Updated stability programme of Luxembourg, 2005-2008 - Main contents

EN

Official Journal of the European Union

C 55/29

On 14 February 2006 the Council examined the updated stability programme of Luxembourg, which covers the period 2005 to 2008.

The economic performance of Luxembourg has been remarkably bright in the last 20 years, with real GDP growing at 5,5 % a year on average and domestic employment by 3,25 %. Growth slowed down strongly in 2001 but recovered quickly, reaching 4,4 % in 2004. The financial position of the Luxembourg government has traditionally been very sound, with recurrent surpluses since the beginning of the 1990s and a very low public debt. However, due to the very strong rise in expenditure, these surpluses rapidly declined since the beginning of this decade and turned into a deficit in 2004.

In its opinion of 18 January 2005, the Council endorsed the budgetary strategy presented in the previous update of the stability programme, covering the period 2004-2007.

As regards budgetary implementation in 2005, the general government deficit is currently estimated at -2,3 % of GDP in the Commission services' autumn 2005 forecast as against a -1,0 % of GDP target set in the previous update of the stability programme. Roughly half of the observed deterioration is explained by a statistical revision, following the implementation by the Luxembourg authorities of the Eurostat decision on the statistical treatment of projects financed by PPPs. While government revenues, which were projected by the previous update to increase by 1,2 percentage points of GDP, actually rose by only 0,2 of a percentage point of GDP, in part due to large and unexpected VAT reimbursements, government expenditure increased by 1,4 percentage points of GDP (of which 0,8 of a percentage point is accounted for by public investment) instead of 0,8 of a percentage point of GDP as planned.

The programme broadly follows the model structure and data provision requirements for stability and convergence programmes specified in the new code of conduct (2).

According to the programme's macroeconomic scenario, real GDP growth should accelerate from an estimated 4,0 % in 2005 to 4,4 % in 2006 and to 4,9 % in both 2007 and 2008. Assessed against currently available information, this scenario appears to be based on broadly plausible growth assumptions, although slightly favourable in the outer years. The programme's projections for inflation also appear realistic, taking into account that the HICP in Luxembourg is extremely sensitive to changes in oil prices.

The programme aims at bringing the general government deficit close to balance by the end of the programme period and thereby achieving a medium-term objective of -0,8 % of GDP in the same year. The time profile and the level of the primary balance are similar to those of the total balance, with an improvement from a -2,1 % of GDP primary deficit in 2005 to a 0,1 % primary surplus at the end of the period. The deficit reduction is expenditure-based as total government expenditure is projected to decline by 2,5 percentage points over the period while the revenues ratio should decrease by 0,4 of a percentage point of GDP. In order to cope with...