THE FISCAL POSITION–SOUND FOR NOW, BUT SIGNIFICANT CHALLENGES AHEAD1
Luxembourg’s healthy fiscal position will be challenged by forthcoming revenue losses as well as rapid trend growth in expenditures. An overall strategy to address this coming deterioration is needed. Beyond the planned VAT increase, recurrent property taxes are a possible additional source of revenue. On expenditures, social benefits should be an area of focus, and reforms of these benefits should also aim to reduce disincentives to work.
A. The Deficit, Debt, and Net Worth
1. Luxembourg’s fiscal position is currently sound. Thanks to prudent fiscal management, surpluses in the years prior to the global crisis have provided useful room for maneuver during the crisis. The fiscal deficit has consistently remained well below EU’s excessive deficit procedure thresholds. Public debt, at 23 percent of GDP, is among the lowest in the euro area and, unlike many of its euro area partners, the country has accumulated assets to fund future pension liabilities, to the tune of 29 percent of GDP. Luxembourg remains one of the few AAA-rated sovereigns in the region.
2. However, fiscal safety buffers are being eroded. The crisis extracted a heavy toll, as public debt tripled since 2007—when it amounted to 7 percent of GDP—driven by the costs of bank restructuring (around 8 percent of GDP) and persistent deficits at the central government level2. As a consequence, Luxembourg’s overall financial asset position has been eroded over the past decade. The position, a still strong net worth of 48 percent of GDP, has, however, deteriorated significantly from 61 percent of GDP in 2001, including due to the debt increase. These developments go against the need to further build buffers in view of the upcoming age-related expenditures in years to come.
3. Inherent macroeconomic volatility calls for strong buffers. Luxembourg’s small open economy is continually buffeted by economic conditions in its large neighbors—as the recent crisis evidenced—and it experiences higher volatility in economic aggregates. The difficulties in forecasting economic activity also argue for adopting prudent macroeconomic policies to ensure that buffers are maintained and allow for smoother adjustment when shocks inevitably hit. So far, surprises have been positive (stronger revenues than expected), but in view of the challenges ahead, this trend could be reversed in the near future. Given the small size of the economy, a moderate shock, especially in the financial sector, could knock Luxembourg off course.
Figure 1.Eroding Fiscal Buffers
4. Luxembourg also faces several significant challenges to fiscal revenues:
In the most immediate future, Luxembourg will lose VAT revenues from digital e-commerce beginning in 2015. At this point, these will accrue to the country of residency of the purchaser, not of the service provider, as per the E-Business Directive (EU directive 2008/8/EC). The authorities estimate the related loss at around €800 million (1½ percent of GDP) in 2015, and up to 2 percent of GDP from 2019 onward.3
Luxembourg’s financial sector is faced with substantial challenges, including the planned introduction of exchange of information on savings in 2015, the implementation of Basel III requirements and progress toward euro area banking union, as well as the deleveraging process of euro area banks—with which Luxembourg banks are highly interconnected.4 As a result, Luxembourg’s financial sector will not be as strong a driver of economic growth as in the past as it retools to adjust to those challenges, with detrimental consequences for fiscal revenues.
Another looming challenge stems from the ongoing work on international corporate taxation, with potential repercussions for Luxembourg revenues. At the initiative of the G20, the OECD has designed an action plan aimed at addressing Base Erosion and Profit Shifting (BEPS) by multinational enterprises. Luxembourg serves as headquarters for many multinationals and other legal entities, which benefit from taxation treaties with countries in which these entities operate. These operations can be large, as evidenced by the size of the operations of these entities in the balance of payments, reaching about €2.1 trillion as of June 2013, or more than 40 times
Luxembourg’s GDP.5 While information on their contribution to fiscal revenues is not currently available, and it will take time for changes to be agreed and implemented at the international level, these could potentially entail a non-negligible impact on activity and revenue.
