Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Luxembourg and delivering a Council opinion on the 2022 Stability Programme of Luxembourg
Date: 2022-05-23
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, economic policy, economic recovery, economic reform, education policy, energy policy, public finance, renewable energy, stability pact, stability programme

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 23.5.2022  COM(2022) 618 final  Recommendation for a COUNCIL RECOMMENDATION on the 2022 National Reform Programme of Luxembourg and delivering a Council opinion on the 2022 Stability Programme of Luxembourg {SWD(2022) 618 final} - {SWD(2022) 640 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2022 National Reform Programme of Luxembourg and delivering a Council 
opinion on the 2022 Stability Programme of Luxembourg 

THE COUNCIL OF THE EUROPEAN UNION, 

Having  regard  to  the  Treaty  on  the  Functioning  of  the  European  Union,  and  in  particular 
Articles 121(2) and 148(4) thereof, 

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 
policies1, and in particular Article 5(2) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

Having regard to the opinion of the Economic and Financial Committee, 

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee 

Whereas: 

(1) 

(2) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council2,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021.  The  Recovery  and  Resilience  Facility  provides  financial  support  for  the 
implementation of reforms and investment, entailing a fiscal impulse financed by the 
Union.  It  contributes  to  the  economic  recovery  and  to  the  implementation  of 
sustainable and growth-enhancing reforms and investment, in particular to promote the 
green and digital transition, while strengthening the resilience and potential growth of 
the Member States’ economies. It also helps strengthen sustainable public finances and 
boost growth and job creation in the medium and long term. The maximum financial 
contribution  per  Member  State  under  the  Recovery  and  Resilience  Facility  [was] 
updated on [XX] June 2022, in line with Article 11(2) of Regulation (EU) 2021/241. 

On  24  November  2021,  the  Commission  adopted  the  Annual  Sustainable  Growth 
Survey,  marking  the  start  of  the  2022  European  Semester  for  economic  policy 
coordination.  It  took  due  account  of  the  reaffirmed  joint  commitment  of  the  Porto 
Social Summit of May 2021 to further implement the European Pillar of Social Rights 
proclaimed  by  the  European  Parliament,  the  Council  and  the  Commission  on  17 
November  2017.  The  European  Council  endorsed  the  priorities  of  the  2022  Annual 
Sustainable Growth Survey on 25 March 2022. On 24 November 2021, on the basis of 

1 
2 

OJ L 209, 2.8.1997, p. 1. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

EN 

1 

  EN 

                                                 
(3) 

(4) 

(5) 

Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted  the  Alert  Mechanism 
Report,  in  which  it  did  not  identify  Luxembourg  as  one  of  the  Member  States  for 
which an in-depth review3 would be needed. On the same date, the Commission also 
adopted a recommendation for a Council recommendation on the economic policy of 
the  euro  area,  which  was  adopted  on  5  April  2022  by  the  Council,  as  well  as  the 
proposal  for the 2022 Joint Employment Report analysing the implementation  of the 
Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social  Rights, 
which was adopted by the Council on 14 March 2022. 

Russia’s  invasion  of  Ukraine,  in  the  wake  of  the  global  pandemic,  has  significantly 
altered the geopolitical and economic context. The impact of the invasion on Member 
States’ economies has been felt for example through higher energy and food prices and 
weaker  growth  prospects.  The  higher  energy  prices  weigh  particularly  on  the  most 
vulnerable households experiencing or at risk of energy poverty. The EU is also seeing 
an unprecedented inflow of people fleeing Ukraine. In this context, on 4 March 2022, 
the  Temporary  Protection  Directive  was  triggered4  for  the  first  time,  granting 
displaced persons from Ukraine the right to legally stay in the EU, as well as access to 
education and training, labour market, healthcare, housing and social welfare. 

