On 30 January 2023, Minister of Finance Yuriko Backes presented the financial situation of the State as of 31 December 2022 at a joint meeting of the Finance and Budget Committee and the Budget Implementation Committee of the Parliament. The financial situation, which will be in surplus at the end of December 2022, should not be confused with the final situation, which will be in deficit, as some major expenditures will still be made in the 2022 budget year during the so-called supplementary period, which runs until 30 April 2023.
Yuriko Backes commented: "In anticipation of the expenditure in the supplementary period and despite the economic and geopolitical headwinds, I am pleased with this interim result as of 31 December 2022, which shows the resilience of our country's public finances. I will propose targeted tax relief in the form of tax credits if the improvement over previous estimates is confirmed. This is in line with the commitment I made at the presentation of the 2023 budget".
On 31 December 2022, the total revenue of central government amounted to 23.5 billion euro, which represented an increase of 7.4% compared to 31 December 2021. In detail, the Luxembourg Inland Revenue (ACD) collected revenues of 11.1 billion euro, or 109.4% of the voted budget, which represents an increase of 834 million euros or +8% compared to 31 December 2021. This positive evolution is mainly due to the withholding tax on wages and salaries (RTS), whose revenue increased by 546 million euro (+11%) thanks to the good performance of the labour market and the successive tranches of salary indexation. At the same time, the deficit due to the granting of the "energy tax credit" to households now amounts to 267 million euro.
The revenues of the Customs and Excise Agency (ADA) amount to 1.9 billion euro at 31 December 2022, or 99.5% of the voted budget. Compared with 2021, revenue has increased by 15 million euro (+0.8%). The direct and indirect effects of the excise duty reductions applied in Luxembourg and neighbouring countries have led to a difficult year for fuel sales, albeit with the positive effect of reducing Luxembourg's carbon footprint. Tax revenues suffer as a result: revenues from road diesel fall from 690 million euro in 2021 to 572 million euro in 2022, or -17.1%.
The revenues collected by the Registration Duties, Estates and VAT Authority (AED) amount to a total of 7.3 billion euro on 31 December 2022, which represents an increase of +617 million euro or +9%. The above-mentioned evolution is almost entirely due to the VAT, whose revenues increased by 560 million euro or +12% and for which the high inflation is a determining factor. Revenue from the subscription tax remains well below budget forecasts as a result of the situation on the financial markets. The same can be said of registration fees, given the state of the real estate market in Luxembourg.
As for the expenses of the central government, they amounted to 22.5 billion euro as of December 31, 2022, an increase of +6.9% compared to 2021. This increase, which is comparable to that of revenues, is explained in part by the implementation of subsidies for households and businesses (Energiedësch; Solidaritéitspak 1 and 2.0), for which around 413 million euro (including the energy tax credit) will be granted in 2022. Secondly, expenditure is also affected by indexation tranches and high inflation, especially in the area of operating costs and wages payable by the State, which rose by 9% and 9.2% respectively in the first 12 months of the 2022 budget year, which does not end until 30 April 2023. At the same time, public investment has been maintained at a high level, totalling 2.54 billion euro.
Taken together, revenue and expenditure show a surplus balance for central government at 31 December 2022 of +1,010 million euro. While the revenue for the 2022 financial year has been almost fully received, significant expenditure of up to 1.8 billion euro will potentially be incurred in the supplementary period, which would ultimately result in a deficit situation for the central government for the entire year.
Taking into account the latest developments and updated information provided by the various ministries and administrations, the final balance of central government in 2022 is expected to be in deficit, but it would improve by at least 500 million euro compared to the estimate presented in October 2022. The related analysis will be further refined and its structural implications (i.e. the possible impact of this improvement on subsequent budgetary years) will be further elaborated in the coming weeks, in particular with a view to the preparation of the Stability and Growth Programme to be presented by the Minister of Finance at the end of April.
Lastly, it should be noted, that the public debt at 31 December 2022 amounts to 18.9 billion euro, or 24.0% of GDP, which is also slightly lower than the estimate of 24.6% of GDP used in the presentation of the 2023 budget.
Yuriko Backes explains: "Given the geopolitical outlook, and in particular the expected economic slowdown in 2023, I remain committed to a responsible and forward-looking fiscal policy that does not compromise the medium-term sustainability of our public finances. In this regard, I will continue to closely monitor the evolution of public finances in order to determine the margin available for targeted tax cuts, while respecting the trajectory set out in the 2023 budget. I want this margin to be fully used to strengthen the purchasing power of households in these difficult times, retroactively from the beginning of 2023."
Press release by the Ministry of Finance