5. Pressures on expenditures have been building up.
Expenditure growth has consistently outstripped that of both revenues and GDP in real terms since 2009. Revenues, even excluding those from e-VAT, have grown strongly, driven by direct taxes and VAT. However, expenditure growth has been even stronger, and across virtually all major categories, except for investment spending.
Contingent liabilities from the financial sector will continue to pose a risk to Luxembourg’s fiscal position, particularly through domestically-oriented banks (with balance sheet size of around 2% times GDP) which have concentrated exposures to the domestic real estate market.6
A longer-term challenge from age-related expenditures remains, despite some reforms adopted in 2012. The authorities’ own analysis recognizes that the 2012 reforms are insufficient: according to preliminary estimates presented in the 2013 Stability and Growth Program, the increase in age-related expenditures between 2010 and 2060 would still reach 13 percent of GDP even after the reform.7
6. The 2014 budget takes a broadly neutral stance, awaiting more significant measures in the following years. Some measures have been taken to curb expenditure growth at the central government level, including on public investment, current expenditures, and the growth of public service employment, but overall expenditures are still projected to grow by around 2½ percent in real terms. The 2014 budget does not include any revenue measures.
7. The remainder of this note elaborates on these trends and challenges, and suggests policy options, both for revenues (section II) and expenditures (section III). Section IV concludes.
B. Fiscal Revenues: Much to Lose
8. Luxembourg has a modest revenue-to-GDP intake compared to European peer countries, and a revenue structure that is relatively balanced and diversified (Figure 2). Direct taxes, indirect taxes, and social security contributions each make up roughly one-third of revenues. Relative to GDP, Luxembourg relies somewhat more on direct taxes than Germany and France, but less than peers on social security contributions. Within direct taxes, corporate income tax brings in a larger share of revenue than in neighboring countries, although the top corporate and personal income tax rates do not diverge much from its neighbors. The standard VAT rate, currently at 15 percent, is the lowest in the European Union.
Figure 2.Luxembourg’s Revenue Structure, 2011
9. But Luxembourg relies heavily on the financial sector for fiscal revenue, and to a higher degree than other large financial centers in Europe. The financial sector contributes almost 20 percent of total revenues (8 percent of GDP) via many channels, both direct and indirect. The channels include corporate income taxes paid by financial sector institutions, the personal income tax paid by employees, a subscription tax on investment funds, a tax on savings (a withholding tax, part of which is shared with the EU), and VAT through indirect channels, for example paid by those employed in the financial sector. Country–specific studies of financial sector contributions to the economy in Switzerland and the United Kingdom show that Luxembourg relies to a greater degree on the financial sector than these peers, with figures on share of value added, employment, and tax revenues exceeding the corresponding figures for peers by a large margin (Figure 3).
Figure 3.Revenues from the Financial Sector
10. The observed revenue buoyancy has been driven mainly by the VAT (even excluding e-VAT revenues), and personal income tax (Figure 4).
VAT growth in recent years has also been partly driven by cross-border receipts; that is, consumers from neighboring countries making purchases in Luxembourg, partly to benefit from lower VAT rates.
The dynamism in personal income tax (PIT) reflects the strong growth in financial sector employment through 2009, and the increase in the solidarity tax in 2011 and 2013.
Employment and Real PIT
Sources: BCL, STATEC.
Since 2002, corporate income tax (CIT) revenues have not kept full pace with real GDP growth, including because of reductions in rates in the early 2000s. However, during the crisis period, CIT revenue was relatively resilient, because the tax base is computed as an average over a number of years, and at that time the base included pre-crisis years when profits were buoyant. When the impact started to wane, discretionary measures were taken, including a minimum tax on corporations.
Revenue from the subscription tax on investment funds was severely dampened by the global financial crisis, but has subsequently recovered some ground.
Taxes on international trade and transactions stayed broadly stable in real terms, but fell behind GDP growth.