Taking  account  of  the  rapidly  changing  economic  and  geopolitical  situation,  the 
European Semester resumes its broad economic and employment policy coordination 
in 2022, while evolving in line with the implementation requirements of the Recovery 
and  Resilience  Facility,  as  outlined  in  the  2022  Annual  Sustainable  Growth  Survey. 
The  implementation  of  the  adopted  recovery  and  resilience  plans  is  essential  for  the 
delivery of the policy priorities under the European Semester, as the plans address all 
or a significant subset of the relevant country-specific recommendations issued in the 
2019  and  2020  Semester  cycles.  The  2019  and  2020  country-specific 
recommendations  remain  equally  relevant  also  for  the  recovery  and  resilience  plans 
revised, updated or amended in accordance with Articles 14, 18 and 21 of Regulation 
(EU) 2021/241, in addition to any country-specific recommendations issued up to the 
date of submission of the modified plan.  
The General Escape Clause has been active since March 20205. In its Communication 
of  3  March  20216,  the  Commission  set  out  its  view  that  the  decision  on  the 
deactivation or continued application of the general escape clause should be taken as 
an overall assessment of the state of the economy, with the level of economic activity 
in the EU or euro area compared to pre-crisis levels (end-2019) as a key quantitative 
criterion. Heightened uncertainty and strong downside risks to  the economic outlook 
in  the  context  of  war  in  Europe,  unprecedented  energy  price  hikes  and  continued 
supply  chain  disturbances  warrant  the  extension  of  the  general  escape  clause  of  the 
Stability and Growth Pact through 2023. 

(6) 

Following the approach in the Council opinion of 18 June 2021 on the 2021 Stability 
Programme,  the  fiscal  stance  is  currently  best  measured  as  the  change  in  primary 

3 

4 

5 

6 

Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 
on the prevention and correction of macroeconomic imbalances OJ L 306, 23.11.2011, p. 25. 
Council Implementing Decision (EU) 2022/382 of 4 March 2022 establishing the existence of a mass 
influx of displaced persons from Ukraine within the meaning of Article 5 of Directive 2001/55/EC, and 
having the effect of introducing temporary protection OJ L 71, 4.3.2022, p.1.  
Communication from the Commission to the Council on the activation of the general escape clause of 
the Stability and Growth Pact, Brussels, 20.3.2020, COM(2020) 123 final. 
Communication  from  the  Commission  to  the  Council  on  one  year  since  the  outbreak  of  COVID-19: 
fiscal policy response, Brussels, 3.3.2021, COM(2021) 105 final. 

EN 

2 

  EN 

                                                 
(7) 

expenditure  (net  of  discretionary  revenue  measures),  excluding  COVID-19  crisis-
related  temporary  emergency  measures  but  including  expenditure  financed  by  non-
repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds,  relative  to  medium-term  potential  growth7.  Going  beyond  the  overall  fiscal 
stance, in order to assess whether national fiscal policy is prudent and its composition 
is conducive to a sustainable recovery consistent with the green and digital transitions, 
attention  is  also  paid  to  the  evolution  of  nationally  financed8  primary  current 
expenditure  (net  of  discretionary  revenue  measures  and  excluding  COVID-19  crisis-
related temporary emergency measures) and investment. 

On  2  March  2022,  the  Commission  adopted  a  Communication  providing  broad 
guidance  for  fiscal  policy  in  2023,  aiming  at  supporting  the  preparation  of  Member 
States’  Stability  and  Convergence  Programmes  and  thereby  strengthening  policy 
coordination9.  The  Commission  noted  that,  based  on  the  macroeconomic  outlook  of 
the  2022  winter  forecast,  transitioning  from  an  aggregate  supportive  fiscal  stance  in 
2020-2022  to  a  broadly  neutral  aggregate  fiscal  stance  would  appear  appropriate  in 
2023,  while  standing  ready  to  react  to  the  evolving  economic  situation.  The 
Commission announced that the fiscal recommendations for 2023 should continue to 
differentiate  across  Member  States  and  take  into  account  possible  cross-country 
spillovers. The Commission invited the Member States to reflect the guidance in their 
Stability  and  Convergence  Programmes.  The  Commission  committed  to  closely 
monitor  the  economic  developments  and  adjust  its  policy  guidance  as  needed  and  at 
the latest in its Semester spring package of late May 2022. 

(8)  With  respect  to  the  fiscal  guidance  provided  on  2  March  2022,  the  fiscal 
recommendations  for  2023  take  into  account  the  worsened  economic  outlook,  the 
heightened uncertainty and further downside risks, and the higher inflation compared 
to the winter forecast. Against these considerations, the fiscal response has to expand 
public investment for the green and digital transition and energy security, and sustain 
the purchasing power of the most vulnerable households so as to cushion the impact of 
the energy price hike and help limit inflationary pressures  from second round effects 
via targeted and temporary measures; fiscal policy has to remain agile so as to adjust 
to the rapidly evolving circumstances, and be differentiated across countries depending 
on their fiscal and economic situation, including as regards the exposure to the crisis 
and the inflow of displaced persons from Ukraine. 

