Economy & Politics

The Luxembourg State opens wide the financial taps

The Minister of Finance sees public spending spinning faster than expected when he presents his 2020 budget. But the deficit noted today, in the eyes of Pierre Gramegna “strengthens the economy’s ability to restart”.

Patrick JACQUEMOT

Patrick JACQUEMOT

The Minister of Finance sees public spending spinning faster than expected when he presents his 2020 budget. But the deficit noted today, in the eyes of Pierre Gramegna “strengthens the economy’s ability to restart”.

The numbers give the spin. Analyzing the public accounts in the second quarter, Pierre Gramegna (DP) can only note the effects of the slowdown in the national economy and, in consequence, the amount of government efforts to stabilize first and then restart this same activity. Comparing the data for June 2019 and June 2010, the Minister of Finance therefore faces, on the one hand, a loss of revenue received by the State of – 1.2 billion euros (-12%!) While on the other side, public spending is panicking.

Yes, it is racing like never before: + 21.9% compared to the same period a year ago. Clear : + 2.05 billion spent. The justification is obvious, and the services of the ministry revealed the details on Friday, taking stock of the state of public finances after a second quarter even more marked than its predecessor by the impacts of the health crisis. Society is in dire straits, the welfare state is in order.

Money is flowing from the public tap, as suggested by Deputy Prime Minister Fran├žois Bausch in late May. Personal-Financial.com expenditure increased by 301.8 million euros (+ 26.2% compared to the same period in 2019). The envelope is divided between crisis management costs within the High Commission for National Protection (93 million for medical equipment, treatment centers) or the assistance provided to companies in the country.


Schuhe TVA Kind Mutter

If Germany has opted for a temporary tax cut that affects all goods and services to boost consumption, Luxembourg does not intend to follow the same path. Pierre Gramegna believes, Friday, that the measures adopted to promote the recovery are sufficient.


Thus, the structural improvement of small and medium-sized enterprises in the middle class sector, capital grants (including aid granted to enterprises in the context of the health crisis) increased by +142.7 million euros compared to 2019.

In terms of social benefits, the boom is even stronger, + 88.6% compared to June 2019 (+797.6 million euros). The major part of this sum is dedicated to the payment of partial unemployment. This measure has already benefited 14,709 Luxembourg companies which have received advances to pay 361,853 salaries already.

There is no doubt that among the social partners, these announcements of a public expenditure going to sea will be differently interpreted. But one thing is certain: if the last tripartite had focused solely on the treatment of unemployment, the meeting announced for the start of the school year will have to focus on thea question of the funding of public bodies. Because if they demonstrate their effectiveness at present (by carrying families and companies at arm’s length), it will be necessary to ensure the inflows of money for the smooth running of these administrations.

And there, Pierre Gramegna knows that his portfolio will be flat. The capital loss of 1.2 billion noted for the first two quarters should not improve in the months to come. So how to finance the deficits of organizations like Social Security when, at the same time, the State cannot rely on sufficient tax revenue, for example, (-957 million compared to last June)?


Wissen, Wirtschaft, Bau, Bauarbeiter, Hammer, Handwerker, Sonnenuntergang (Foto: Shutterstock)

The labor market and public finances will be seriously impacted by the economic consequences of the covid-19 pandemic, the Institute for Statistics announced on Thursday. The latter also expects Luxembourg’s GDP to record “a decline of 6%” this year.


And no question of referring to the revenue from the profit of companies under private law and public law in which the State has holdings or shares, because again it is free fall. The recourse to the loan had been made in the urgency to consolidate sound finances until now, but tomorrow the Minister of Finance and the government will have to find other turns to restore the coffers of the State in good order of market.


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