Q3 2022 State Revenues Up 9%

On Monday 21 November 2022, Luxembourg's Minister of Finance, Yuriko Backes, presented the situation of State finances at the end of September 2022 at a joint meeting of the Finance and Budget Committee (Commission des finances et du budget - Cofibu) and the Budget Execution Control Committee (Commission de l'exécution du budget - Comexbu).

Minister Backes said: “Despite a budgetary balance which continues to present itself in a favourable manner at the end of the third quarter, it is too early to draw definitive conclusions. The macroeconomic outlook remains highly uncertain, the evolution of revenues must be nuanced due to high inflation and the budgetary impact of the measures decided within the framework of the two solidarity packages and the 'Energiedësch' will increasingly show up in the figures of the next quarters. This is why I continue to advocate a responsible and far-sighted fiscal policy in view of the challenges facing us in the months to come.”

The total revenue of the central government amounted to €17.7 billion as of 30 September 2022, i.e. up 9% or €1.5 billion more compared to the end of September 2021. The revenue collected by the three tax administrations amounted to €15.1 billion, which corresponds to an increase of €1.2 billion (up 8%) compared to last year. They thus represent 78.7% of the revenue of the voted budget. Despite this positive development, there is a less favourable execution compared to the same period of the previous year when it amounted to 84.1% of the voted budget.

As for the detail of tax receipts, the increase is mainly due to the tax withheld on wages and salaries (l'impôt retenu sur les traitements et salaires - RTS), whose receipts increased by up €498 million. This change can be explained by the labour market, which remains dynamic, the cumulative effect of the two salary indexations and the delay of a payment at the end of 2021 to the beginning of 2022, which is likely to create a distortion in the annual comparison. The positive trend recorded during the year should however be reduced following the entry into force of the energy tax credit (crédit d'impôt énergie - CIE). At the end of September 2022, the amount declared for the CIE already amounted to €113 million. To date, the declared amount has reached €193 million.

Revenue collected by the Administration of Registration, Domains and VAT (l'Administration de l'enregistrement, des domaines et de la TVA - AED) increased by €444 million, or up 9%. However, the annual comparison shows a certain loss of momentum, with a level of execution amounting to 76.9% of the voted budget in the third quarter against 85.3% over the same period in 2021. In case of VAT collections, there is an increase of €339 million or up 10% in annual comparison, which is mainly explained by the general increase in prices.

The revenue of the Customs and Excise Administration (l'Administration des douanes et accises - ADA) increased by up 3% compared to 2021, but the threshold of 75% of the budget was not reached. By way of comparison, the execution amounted to 82.3% of the budget voted in the same period of the previous year. Diesel continues to show a decreasing trend in sales, with a decrease of 9% in annual comparison, thus contributing to the reduction of CO2 emissions in line with the government's climate commitments. The negative trend was also reinforced by the discounts applied in France and Belgium.

The total expenditure of the central government amounted to €16.8 billion as of 30 September 2022, i.e. up 3% compared to 2021. The relatively limited increase in expenditure in annual comparison is explained by several factors. Thus, the effects of inflation on expenditure will only become apparent later and the year 2021, against which the comparison is made, was still strongly marked by the disbursement of aid in the context of the pandemic. Disbursements under the various measures implemented in the context of the energy crisis are also recognised with a certain lag, which may partly distort the picture at the end of the third quarter of 2022. Over the first nine months of the year, expenditure of €209 million was made within the framework of Solidaritéitspak 1.0 and Energiedësch for the year 2022.

The positive trend in revenue coupled with a weak increase in expenditure leads to a financial situation that remains in surplus at the end of September 2022. The central government balance, according to European SEC2010 accounting rules, nevertheless fell from net €1.1 billion at 30 June 2022 to now net €924 million at 30 September 2022, the downward trend continuing also at the end of October 2022. Due to the deterioration of the economic environment, inflationary pressures and the implementation of the measures decided in the context of the support packages, a significant increase in expenditure and therefore a continued deterioration of the central government balance over the next few months.

In conclusion, Minister Backes commented: “The result as of 30 September 2022 inspires me with confidence in the resilience of our public finances and our economic fabric in the face of the challenges that arise. I therefore maintain my commitment to provide targeted tax relief that promotes household purchasing power and the competitiveness of the Luxembourg economy, if the favourable situation continues to persist and in the event that a structural improvement emerges in relation to the trajectory admitted in the draft budget”.