(9) 

7 

8 
9 

10 

On 30 April 2021, Luxembourg submitted its national recovery and resilience plan to 
the  Commission,  in  accordance  with  Article  18(1)  of  Regulation  (EU)  2021/241. 
Pursuant  to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the 
relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, 
in  accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  13 
July 2021, the Council adopted its Decision on the approval of the assessment of the 
recovery  and  resilience  plan  for  Luxembourg10.  The  release  of  instalments  is 
conditional on a decision by the Commission, taken in accordance with Article 24(5) 

The  estimates  on  the  fiscal  stance  and  its  components  in  this  recommendation  are  Commission 
estimates  based  on  the  assumptions  underlying  the  Commission  2022  spring  forecast.  The 
Commission’s estimates of medium-term potential growth do not include the positive impact of reforms 
that are part of the Recovery and Resilience Plan and that can boost potential growth.  
Not financed by grants from the Recovery and Resilience Facility and other EU funds. 
Communication  from  the  Commission  to  the  Council:  Fiscal  policy  guidance  for  2023,  Brussels, 
2.3.2022, COM(2022) 85 final. 
Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Luxembourg (ST 10155/2021). 

EN 

3 

  EN 

                                                 
of Regulation (EU) 2021/241, that Luxembourg has satisfactorily fulfilled the relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

(10)  On 29 April 2022, Luxembourg submitted its 2022 National Reform Programme and 
its 2022 Stability Programme, in line with Article 4 of Regulation (EC) No 1466/97. 
To  take  account  of  their  interlinkages,  the  two  programmes  have  been  assessed 
together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241,  the  2022 
National  Reform  Programme  also  reflects  Luxembourg’s  bi-annual  reporting  on  the 
progress made in achieving its recovery and resilience plan. 

(11)  The  Commission  published  the  2022  country  report  for  Luxembourg11  on  23  May 
2022.  It  assessed  Luxembourg’s  progress  in  addressing  the  relevant  country-specific 
recommendations adopted by the Council in 2019, 2020 and 2021, and took stock of 
Luxembourg’s  implementation  of  the  recovery  and  resilience  plan,  building  on  the 
Recovery  and  Resilience  Scoreboard.  Based  on  this  analysis,  the  country  report 
identified gaps with respect to those challenges that are not addressed or only partially 
addressed  by  the  recovery  and  resilience  plan,  as  well  as  new  and  emerging 
challenges,  including  those  emerging  from  Russia’s  invasion  of  Ukraine.  It  also 
assessed  Luxembourg’s  progress  on  implementing  the  European  Pillar  of  Social 
Rights  and  on  achieving  the  EU  headline  targets  on  employment,  skills  and  poverty 
reduction, as well as progress in achieving the UN’s Sustainable Development Goals. 

the economy  and  support 

(12)  On 20 July 2020, the Council recommended Luxembourg to take in 2020 and 2021 all 
necessary measures, in  line with  the general  escape clause, to  effectively  address  the 
pandemic,  sustain 
the  ensuing  recovery.  It  also 
recommended Luxembourg to pursue, when economic conditions allow, fiscal policies 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  debt 
sustainability,  while  enhancing  investment.  In  2021,  based  on  data  validated  by 
Eurostat, Luxembourg’s general government balance improved from a deficit of 3.4% 
of  GDP  in  2020  to  a  surplus  of  0.9%  in  2021.  The  fiscal  policy  response  by 
Luxembourg  supported  the  economic  recovery  in  2021,  while  temporary  emergency 
support measures declined from 2.4% of GDP in 2020 to 0.7% in 2021. The measures 
taken by Luxembourg in 2021 have been in line with the Council Recommendation of 
20  July  2020.  The  discretionary  budgetary  measures  adopted  by  the  government  in 
2020  and  2021  were  temporary  or  matched  by  offsetting  measures.  Based  on  data 
validated by Eurostat, general government debt stood at 24.4% of GDP in 2021. 

