Luxembourg public finances on track
(CS/ml) A supervisory body on Luxembourg's public finances has warned of long-term challenges, saying that any disruptions to the foreseen budget could see projected numbers derail.
Founded in November 2014, the national council of public finances (CNFP) is an independent body to assess the development of state finances. The council counts seven members with former SES CEO Romain Bausch at its head.
In its first report published this week, the CNFP concluded that public finances were on track with the budget. A favourable economic climate had contributed to this development, with the council saying that budgetary guidelines would be fulfilled for 2015 and 2016.
However, it also demanded clarification why growth forecasts for 2015 had changed to 3.8 percent up from 2.8 percent estimated during 2014.
From 2019, problems could arise to meet budget targets, the council warned. It also said that any unexpected changes to the country's financial situation, such as decrease in revenue or increase in expenses, could cause budget plans to derail.
A planned tax reform could not result in less revenue, the CNFP said, adding that the “Zukunftspak” – a package of 258 savings measures – should be fully implemented. It also recommended considering levying the additional 0.5 percent tax introduced this year to balance the budget beyond 2016.
Additionally, the CNFP suggested that the government should cap administrative spending.
One of the biggest challenges, according to the council, is the long-term development of age-related pension. This topic should be more urgently addressed in 2016, it said, together with a review of the pension reform.
By 2046, the Luxembourg population is expected to exceed one million people. While this could help cushion the blow of age-related spending, it will also come with additional costs, for example in the field of infrastructure, the CNFP said, adding that a more thorough analysis of this situation would be desirable.
The council finally suggested that the government should change the way it presents its budget. For the first time last year, the Finance Minister in October not only presented the budget for the coming year but opted for a multi-annual budget outlining spending until 2018.
While on the whole not against this approach, the CNFP suggested limiting the autumn presentation to budget of the following year and in the spring discussing finances for the years to come.