2018 Budget Based on Quality of Life, Competitiveness, Continuity

On Wednesday, Luxembourg’s Minister of finance, Pierre Gramegna, presented his 2018 budget to the Chambre des Deputés which offered positives in terms of €2,500 inducements for electric cars, 6,000 iPads and free textbooks for secondary schooling, reform of parental leave and inheritance / capital gains tax changes.

In overall terms, public debt has continued to fall since the current government took office in 2013 and is now close to 20% of GDP (from circa 24% in 2013)

In costs, the largest budget item is in social security, at €4.473 billion, out of a total €18.190 billion, with €4.151 billion set for state salaries. €2.386 billion is set aside to pay for direct and indirect investments, with €1,435 billion for operating costs and €1.251 billion for municipalities.

On the income / revenues side, the budget has forecast a total amount of €17.300 billion, which leaves a budget deficit of €890 million; it musst be noted that the Finance Minister has traditioanlly presented coservative figures here, so this overall figure would expect to be higher in actual terms. This is made up of €7.963 billion in direct taxes and €6.891 billion in indirect taxes, with the remainder mad eup of property rental income, social security payments, etc.

At the macro level, the 2018 budget falls within a favourable macroeconomic context characterised by growth of around 3% in 2017 and up to 4.4% forecast for 2018. Luxembourg’s national statistical office, Statec, estimates that inflation will stabilise in 2018 at 1.6%, and it also anticipates the continuation of a favourable trend in the labour market, with job creation of 3% on an annual basis and an unemployment rate falling to 5.6% in 2018.
Quality of life, competitiveness and continuity are the keywords of the 2018 budget. Priority areas of public investment include children’s education, housing, public transport and measures to promote a better balance between work and private life. The state will invest more in sport, culture and citizens’ security.

Key measures include the implementation of plurilingual education and free supervision of 20 hours per week for young children under the cheque-service scheme, the introduction of free textbooks in secondary education, the equipping of 6,000 iPads for students, the reform of parental leave and the creation of more than 500 new posts in the field of teaching and supervision of children.

The 2018 budget also makes some adjustments to the tax reform that will come into force in 2017. Taxpayers will benefit from greater tax flexibility and may opt for individual or collective taxation at a later date. Moreover, the conditions for the assimilation of non-residents to residents will be relaxed.

The budget law also brings more tax fairness. Thus, the existing exemption for spouses with common descendants will also be applicable to any person who has the status of spouse (or has been bound by a partnership contract for more than 3 years) without common descendants. In addition, the stock option plan will be reformed and made more consistent with the application of the half-rate on capital gains (21%) for warrants.

In order to facilitate the transition to zero emissions for mobility, the sustainable mobility allowance has been extended to individual rechargeable hybrid electric cars with emissions not exceeding 50g CO2 / km. This deduction amounts to an amount of €2,500. In addition, for businesses, zero emission electric cars and hydrogen fuel cell vehicles will be eligible for a tax rebate.

In order to support companies in digititation, the 2018 budget also provides for the introduction of a tax credit for investment in acquired software. This measure complements the reform of taxation applicable to intellectual property.

Luxembourg’s public debt continues to be among the lowest in Europe and will reach 22.7% of GDP in 2018, compared to an average of 89.5% in the euro area. Over the period 2018-2021, the downward trend will continue and Luxembourg’s public debt will reach 21.6% of GDP by 2021, well below the 30% government target.

Minister Gramegna commented: “In view of the favourable developments in public finances and the good prospects for the future, I am pleased to note that the government’s fiscal policy is bearing fruit. If we continue to implement a targeted and disciplined policy, the financial situation of our country will be much more favourable at the end of this legislative period than in 2013, when there was a risk of no longer respecting the European rules. (We have) managed to maintain high-level investments to update the country’s infrastructure and improve the quality of life of citizens, while implementing an ambitious fiscal reform that is socially equitable and supports the competitiveness of enterprises.”​