(13)  The  macroeconomic  scenario  underpinning  the  budgetary  projections  is  cautious  in 
2022 and realistic thereafter. The 2022 Stability Programme projects real GDP to grow 
by  1.4%  in  2022  and  2.9%  in  2023.  By  comparison,  the  Commission’s  2022  spring 
forecast  projects  a  real  GDP  growth  of  2.2%  in  2022  and  of  2.7%  in  2023.  The 
difference  of  0.8  percentage  points  in  2022  is  mainly  due  to  higher  expectations  for 
investments  and  a  positive  contribution  of  net  exports  to  real  GDP  growth  in  the 
Commission’s forecast. In its 2022 Stability Programme, the Government expects that 
the headline balance will decrease to a deficit of 0.7% of GDP in 2022 and to 0.4 % in 
2023.  The  decrease  in  2022  mainly  reflects  higher  expenditure  on  compensation  of 
employees, investments and social benefits, while on the revenue side current taxes on 
income and wealth are projected to decline. According to the Programme, the general 
government debt-to-GDP ratio is expected to increase to 25.4% in 2022, and to rise to 

11 

SWD (2022) 618 final. 

EN 

4 

  EN 

                                                 
(14) 

25.8% in 2023. Based on policy measures known at the cut-off date of the forecast, the 
Commission  2022  spring  forecast  projects  a  government  deficit  for  2022  of  0.1%  of 
GDP and a surplus for 2023 of 0.1%. The Commission 2022 spring forecast projects a 
lower general government debt-to-GDP ratio, of 24.7% in 2022 and 25.1% in 2023. 

Based  on  the  Commission  spring  2022  forecast,  the  medium-term  (10-year  average) 
potential output growth is estimated at 2.6%. However, this estimate does not include 
the  impact  of  the  reforms  that  are  part  of  the  Recovery  and  Resilience  Plan  and  can 
raise Luxembourg’s potential growth. 

In 2022, the government phased out the majority of measures taken in response to the 
COVID-19 crisis, such that the temporary emergency support measures are projected 
to  decline  from  0.7%  of  GDP  in  2021  to  0.1%  in  2022.  The  government  deficit  is 
impacted  by  the  measures  adopted  to  counter  the  economic  and  social  impact  of  the 
increase in energy prices, which in the Commission spring 2022 forecast are estimated 
at 0.8% of GDP in 2022 and 0.2% of GDP in 2023.12 These measures mainly consist 
of  an  energy  tax  credit,  social  transfers  to  low-income  households,  cuts  in  indirect 
taxes on energy consumption, and subsidies on production. These measures have been 
announced as mostly temporary. However, in case energy prices remain elevated also 
in 2023, some of these measures could be continued. Some of these measures are not 
targeted,  notably  the  across  the  board  cut  in  excise  duties  for  fuel  in  2022.  The 
government  deficit  is  also  impacted  by  the  costs  to  offer  temporary  protection  to 
displaced  persons  from  Ukraine,  which  in  the  Commission  2022  spring  forecast  are 
projected at 0.1% and 0.2% of GDP in 2022 and 2023.13  

(15)  On  18  June  2021,  the  Council  recommended  that  in  2022  Luxembourg14  pursues  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience  Facility,  and  preserves  nationally 
It  also 
recommended Luxembourg to pursue, when economic conditions allow, a fiscal policy 
aimed  at  achieving  prudent  medium-term  fiscal  positions  and  ensuring  fiscal 
sustainability  in  the  medium  term,  and  at  the  same  time,  to  enhance  investment  to 
boost growth potential. 

investment. 

financed 

(16) 

In  2022,  based  on  the  Commission’s  2022  spring  forecast  and  including  the 
information  incorporated  in  Luxembourg’s  2022  Stability  Programme,  the  fiscal 
stance  is  projected  to  be  supportive  at  -1.3%  of  GDP  as  recommended  by  the 
Council.15 Luxembourg plans to provide continued support to the recovery by making 
use  of  the  Recovery  and  Resilience  Facility  to  finance  additional  investment  as 
recommended  by  the  Council.  The  positive  contribution  to  economic  activity  of 
expenditure financed by Recovery and Resilience Facility grants and other EU funds is 

12 

13 

14 

15 

The figures represent the level of annual budgetary costs of those measures taken since autumn 2021, 
including current revenue and expenditure as well as – where relevant – capital expenditure measures. 
The total number of displaced persons from Ukraine to the EU is assumed to gradually reach 6 million 
by  the  end  of  2022,  and  their  geographical  distribution  is  estimated  based  on  the  size  of  the  existing 
diaspora, the relative population of the receiving Member State, and the actual distribution of displaced 
persons from Ukraine across the EU as of March 2022. For budgetary costs per person, estimates are 
based on the Euromod microsimulation model of the Commission’s Joint Research Centre, taking into 
account both cash transfers people may be eligible for as well as in-kind benefits such as education and 
healthcare. 
Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Luxembourg, OJ C 304, 29.7 .2021, p. 73. 
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 

