 5% compared to the year before and makes it possible to ensure in all circumstances a quality public service in the interest of citizens and businesses.
For the full report, click here.