In accordance with the 2005 EU savings directive, a 35 percent withholding tax on savings was imposed, of which 25 percent was kept in Luxembourg; the remainder was sent to respective countries where the depositors reside. As mentioned earlier, this arrangement will end in 2015, when the automatic exchange of information on non-resident personal accounts begins. The budgetary impact is expected to be observed in 2016, with a loss of around 0.1 percent of GDP.
Figure 4.Luxembourg: Revenue Trends
Challenges and Options
11. Luxembourg stands to lose around 2 percent of GDP of revenue in the next five years related to the loss of e-VAT revenues. This shortfall may be compounded if the financial sector is further hampered by balance sheet adjustment at the euro area level, or if the international efforts at tackling BEPS trigger revenue losses in Luxembourg. While there is room to adjust expenditures— issue we analyze in the next section—an options on the revenue side should also be fully explored.
12. A natural candidate is to raise VAT rates, a measure the authorities announced they would implement beginning in 2015. Indirect taxation has been found to be more growth-friendly than direct taxation.8 In addition, the standard VAT rate is the lowest in the euro area, and 2 percentage points below the next lowest rates in Malta. The authorities plan to raise the standard rate as well as other intermediate rates, but not touch the lowest rate of 3 percent. However, this super-reduced 3 percent rate will now only apply to remodeling and repairs of primary homes, and not anymore to secondary real estate properties. The authorities estimate the direct effect of this increase will yield around €350 million, or 0.7 percent of GDP, with the impact spread over time.
13. Besides raising VAT rates, possible options for revenue sources in the near-term include the following:
Raising recurring taxes on immovable property. Luxembourg’s income from such taxes is very low by international comparison: it raises less than 0.1 percent of GDP through those taxes, while the average euro area stands at 0.7 percent of GDP. Increasing real estate taxes would also help address supply constraints in the housing market as it would raise the cost of holding unused land and housing properties. Such a tax is considered less distortionary to productive decisions and harder to evade than other taxes.
Recurrent tax on immovable property, 2011
Sources: Taxation trends in the European Union, 2013.
Raising direct taxes could also be an option, but would have to be carefully weighed against its impact on Luxembourg’s competitiveness. As shown in Figure 2, Luxembourg already relies on direct taxes to a significant extent, including via the solidarity taxes paid by both individuals and businesses.
C. Expenditures: Growing Unsustainably Trends
14. Luxembourg is not an outlier relative to its European peers in terms of overall expenditure-to-GDP ratio. In fact, it is on the low end compared to its neighbors. In terms of efficiency, it also seems to be spending in the “right” places, as it spends relatively less in operating expenses or interest (thanks to its low debt), but more on benefits and investment (Appendix).
Total Expenditure, 2011
15. In per capita terms, however, Luxembourg outspends all its peers in social benefits, a feature that underpins a relatively generous safety net. Luxembourg spends close to €17,000 per resident on social benefits, twice the euro area average. Unemployment benefits offer high replacement rates and are available to the young without a work history, which explains why unemployment benefits per capita are far above the euro area average despite one of the lowest unemployment rates in the currency union. The family allowance, whose stated aim is to support the birth rate, is the most generous among OECD countries, and most family benefits are not means tested. Even adjusted for the share of payments to cross-border workers, per capita family benefits remain large. Finally, compared to OECD peers, the pension scheme is characterized as “rather generous.” (OECD, 2012)
Social Benefits per Capita by Type, 2010
16. Trend growth of real expenditure in virtually all major categories has outpaced that of GDP, particularly since 2007. (Figure 5)
Spending on social benefits naturally expanded in the wake of the crisis, but expenditure on wages and salaries, as well as on goods and services, have continued to grow at a similar pace as during the pre-crisis period, despite a substantial deceleration in the pace of real activity; public investment is the only spending item that has lagged.