EN 

5 

  EN 

                                                 
projected  to  remain  stable  compared  to  2021.  Nationally  financed  investment  is 
projected to provide an expansionary contribution of 0.1 percentage point to the fiscal 
stance  in  2022.16  Therefore,  Luxembourg  plans  to  preserve  nationally  financed 
investment,  as  recommended  by  the  Council.  At  the  same  time,  the  growth  in 
nationally  financed  primary  current  expenditure  (net  of  new  revenue  measures)  in 
2022 is projected to provide an expansionary contribution of 1.2 percentage points to 
the  overall  fiscal  stance.  This  significant  expansionary  contribution  includes  the 
additional  impact  of  the  measures  to  address  the  economic  and  social  impact  of  the 
increase  in  energy  prices  (0.5  %  of  GDP)  as  well  as  the  costs  to  offer  temporary 
protection  to  displaced  persons  from  Ukraine  (0.1  %  of  GDP),  while  higher 
compensation of employees and social transfers are also projected to contribute (0.3 % 
of GDP) to the growth in net current expenditure.  

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2022  spring  forecast  at 
+0.5%  of  GDP  on  a  no-policy  change  assumption.17  Luxembourg  is  projected  to 
continue using the grants from the Recovery and Resilience Facility in 2023 to finance 
additional  investment  in  support  of  the  recovery.  Nationally  financed  investment  is 
projected to provide an expansionary contribution of 0.1% of GDP to the fiscal stance 
in  2023.18  At  the  same  time,  the  growth  in  nationally  financed  primary  current 
expenditure  (net  of  new  revenue  measures)  in  2023  is  projected  to  provide  a 
contractionary contribution  of 0.5 percentage points  to  the overall fiscal  stance. This 
includes  the  impact  from  the  phasing  out  of  the  measures  addressing  the  increased 
energy prices (0.3 % of GDP).  

In  the  2022  Stability  Programme,  the  general  government  deficit  is  expected  to 
gradually  decline  to  0.3%  of  GDP  in  2024  and  to  0.2%  by  2025.  The  general 
government balance is thus planned to remain below 3% of GDP over the programme 
horizon. These projections assume slightly higher revenues and stable expenditure as a 
percentage  of  GDP.  According  to  the  Programme,  the  general  government  debt-to-
GDP ratio is expected to  increase by 2025, specifically with an  increase to 26.2% in 
2024, and a stabilisation at 26.2% in 2025. Based on the Commission’s analysis, debt 
sustainability risks appear low over the medium term. 

(17) 

(18) 

(19)  The  COVID-19  crisis  had  a  smaller  impact  on  government  finances  than  in  other 
Member States, and relevant indicators are expected to improve in 2022. However, the 
impact  of  demographic  trends  on  government  spending  will  intensify  over  the  next 
decades. In particular, this is because the number of pensioners per worker is expected 
to rise steadily due to the ageing population and the slowdown of net migration flows. 
Under a ‘no policy change’ scenario, Luxembourg will face one of the EU’s sharpest 
increases  in  pension  spending,  as  a  share  of  GDP  by  2070.  This  would  lead  to  a 
pension  spending  of  around  18%  of  GDP  (compared  to  9%  in  2019),  among  the 
highest  in  the EU. This  will cause a significant  increase in  government debt,  putting 
the sustainability of government finances at risk. Raising the effective retirement age 
would  have  the  most  beneficial  macroeconomic  impact,  since  this  factor  has  the 
largest potential to reduce pension spending. In turn, a higher rate of older workers in 

16 

17 

18 

Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.1 
percentage points of GDP. 
A negative (positive) sign of the indicator corresponds to an excess (shortfall) of primary expenditure 
growth  compared  with  medium-term  economic  growth,  indicating  an  expansionary  (contractionary) 
fiscal policy. 
Other nationally financed capital expenditure is projected to provide a contractionary contribution of 0.2 
percentage points of GDP. 

