The European Commission has assessed the consistency of Luxembourg's draft budgetary plans for 2023 with the Council Recommendations of 12 July 2022 and published it's opinion on 22 November 2022.
Luxembourg submitted the Draft Budgetary Plan for 2023 to the Commission on 12 October 2022.
The Commission said in its opinion that the Draft Budgetary Plan for Luxembourg is partly in line with the fiscal guidance and invited Luxembourg to take the necessary measures to ensure that the 2023 budget is consistent with the July 2022 Council Recommendations.
The Commission ackowledged that while Luxembourg rapidly deployed energy measures as part of the emergency policy response to the exceptional energy price hikes, a prolongation of existing and/or an enactment of new support measures in response to high energy prices would contribute to higher growth in net nationally financed current expenditure and to an increase in the projected government deficit and debt in 2023. Therefore, the Commission recalled that it is important that Member States better focus such measures to the most vulnerable households and exposed firms, to preserve incentives to reduce energy demand, and to be withdrawn as energy price pressures diminish.
The opinion noted that according to the Commission 2022 autumn forecast, the Luxembourg economy is expected to grow by 1.5% in 2022 and 1.0% in 2023, while inflation is forecast at 8.4% in 2022 and 3.8% in 2023. However, according to the Draft Budgetary Plan, the Luxembourg economy is expected to grow by 2.5% in 2022 and 2.0% in 2023, while inflation is projected at 8.0% in 2022 and 2.9% in 2023. The macroeconomic projections underpinning the Draft Budgetary Plan expect a stronger GDP growth in 2022 and 2023, compared to the Commission 2022 autumn forecast.
The Commission recalled that on 12 July 2022, the Council also recommended Luxembourg to improve the long-term sustainability of the pension system, in particular by limiting early retirement and by increasing the employment rate of older workers. In addition, the Council recommended Luxembourg to take action to effectively tackle aggressive tax planning, including by ensuring sufficient taxation of outbound payments of interests and royalties to zero and low-tax jurisdictions. According to the Plan, no recent reforms were adopted nor are planned to address the sustainability of the pension system, while limited progress was observed in effectively tackling aggressive tax planning concerns.
The Commission is also of the opinion that Luxembourg has made limited progress with regard to the structural part of the fiscal recommendations contained in the Council Recommendation of July 2022 in the context of the European Semester and thus invites the authorities to accelerate progress. A comprehensive description of progress made with the implementation of the country-specific recommendations will be made in the 2023 Country Report and assessed in the context of the country- specific recommendations to be proposed by the Commission in spring 2023.
In addition to Luxembourg, the Commission has invited Belgium, Portugal, Austria, Lithuania, Germany, Estonia, the Netherlands, Slovenia and Slovakia to take the necessary measures within the national budgetary process to ensure that their 2023 budgets are fully in line with the Council's Recommendations.
The Council Recommendations of 12 July 2022 is available online via https://data.consilium.europa.eu/doc/document/ST-9763-2022-INIT/en/pdf.