Yuriko Backes, Luxembourg's Minister of Finance; Credit: SIP / Yves Kortum

On Monday 25 April 2022, during a joint meeting of the Finance and Budget Committee and the Budget Execution Control Committee of the Chamber of Deputies (Luxembourg's parliament), the Minister of Finance, Yuriko Backes, gave an update on the financial situation of the State as of 31 March 2022.

Minister Backes said: “The situation 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 following the health crisis at the turn of the year. These figures underline the solidity of our country's public finances, but they should not, however, be understood as an indication of the evolution over the whole of 2022, insofar as the situation on 31 March does not reflect the impact of the war in Ukraine, nor that of the measures decided within the framework of the tripartite and the Energiedësch.”

Revenue collected by the Central Administration amounted to €6.1 billion at the end of March, i.e. up 13.4% or €716 million more compared to the end of March 2021. This significant growth should however be considered compared to the particular context of 2021, where the start of the year was still marked by health restrictions and disrupted economic activity at the time.

The expenditure of the Central Administration amounted to nearly €5.3 billion  as of March 31, 2022. In comparison with the previous financial year, expenditure remained stable, which is explained in particular by the lesser use of the aid put in place within the framework of the economic recovery package known as “Neistart Lëtzebuerg”. The related expenses amounted to only €61 million as of 31 March 2022. In total, the State has disbursed some €2.8 billion since the start of the pandemic in March 2020 to support households and businesses.

The positive evolution of revenues coupled with generally stable expenditure leads to a considerable improvement in the central government balance. The latter goes from up €56 million on 31 March 2021 to up €757 million on 31 March 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 increase in energy prices has led international organisations to revise downwards growth forecasts throughout the world. Luxembourg, as a small, open and outward-looking economy, will be directly impacted by this development. Together with the cost of the measures of Solidaritéitspak and Energiedësch, this reversal of the economic situation is likely to result in a considerable deterioration of the balance of the Central Administration in the months to come.

As for the breakdown of revenue, the Direct Contributions Administration (l'Administration des contributions directes - ACD) received revenue of around €3.1 billion, which represents an increase of €344 million, or up 13% compared to report in March 2021.

The revenue collected by the Administration of registration, domains and VAT (l'Administration de l'enregistrement, des domaines et de la TVA - AED) amounts to €1.9 billion. Compared to the previous financial year, they increased by €233 million, or up 14%.

Regarding the revenue of the Customs and Excise Administration (l'Administration des douanes et accises - ADA), these amounted to nearly €483 million at the end of March, an increase of €79 million, or up 20% compared to 2021. While in terms of quantities, fuel sales have increased compared to 2021, it is above all diesel sales that continue to show a downward trend compared to 2019, thus confirming the effectiveness of the CO2 tax as a tool for reduction in fuel sales.

As for the public debt, its level has decreased by €1 billion following the repayment of a bond loan maturing on 21 March 2022. Thus, the public debt currently amounts to €16.9 billion, which corresponds to a ratio of 23.7% of GDP. Luxembourg's debt ratio therefore continues to be well below the 30% of GDP ceiling set in the government programme, and it remains the lowest in the Euro zone apart from Estonia.

In conclusion, Minister Backes said: “While the figures as of 31 March 2022 are encouraging, they must be qualified in view of current macroeconomic developments. In the wake of the war in Ukraine and the rise in inflation, growth forecasts have been revised downwards. As also emerges from the figures of the Stability and Growth Programme (PSC) which will be presented on Wednesday, we should therefore expect a significant deterioration in the financial situation of the State in the months to come. It will therefore be necessary to exercise caution in the face of these developments and to apply continued rigor in the execution of the budget to ensure sound public finances".