Wages and salaries in real terms have grown much faster than GDP. Their growth has also exceeded that of the size of the civil service, a reflection of the institutional mechanisms driving public wages, including the structural progression of the salary scale, and the automatic wage indexation to inflation. This trend should moderate somewhat due to the temporary wage indexation agreement covering 2012–2014, which limits indexation adjustments to once every 12 months. However, a recent wage agreement awarded an increase in real terms of 2.2 percent in 2015. In addition, average wages in public administration (including health and education) are second only to the finance industry. In particular, entry and lower-level civil servants are paid relatively high wages, while higher level employees are compensated relatively less than high-level employees in the private sector. As part of agreed structural reforms, a review of the wage scale is currently underway. The review includes objectives to change the seniority system and greater flexibility to reallocate staff between ministries.
“Other current transfers” have grown strongly since 2009 and account for around 3½ percent of GDP. Among many other items, this category includes financial grants and loans for students in higher education (around 0.4 percent of GDP), also available to children of cross-border workers. In the context of the 2014 budget, the authorities have adjusted this benefit to introduce partial means-testing and to take into account any relevant benefits cross-border families receive from their home country.
Annual Real Wages by Sector
Sources: STATEC, IMF Staff calculations.
Figure 5.Luxembourg: Expenditure Trends
17. This social safety net provides for extensive income redistribution. Indeed, Luxembourg achieves one of the largest declines in income inequality through social transfers among European countries. In 2010, the Gini coefficient was estimated to fall from 0.46 before taxes and transfers to 0.27 after taxes and transfers.
Gini coefficients pre and post taxes and transfers
Challenges and options
18. While public spending has been underpinned so far by Luxembourg’s wealth, some rationalization is warranted. Buoyant fiscal revenues in the past have hidden the unsustainable spending trend, but the decline in trend GDP growth and imminent disappearance of some revenue sources are making spending pressures increasingly apparent. While revenue substitutes are being explored, complementary action on the spending side is essential to help fill the opening fiscal gap, while addressing some inefficiencies.
19. A significant challenge is to reduce the rigidities in expenditures coming from automatic indexation in a permanent fashion. Around 60 percent of central government current expenditure is automatically indexed to inflation. As a consequence, increases on many expenditure items are automatic, including for staffing costs, transfers to social security, and other income and capital transfers. Limiting indexation to once per year in 2012-2014 has helped mitigate the impact of automatic increases with respect to the government’s own wage bill as well as moderate the increase in other expenditure items. But more should be done to temper the effects of wage indexation more permanently. Those efforts should best be combined with a broader revision of the automatic indexation mechanism that applies to the entire economy, especially starting from 2015 when the current agreement expires.9
20. Another key challenge is to improve the efficiency of social transfers without sacrificing Luxembourg’s admirable record of reducing inequality. Reforms should aim at tilting incentives toward supporting economic activity and away from inactivity. This would both help restrain the growth in social spending and increase labor participation rates, with beneficial effects for fiscal sustainability (see next section). As part of the efforts to restrain expenditure growth, some of the benefits could be de-indexed, or indexed to inflation only (as opposed to inflation and real wage increases, as is currently the case for pension benefits), while others could be redesigned.
21. The authorities have embarked on a comprehensive expenditure review, with its results to feed into the budget for 2015. This is the first such expenditure review for Luxembourg, and aims to identify savings and improve the cost-efficiency ratio of public spending. The review is being conducted in four phases from conception to implementation, with analysis across both ministerial and functional lines. Savings are to be identified by early summer 2014; discussions with social partners will take place during the summer, in time for inclusion in the 2015 budget due in October 2014. Social benefits are also to be reviewed, but expected reforms might be legislated over a longer horizon.
22. The planned introduction of a medium-term budgetary framework and other ongoing reforms could also help identify further ways to achieve efficiency gains. The transposition of the Fiscal Compact into national law will set a legal framework for multi-annual budgeting, and will include the introduction of a budgetary rule on central administration spending—though the exact formulation of this rule will be specified at a later stage. Reforms toward output-based budgeting are in train, but will take time to bear fruit.