EN 

6 

  EN 

                                                 
employment  would  also  support  economic  growth.  The  recovery  and  resilience  plan 
does not address the long-term sustainability of the  pension system, nor the negative 
effects  of  early-retirement  schemes  and  the  financial  incentives  to  exit  the  labour 
market early, which explains the low employment rate of older workers. An early start 
with  reforms  aiming  to  limit  early-retirement  schemes  and  shifting  older  workers’ 
longer  would  enable  a  gradual 
preferences 
implementation, increasing intergenerational fairness. 

in  employment  for 

to  staying 

(20)  The fight against aggressive tax planning in the EU is essential to: i) prevent distortion 
of competition between firms; ii) ensure fair treatment of taxpayers; and iii) safeguard 
government finances. Luxembourg is a small, open economy, with a large integrated 
financial  sector,  which  in  large  part  explains  the  existence  of  large  financial  flows. 
However, these large financial flows also reflect  the large presence in the country of 
foreign-controlled  companies,  which  are  involved  in  intra-group  financing  and 
treasury activities. A particular point of concern is the absence of withholding taxes – 
or  equivalent  measures  on  interest  and  royalty  payments  to  low  or  zero-tax 
jurisdictions  beyond  those  countries  included  in  the  EU  list  of  non-cooperative 
jurisdictions19. Outbound payments of interests and royalties from Luxembourg-based 
companies  to  non-EU  jurisdictions  could  be  subject  to  little  or  no  taxation  if  these 
payments  are  not  taxed  or  taxed  at  a  low  level  in  the  recipient  jurisdiction. 
Luxembourg has taken some steps to fight aggressive tax planning.  So far, however, 
measures have been limited and insufficient to address the outbound payment issue in 
the  tax  system,  which  could  be  used  by  multinationals  to  engage  in  aggressive  tax 
planning. 

(21) 

in  addition 

in  2019  and  2020, 

In accordance with Article 19(3), point (b), and Annex V, criterion 2.2, to Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 
reinforcing reforms and investments to be implemented by 2026. These help address 
all  or  a  significant  subset  of  the  economic  and  social  challenges  outlined  in  the 
country-specific  recommendations  addressed  to  Luxembourg  by  the  Council  in  the 
European  Semester 
to  any  country-specific 
recommendations  issued  up  to  the  date  of  adoption  of  a  plan.  In  particular,  these 
challenges  relate  to  the  health  system’s  resilience,  labour  market  inclusion  and 
investment  in  the  green  and  digital  transition,  as  well  as  the  shortage  of  affordable 
housing and the institutional resilience of the anti-money laundering framework. The 
plan includes measures to increase the public supply of affordable housing. The plan 
also  includes  investments  in  renewable  energy  generation  and  sustainable  transport, 
helping to progressively decarbonise the economy. Digital public services and a large 
public research and innovation project in quantum communication technologies would 
encourage business investment and boost productivity growth in the medium term. On 
anti-money laundering and counter-terrorist financing, the plan includes a combination 
of measures to improve transparency and strengthen the framework for the oversight 
of financial service providers. The skills strategy and training programmes set out in 
the  plan,  including  a  dedicated  target  for  older  workers,  should  help  improve  labour 
market inclusion. 

(22)  The implementation of the recovery and resilience plan of Luxembourg is expected to 
contribute  to  making  further  progress  on  the  green  and  digital  transition.  Measures 
supporting the climate objectives in  Luxembourg account for 61% of the plan’s total 
allocation, while measures supporting digital objectives account for 32% of the plan’s 

19 

Council Conclusions of 24 February 2022 on the revised EU list of non-cooperative jurisdictions for tax 
purposes, OJ C 103/01, 3.2.2022, p. 1. 

EN 

7 

  EN 

                                                 
total allocation. The fully fledged implementation of the recovery and resilience plan, 
in line with the relevant milestones and targets, will help Luxembourg swiftly recover 
from  the  fallout  of  the  COVID-19  crisis,  while  strengthening  its  resilience.  The 
systematic  involvement  of  social  partners  and  other  relevant  stakeholders  remains 
important  for  the  successful  implementation  of  the  recovery  and  resilience  plan,  as 
well  as  other  economic  and  employment  policies  going  beyond  the  plan,  to  ensure 
broad ownership of the overall policy agenda. 

(23)  Luxembourg has not yet submitted the Partnership Agreement and the other cohesion 
policy  programming  documents20.  In  line  with  Regulation  (EU)  2021/1060  of  the 
European Parliament and of the Council of 24 June 2021, Luxembourg shall take into 
account  the  relevant  country-specific  recommendations  in  the  programming  of  the 
2021-2027  cohesion  policy  funds.  This  is  a  prerequisite  for  improving  the 
effectiveness and maximising the added value of the financial support to be received 
from  cohesion  policy  funds,  while  promoting  the  coordination,  complementarity  and 
coherence between these funds and other Union instruments and funds. The successful 
implementation  of  the  Recovery  and  Resilience  Facility  and  cohesion  policy 
programmes also depends on the removal of bottlenecks to investment to support the 
green and digital transition and balanced territorial development. 

