Credit: MFIN

On Monday 24 April 2023, Luxembourg's Minister of Finance, Yuriko Backes, presented the financial situation of the state as of 31 March 2023 at a joint meeting of the finance and budget committee and the budget implementation committee of the Chamber of Deputies (Luxembourg's parliament).

At the end of the first quarter of 2023, the combined revenue of the three tax administrations amounted to €5.5 billion. The total central government revenue reached a total of €6.2 billion as of 31 March 2023. This represents an increase of 2.3% compared to the same period in 2022.

More specifically, the Luxembourg Inland Revenue (Administration des contributions directes - ACD) collected revenues of €3.4 billion, which represents an increase of €290 million or 9.5% compared to 31 March 2022.

Luxembourg's Ministry of Finance attributed this growth in particular to a 23% increase in income tax. The ministry noted in a press release that, notwithstanding the crisis context, 2022 saw the creation of 17,000 new jobs. In addition, successive wage indexations have increased revenue in terms of withholding tax on wages and salaries.

On the other hand, during the first quarter of 2023, the granting of the energy tax credit in favour of households led to a loss of revenue for the state of about €154 million.

The total revenue of the Registration Duties, Estates and VAT Authority (Administration de l'enregistrement, des domaines et de la TVA  - AED) amounted to €1.7 billion, which corresponds to a decrease of €154 million or 8% compared to the previous year. The finance ministry attributed this reduction mainly to the decrease in revenue from value added tax, linked to the temporary reduction in certain VAT rates for 2023 as part of the "Solidaritéitspak 2.0" (solidarity package 2.0). In addition, revenues from the subscription tax and registration fees fell, reportedly due to the situation on the financial and real estate markets in Luxembourg.

Customs and Excise Agency (Administration des douanes et accises - ADA) revenues amounted to €450 million in the first quarter of 2023, a decrease of €32 million or 6.7% compared to the same period in 2022. Diesel revenues fell by €23 million over the first three months of the year, which corresponds to a drop of 13.6%.

Central government expenses amounted to €6.3 billion as of 31 March 2023, i.e. an increase of 18.5% compared to the same period in 2022. This increase is explained by several factors, according to the finance ministry, namely the various aid schemes intended for households and businesses ("Energiedësch" and "Solidaritéitspak 1/2.0"), which totalled €752 million as of 31 March 2023. Moreover, the impact of wage indexations, high inflation and ongoing recruitment by the state led to a 10% increase in expenditure related to remuneration, as well as a 13.6% increase in running costs in the first three months of the year.

Public investments recorded significant growth in the first quarter, reaching a total of €504.7 million, which represents an increase of €135 million or 36.5% compared to the same period in 2022.

Finally, transfers to social security institutions and to municipalities increased by 12.9% and 11.6%, respectively, due to the increase in advances paid by the state to the various bodies in question.

The finance ministry added that Luxembourg paid an exceptional contribution of €246 million to the European Union (EU) budget in March 2023, due to a recalculation of economic growth between 2010 and 2020. Furthermore, the cost of military equipment delivered in 2023 and mostly paid for in previous years is recognised on a straight-line basis (€50 million) through 2023 under ESA 2010 rules.

At the end of the first quarter of 2023, the balance between income and expenditure resulted in a central government deficit of €87 million.

Finance Minister Yuriko Backes commented: "Budget execution figures as at 31 March 2023 show that tax revenues are in line with expectations, while expenditure is experiencing significant growth, reflecting the government's commitment to supporting households and businesses in this crisis situation."

Moreover, at the end of March 2023, public debt amounted to €22.2 billion; i.e. 27.2% of GDP. The finance ministry recalled, however, that the next repayment of a loan is scheduled for July 2023 and will again lower this rate to around 24% of GDP.

Finally, the latest figures from the Inspectorate of Finance confirmed that the central government surplus of €1 billion at the end of 2022 has now been absorbed within the framework of the additional period until the end of April 2023. As of 31 March 2023, the deficit for 2022 stood at €356 million.