23. Pension reforms adopted in late 2012 will likely be insufficient to raise the effective retirement age and do not adequately address inter-generational equity. No change to the official retirement age of 65 was made, and it remains to be seen whether new incentives to keep older employees in employment longer (by receiving higher benefits in exchange for staying at work longer) will be effective. In addition, the reforms rely on fairly optimistic assumptions about growth in output and employment, which may not materialize. Automatic provisions to ensure solvency are in place, but at the cost of adjustments in the contribution rate that come too late and would therefore have to be drastic—preventing an even sharing of the adjustment burden across generations.10 Furthermore, generous accumulation periods remain (such as during studies, or maternity leave). One measure that could be taken in the short-term is to remove the pension indexation to wage growth, while retaining cost of living adjustments. A temporary annulment of this wage indexation is in place, and should be made permanent.
D. Addressing Disincentives to Work
24. Part of the effort to rationalize expenditure should focus on reducing disincentives to work. The existing literature focuses on three types of “traps”: unemployment traps (for those receiving unemployment benefits), inactivity traps (for those not participating in the labor market and receiving social assistance), and low-wage traps (for those earning low wages and whose social benefits would be withdrawn faster than they can rise up the income ladder). For those falling into these traps, it often makes more financial sense to stay inactive or unemployed than to take a job, because the take-home pay after taxes and social contributions and taking into account the reduction in social benefits is less than it would be if they stayed inactive or unemployed. That is, the marginal effective tax rate (METR) on income is larger than 100 percent; all the effort is being “taxed away”. The analysis below focuses on the unemployment and inactivity traps, and is based on the OECD’s tax and benefits model.
25. The system offers a broad safety net. Unemployment benefits are relatively generous, with an 80 percent replacement rate, for a maximum of 12 months. Those ineligible for unemployment benefits can access the minimum guaranteed income (RMG), with amounts received varying by family status and by income up to a certain level. The RMG also includes a small housing benefit portion. Other relevant benefits include family benefits, which are not means-tested, a credit for single parents, a cost-of-living type allowance (“allocation de vie chère”), and a minimal income tax credit for work (25 euros per month). Some of the RMG benefit is withdrawn as individuals start to earn more.
26. However, the upshot is that unemployment traps are relatively prevalent, with METRs prohibitively high across a range of family situations. The METR peaks consistently around 100 percent for the full range of analyzed categories including singles, single earner couples, two-earner couples, all with or without children. The wage level at which this peak occurs differs, starting from 90 percent of average wage and rising to over 200 percent of average wage, depending on the family situation. This means that, for example, a single person receiving unemployment benefits would not gain from finding employment unless the pay exceeded 90 percent of average wage, which is relatively high. A more degressive regime over time, as was in place before the crisis, should be restored to preserve the incentive for the unemployed to actively pursue job opportunities.
27. The inactivity trap also appears strong, although for a smaller range of family situations than the unemployment trap. In this case, the METR rises to over 100 percent for singles and single earner couples, each with or without children, in the ranges of around 50 to 70 percent of average wage. The charts in Figure 6 illustrate this range. Gross wage earnings (red dotted line) is below the net take home pay (including social benefits, black solid line) for a range of income levels (grey shaded area), as the wage earnings cannot replace forgone benefits (including lower RMG) as well as the additional taxes and social contributions to be paid. For singles, it is only when pay rises to above minimum wage (40 percent of average wage) that the earner is able to keep more than what is lost, and that the METR drops to the “normal” tax, which would include income tax as well as social contributions. The equivalent figure for a single-earner couple with two children is 70 percent of average wage.