(24)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan, Luxembourg faces a number of additional challenges, notably related to growing 
inequality  in  the  education  system.  Luxembourg’s  education  system  is  characterised 
by the use of three languages  (Luxembourgish, German and French), as well as by a 
high  number  of  pupils  from  diverse  socio-economic  and  linguistic  backgrounds. 
International test results suggest that pupils’ basic skills are lower than the EU average 
and  are  strongly  linked  to  pupils’  socio-economic  and  linguistic  backgrounds.  In  the 
2018 survey of the Programme for International Student Assessment carried out by the 
Organisation  for  Economic  Co-operation  and  Development,  Luxembourg  recorded 
one of the EU’s largest score gaps in reading between advantaged and disadvantaged 
students.  Inequalities  are amplified by the multilingual  schooling and the  way pupils 
are separated into different school tracks at an early stage. The education system does 
not provide all pupils with sufficient multilingual and basic skills to meet the country’s 
labour  market  needs.  Individualised  support  for  pupils  would  help  achieve  full 
development  potential  and  overall  inclusion  of  all  students.  In  line  with  the 
conclusions  of  the  national  observatory  of  school  quality  of  2020,  there  is  room  to 
improve  the  education  system’s  governance,  further  developing  evaluation  tools  and 
measurable  objectives  promoting  quality  and  equality  of  opportunity  on  both  the 
formal and non-formal sides of the education system. 

(25) 

20 

In  response  to  the  mandate  by  the  EU  Heads  of  State  or  Government  set  out  in  the 
Versailles Declaration, the REPowerEU plan aims to phase out the European Union’s 
dependence on fossil fuel imports from Russia as soon as possible. For this purpose, 
the most suitable projects, investments and reforms at national, regional and EU level 
are being identified in dialogue with the Member States. These measures aim to reduce 
overall reliance on fossil fuels and shift fossil fuel imports away from Russia.  

Regulation  (EU)  2021/1060  of  the  European  Parliament  and  of  the  Council  of  24  June  2021  laying 
down  common  provisions  on  the  European  Regional  Development  Fund,  the  European  Social  Fund 
Plus,  the  Cohesion  Fund,  the  Just  Transition  Fund  and  the  European  Maritime,  Fisheries  and 
Aquaculture Fund and financial rules for those and for the Asylum, Migration and Integration Fund, the 
Internal  Security  Fund  and  the  Instrument  for  Financial  Support  for  Border  Management  and  Visa 
Policy. OJ L 231, 30.6.2021, p. 159. 

EN 

8 

  EN 

                                                 
(26)  Luxembourg’s energy system is characterised by high import dependence and reliance 
on fossil fuels. According to 2020 data, Luxembourg is the EU’s largest net importer 
of energy relative to population size. It is almost entirely dependent on primary energy 
imports, with a dependency rate of 92.5%. By far the dominant energy sources are oil 
and gas; oil represents 68.5% of the energy consumption, and gas 17.8%. Luxembourg 
imports  no  oil  from  Russia,  while  the  EU  average  is  26%  of  crude  oil  imports. 
However,  Russia  is  still  a  relatively  important  source  of  gas  imports  as  it  provides 
27%  of  Luxembourg’s  natural  gas  imports  though  this  is  below  the  EU  average  of 
44%.21  Luxembourg  integrated  its  gas  grid  with  that  of  Belgium,  into  a  single 
platform.  While  there  are  no  major  bottlenecks  in  the  short  term,  further  investment 
will be needed to  accompany the transition  to  renewable energy, notably in  terms  of 
grid reinforcement and upgrades.  Industrial  gas demand has been flat in recent  years 
and  commercial  sector  gas  demand  grew  moderately.  The  main  growth  in  gas 
consumption  came  from  an  increase  in  residential  sector  consumption.  Luxembourg 
has to address the challenge of insufficient housing supply while achieving its energy 
and climate targets. There is also a need to renovate the existing building stock. With 
20.8% of the total energy saving potential (in terms of GWh), the residential building 
and  renovation  sector  represents  the  second-largest  source  of  cumulative  energy 
saving potential by 2030. Luxembourg increased its renewable energy share from 5% 
in  2015  to  12%  in  2020.  Nevertheless,  it  is  still  one  of  the  Member  States  with  the 
lowest  share.  Luxembourg  needs  strong  action  to  reach  its  2030  energy  targets  of 
obtaining 25% of energy from renewables and reducing final energy consumption by 
40%  to  44%  compared  to  2007.  Municipalities  will  have  a  key  role  in  this  respect. 
Road traffic congestion weighs on the economy  and on environmental sustainability, 
while transport accounts for a significant share of oil consumption and for 59% of total 
greenhouse  gas  emissions,  which  compares  to  an  EU  average  of  24%  in  2019. 
Measures targeting more efficient and sustainable transport can thus substantially help 
to reduce oil dependence. This is reflected in the NECP of Luxembourg, which targets 
40% of electric and plug-in vehicles for 2030. Luxembourg has set itself the target of 
becoming  climate  neutral  by  2050.  Further  increases  in  ambition  for  reducing 
greenhouse gas emissions and increasing renewable energy and energy efficiency will 
be needed for Luxembourg to be in line with the ‘Fit for 55’ objectives. 

