Luxembourg needs to start acting now to avoid increasing national debt
Luxembourg needs to change its financial policy if it does not want to spoil the future of coming generations. This is the conclusion of the "Conseil national des finances publiques" (CNFP) in its special report on the sustainability of public finances.
Sustainability exists when the public expenditure can be covered in the long term by the revenue with unchanged budgetary policy (no tax increases, no spending cuts).
Short term and medium term everything is good
In the short term (2017 and 2018), Luxembourg has no problem. The pension funds are filled (33% of the gross domestic product) and the public debt, with 22.3% remains below the 30% mark, which Luxembourg has set itself as the upper limit, far below the European limit of 60%.
"We have no debts today," said Yves Nosbusch, Chairman of the CNFP, at the presentation of the special report.
The risk is also limited in the medium term (until 2030) due to the good starting point, "but we are on the threshold in terms of the medium risk level," says Nosbusch.
In the long term, however, the situation looks quite different.
Looking at the development until 2060, it is clear that the government debt exceeds the 30% mark from 2033 onwards and the 60% mark from 2043 onwards. Thus, the analysis of the CNFP coincides with the analysis of the "Inspection générale de la sécurité sociale" (IGSS), which came to the same conclusion.
In 2060, the national debt would be 161% of GDP. The analysis is based on the 1.1 million-inhabitant scenario, which is the one used by the government. The situation is getting worse with less growth. Eurostat now only foresees 990,000 inhabitants by 2060. In a 990,000-person scenario, the government debt would in 2060 be 208% of GDP.
Plus six percent each year
According to Nosbusch, the public finances would be sustainable only if the revenue exceeded the expenditures by 6% of GDP every year from 2018. This means that Luxembourg should generate a surplus of 6% each year. According to Nosbusch, the 6% are attributable exclusively to aging costs (pensions and allowances, health, long-term care insurance).
The CNFP therefore urges immediate corrective measures "if we want the efforts to be evenly spread over all generations."
"If this is not done, the efforts for future generations will be all the greater," Bausch added. "Then the 6% are not enough."
When the lever is applied, Nosbusch said, is ultimately a political decision.
(By Maxime Gillen, translated from German by Barbara Tasch)