28. The unemployment challenge has been long in the making but has been exacerbated by the economic crisis. Unemployment has been on an upward trend even before the onset of the crisis, rising from 2.4 percent in 2000 to 4.2 percent on the eve of the crisis in 2006, and to 7.1 percent at the end of 2013. Participation rates in the resident population have increased between 2007 and 2012, from 67 percent to 69 percent; figures for cross-border workers are not available. While these unemployment figures are low from a regional perspective, their inexorable increase, combined with the generosity of the social safety net, could suggest an unemployment trap in which the incentive to work is blunted by some aspects of the social benefits system. Moreover, the share of long-term unemployed is large—at 23.8 percent in December 2013— and rising. A significant part of this increase is due to the inclusion of workers who can no longer work at full capacity (salariés à capacité de travail réduite), for example because the demand for their services has fallen, and whose redeployment to other sectors would likely be difficult and take some time, as they tend to be more low-skilled workers. These workers account for 21 percent of unemployment.
Figure 6.Marginal Effective Tax Rates for Recipients of Social Assistance, 2011
Source: OECD tax and benefit database.
29. The design of some benefits affecting the labor market needs to be adjusted to create a bias toward participation rather than inactivity. Modifications of the benefit scheme could also help induce this group toward greater participation, reduce unemployment and spur greater economic activity. The aim is to increase the share of take-home income related to activity. The existing earned income tax credit, currently minimal, could also be redesigned so as to drive a larger wedge between inactivity income and work income, and offset the reduction in existing social benefits received as income from work rises. Plans have been made for a reform of the RMG to try to address this trap, by reducing METRs and making it more financially rewarding to take up work. It is yet unclear whether these plans will be adopted by the new government. Additional training initiatives may be needed to complement these initiatives, as unskilled labor supply exceeds demand, while that for more skilled labor is insufficient. While some of these changes may reduce fiscal savings, this could eventually be revenue-creating, as it would spur greater labor market participation.
30. The authorities have revamped the employment agency to more actively tackle this growing challenge. They have brought in new management, reorganized the agency to take a more proactive approach, and are upgrading their information technology systems to allow for better matching. The registered unemployed will be offered services according to their profile. Those deemed more difficult to place would be provided with more intensive help, including training efforts. A contract would be signed between the jobseeker and the agency, specifying which actions would be taken by each party to improve employment prospects. This would include regular interactions with the agency to ensure that the jobseeker continues to actively search for employment; if these conditions are not met, assistance would be discontinued. In addition, closer contacts with employers are being developed so as to better match the needs of the private sector with the skill set of potential employees, as well as ensuring that provided training is in line with private sector needs.
31. Experience in neighboring countries such as Germany suggest more active labor market policies may indeed support a reform of social benefits. Starting in 2002, a series of measures known as the Hartz reforms were taken over several years, including improving the targeting of active measures, introducing market mechanisms into placement services and training, tightening conditions for acceptability of jobs, introducing sanctions for non-compliance, and liberalizing temporary work regulations. In 2003, certain wage subsidies were introduced for specific groups of workers. In addition, the Federal Employment Agency was restructured and active and passive policy measures were simplified. Starting in 2005, unemployment benefits were reformed, significantly reducing the replacement rate, and the duration of benefits was shortened a year later. Finally, in 2006-2010, measures were taken to encourage older workers to stay employed, including through phasing out of early retirement options, and requiring active job search efforts for older workers. While the effects of these reforms are still unfolding, they are widely credited for the reduction and current low level of unemployment in Germany.