(27)  While  the  acceleration  of  the  transition  towards  climate  neutrality  and  away  from 
fossil  fuels  will  create  significant  restructuring  costs  in  several  sectors,  Luxembourg 
can make use of the Just Transition Mechanism in the context of the cohesion policy 
to alleviate the socio-economic impact of the transition. In addition, Luxembourg can 
make use of the European Social Fund Plus to improve employment opportunities and 
strengthen social cohesion.  

(28) 

(29) 

In  the  light  of  the  Commission´s  assessment,  the  Council  has  examined  the  2022 
Stability Programme and its opinion22 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union,  the  Council  recommended  that  the  euro  area  Member  States  take  action, 
the 
including 

resilience  plans, 

recovery  and 

implement 

through 

their 

to 

21 

22 

Eurostat (2020), share of Russian imports over total imports of natural gas, crude oil  respectively. For 
the EU27 average, the total imports are based on extra-EU27 imports. For Luxembourg, total imports 
include intra-EU trade. 
Under Article 5(2) of Council Regulation (EC) No 1466/97. 

EN 

9 

  EN 

                                                 
recommendation  on  the  economic  policy  of  the  euro  area.  For  Luxembourg  this  is 
reflected in particular in recommendations 1, 2 and 3 below. 

HEREBY RECOMMENDS that Luxembourg take action in 2022 and 2023 to:  

1. 

2. 

3. 

4. 

In 2023, ensure that the growth of nationally-financed current expenditure is in line 
with  an  overall  neutral  policy  stance,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and 
to  people  fleeing  Ukraine.  Stand  ready  to  adjust  current  spending  to  the  evolving 
situation.  Expand  public  investment  for  the  green  and  digital  transition  and  for 
energy  security,  including  by  making  use  of  the  RRF,  RePowerEU  and  other  EU 
funds. For the period beyond 2023, pursue a fiscal policy aimed at achieving prudent 
medium-term  fiscal  positions.  Improve  the  long-term  sustainability  of  the  pension 
system, in particular by limiting early retirement and by increasing the employment 
rate  of  older  workers.  Take  action  to  effectively  tackle  aggressive  tax  planning, 
including  by  ensuring  sufficient  taxation  of  outbound  payments  of  interests  and 
royalties to zero and low-tax jurisdictions.  

Proceed with the implementation of its recovery and resilience plan, in line with the 
milestones  and  targets  included  in  the  Council  Implementing  Decision  of  13  July 
2021. Submit the 2021-2027 cohesion policy programming documents with a view to 
finalising  their  negotiations  with  the  Commission  and  subsequently  starting  their 
implementation. 

Reduce  the  impact  of  inequalities  on  pupils’  performance  and  promote  equal 
opportunities for all students in the educational system. 

Reduce overall reliance on fossil fuels by accelerating the deployment of renewables, 
electricity  transmission  capacity,  and  investment  in  energy  efficiency  in  both  the 
residential and non-residential sectors. Support municipalities in developing detailed 
local  plans  for  the  deployment  of  renewable  energy,  including  wind  power  and 
photovoltaics,  and  for  district  heating  and  cooling  systems.  Further  promote 
electrification of transport and invest in public transport networks and infrastructures. 

Done at Brussels, 

For the Council 
The President 

EN 

10 

  EN