“Slightly better development of public finances” for Q4 2020

Public revenues have seen a slight improvement than forecasted for Q4 2020, but public spending remains high as the Luxembourg government continues its covid-19 measures.

“In a context that remains difficult, the slightly better development of public finances in the 4th quarter of 2020 testifies to the gradual recovery of the Luxembourg economy,” finance Pierre Gramegna (DP), who presented the results on Friday, explained. “The many measures put in place by the government to support the recovery and to protect jobs, together with the vaccination campaign, will help to reinforce this trend during the year 2021.”

Over the quarter, revenue witnessed a 7% loss, or €1.5b, compared to the budget vote, totalling €18.8b.

Also witnessing a negative variation were receipts collected by the direct tax administration (-4.1%, or -€386m, year-on-year), as were those collected by registration, domains and VAT authorities (-1.4%, or -€77m).

Expenditures rose compared to the voted budget by 1.2%, or an additional €251m, to €21.1b as of 31 December 2020, which of course does not take into account additional measures foreseen through end-April of this year. As of end-2020, disbursements for support in the covid-19 crisis totalled €937m, with much of this directed to family leave and support (€235m), public health and health crisis management (€194m) and non-reimbursable aid for small business owners and self-employed (€103). The administration also takes into account some €386m of expenses through the state in terms of insurance (health, maternity). This, coupled with investment foreseen prior to the crisis, resulted in a +27.4% rise in public investments, at €2.7b, with central government spending 14.5% higher in Q4 2020 than the same time the previous year.

Nevertheless, the government notes that “given the gradual recovery of the Luxembourg economy, some expenditure related to the management of the crisis may have been limited compared to previous forecasts,” adding that the slight economic upturn across the second half of 2020 improved by around 5.3%, compared to the last revenue forecast of the central administration.

“While the budget balance improved in the fourth quarter, however, we must not lose sight of the fact that the accounting year is not closed until after an additional period has elapsed, during which substantial expenditure will still be made for the 2020 financial year,” Gramegna added. “Notwithstanding the first signs that inspire confidence, the public finance situation therefore remains tight and caution is required.”