32. Significant savings could also be achieved through greater means-testing of benefits. In particular, family benefits are currently awarded to all regardless of income level. They consist of a suite of benefits for maternity leave, parental leave, and include such allowances as general monthly stipends based on the number of children, the “boni pour enfant”, primary and higher-level education, and “back-to-school” expenses. The across-the-board provision of family benefits has the advantage of being less distortionary, but it comes at a significant fiscal cost, amounting to 2½ percent of GDP in 2012. Some means-testing could be introduced for certain family benefits, but thresholds should be set at higher income levels so as not to exacerbate inactivity traps at lower wage levels. Benefits that favor home ownership could also be revised (e.g. partial mortgage interest tax deductibility, the tax credit against registration and transactions taxes due), so as not to distort the decision between renting and ownership.11
33. Luxembourg’s public finances are at a turning point. While the levels of deficit and public debt remain in sound territory for now, significant losses in revenue will soon materialize. The trend increase in expenditure has been supported by buoyant revenue so far, limiting the impact on the overall deficit. But the upcoming loss in e-VAT revenue widens the gap that opened up during the financial crisis, and increases in age-related expenditures, though not immediate, loom large still. Uncertainty over the permanence of financial sector revenues and the corporate tax intake has also increased.
34. It will be essential to design an overall strategy to prevent a permanent deterioration in the fiscal position. The loss in most of these revenues will come without any relaxation in the tax burden at the domestic level, as both e-VAT and the withholding tax is paid by non-residents. Any compensating measure, however, be it by increasing domestic taxes or curtailing some of the spending items, will have a contractionary effect on the Luxembourg economy. It will be critical to design measures that are as growth-friendly as possible, and at a minimum, preserve Luxembourg’s competitiveness.
35. In all likelihood, a combination of measures will be necessary. The most natural options on the revenue side include raising VAT rates and increasing the yield of property taxes. Those on the expenditure side include reducing the rigidity of expenditures due to indexation of wages and salaries, adjusting social benefits, and reforming pensions toward a more equitable outcome for the young and the old. Adjustments to benefits should also aim to increase incentives to work by lowering marginal effective tax rates of taking on employment. The introduction of an earned income tax credit could complement these efforts, particularly for those at the lower end of the wage scale.
Luxembourg Expenditures in a Cross Country Context, 2011
European Commission2013. “Taxation Trends in the European Union”. BrusselsEuropean Commission.
Etude d’impact de l’industrie financière sur l’économie luxembourgeoise2010. Luxembourg for Finance reportwww.luxembourgforfinance.com/sites/luxembourgforfinance/files/etude-impact-2010.pdf.
CaroneG.et al.2004. “Indicators of Unemployment and Low-Wage Traps: Marginal Effective Tax Rates on Employment Incomes”OECD Social Employment and Migration Working Papers No. 18OECD Publishing.
VillafuerteM.et al.2010. “Strategies for Fiscal Consolidation in the Post Crisis World,”International Monetary Fund Departmental Paper 10/4. Washington DCIMF.
ClementsB.et al2010. “From Stimulus to Consolidation: Revenue and Expenditure Policies in Advanced and Emerging Economies,”International Monetary Fund Departmental Paper 10/3. Washington DCIMF.
L.Maer andN.Broughton2012. “Financial Services: Contribution to the UK economy.”Library, House of Commons.
Prepared by Piyabha Kongsamut (EUR).
Local governments are legally restricted from borrowing large amounts, and social security is in surplus as pension contributions exceed pension outlays for the time being.
Revenues from digital e-commerce are large, as several e-commerce firms’ headquarters in Europe are located in Luxembourg (e.g. Amazon, iTunes), and purchasers had been reaping the benefits of its comparatively low VAT rate.
See also the Selected Issues Paper: “The Financial Sector: Strengths and Challenges”.
This figure refers to assets of “special purpose entities” as part of Foreign Direct Investment in the BCL’s International Investment Position statistics.
See also the Selected Issues Paper: “The Residential Real Estate Market”.
The projections will be formally updated in 2014, in the context of the European Commission’s Ageing Working Group.
See also the Selected Issues Paper: “External Developments, Competitiveness, and Labor Market Policies”.
If the legal contribution rate (now fixed for 10 years) is below the required rate to keep a specific legal surplus requirement, adjustments to some parameters (such as indexation to wage growth) would be made to ensure solvency.
See also the Selected Issues Paper: “The Residential Real Estate Market”.