Council Opinion

of 12 March 2001

on the updated stability programme of Luxembourg, 1999-2003

(2001/C 109/01)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 5(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 March 2001 the Council examined the 2000 update of the stability programme of Luxembourg which covers the period 2000-2003.

The Council notes that continuing commitment to sound economic policies, in particular budgetary policies, has entailed a remarkable economic performance in Luxembourg: real GDP growth reached 7,5 % in 1999 and an estimated 8,3 % in 2000.

The Council notes with satisfaction that the budgetary objectives set in the 1999 update have been exceeded, as the general government surplus reached 4,4 % of GDP in 1999 and likely more than 3 % of GDP in 2000. The Council considers that the updated stability programme is consistent with the broad economic policy guidelines.

The Council notes that the updated programme takes into account the effects of the ambitious reduction in income tax planned for 2001 and 2002; as a result of these tax cuts, the general government surplus is projected to come down to about 2,5 % of GDP in the years 2001-2003. While the very healthy public finance situation in Luxembourg clearly allows a significant reduction in the tax burden, the Council, considering the fiscal impulse given by the tax reform to a fast growing economy where wage increases are already accelerating, encourages the government to be ready to tighten the stance of fiscal policy if inflationary risks become more evident.

The Council notes that government expenditures are still increasing at a rapid pace although their ratio to GDP is projected to decline by two percentage points during the period to 2003; therefore, the Council recommends to the Luxembourg government to monitor closely and be ready to limit expenditure increases which might become a source of vulnerability for the public finances should real GDP growth falter.

However, the Council commends the policies aimed at strengthening economic efficiency, particularly increased public investment. It notes the measures aimed at strengthening the reserve funds in the social security sector, particularly for pension provision. More information on the implications of the cost of the ageing population should be provided in the next update. The Council also notes the recent ILO study on pensions commissioned by the government. The Council notes that, although the government debt is particularly low in Luxembourg, more information concerning developments in this area should also be provided.

The Council considers that the underlying financial position of the general government corresponding to the projected surpluses over the period of the programme to 2003 provides an adequate safety margin against breaching the 3 % of GDP deficit threshold, thus fully complying with the stability and growth pact requirements.

(1) OJ L 209, 2.8.1997, p. 1.