COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Luxembourg Accompanying the document 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  SWD(2022) 618 final  COMMISSION STAFF WORKING DOCUMENT 2022 Country Report - Luxembourg Accompanying the document 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 {COM(2022) 618 final} - {SWD(2022) 640 final}  
 
 
 
 
 
 
 
 
 
 
 
ECONOMIC AND EMPLOYMENT SNAPSHOT 

Building resilience in Luxembourg 

the 

before 

recovery 

following 

Luxembourg's  economy  was  growing 
COVID-19 
dynamically 
pandemic. Between 2013 and 2019, real GDP 
grew by 2.8% on average per year, outpacing 
the  slow 
the  global 
financial  recession,  which  had  kept  growth  at 
an average 0.6% per  year between 2008 and 
2012. Underlying the upturn was the recovery 
of  international  trade,  which  triggered  faster 
international 
Luxembourg’s 
growth 
transactions, in particular in financial services. 
With  financial  activities  expanding  constantly, 
the  sector  generates  above  25%  of GDP.  It is 
the main contributor to Luxembourg’s national 
income per person, which is among the highest 
in the world. 

in 

The  economy  proved  resilient  to  the 
pandemic. In particular, some of the country’s 
key  characteristics  helped  manage  the  crisis 
response.  Luxembourg’s  economy  cushioned 
the  shock  well,  partly  owing  to  large  public 
support schemes (see below). It bounced back 
strongly by the end of 2020. The government’s 
calls  to  work  from  home  did  not  affect 
business  continuity  in  large  segments  of  the 
economy. This was possible thanks to the very 
high  proportion  of 
in  financial  and 
professional  services  that  can  be  carried  out 
from  home,  and  the  high-quality  digital 
infrastructure.  With  more 
than  half  of 
employees  working  remotely  and  a  relatively 
small  overall  population,  the  government  was 
able  to  contain  COVID-19  infections  mainly 
with a system of individual testing, tracing and 
isolating.  This  may  have  helped  avoid  a 
general  lockdown  in  the  second  wave  of  the 
pandemic.  The  estimated 
impact  of  this 
second  wave  was  less  than  -0.4 percentage 
points (pps) of GDP in 2020 and 2021 (1). As a 

jobs 

result,  real  GDP  bounced  back  strongly  to 
reach  6.9%  in  2021,  following  a  relatively 
limited  fall  by  1.8%  in  2020,  much  less  than 
the EU average of 5.9%. 

to 

at 

EU 

action 

channel 

coordinated 

and 
Coordinated 
international  level  underpins  the  good 
performance  of  the  financial  sector. 
Broad-based  measures 
by 
European  institutions  ensured  the  functioning 
of  the  euro  area’s  financial  system.  Banks 
continued 
financial  support, 
including  grants  and  guaranteed  credit  from 
national  emergency  programmes  and  EU 
support  instruments,  which  helped  stabilise 
trade  and  financial  market  conditions.  In  turn, 
Luxembourg’s  banking  income  improved  in 
2021  while  the  country’s  financial  activities 
attracted  more 
including 
significant savings accumulated by households 
during  lockdowns.  This  benefited  in  particular 
the  investment  fund  industry,  where  asset 
values  reached  a  new  all-time  high  at 
EUR 5.9 trillion 
in  December  2021.  These 
factors  are  behind  the  exceptionally  good 
performance  of 
transactions 
during  the  pandemic,  with  exports  growing  at 
double-digit rates in 2021. 

international 

investment, 

is  also  due  to 
The  strong  recovery 
unprecedented  measures 
to  protect 
firms’  cash  flow  and  boost  investment. 
Luxembourg’s  favourable  budgetary  situation 
and  well-developed  social  protection  system 
enabled  the  country  to  adopt  two  COVID-19 
support  packages  in  2020.  The  measures 
consisted of short-term work schemes, special 
family  leave,  tax  arrangements  for  cross-
border  workers  and 
liquidity  support  for 
companies. As a result, the government deficit 
reached  -3.4%  in  2020.  However,  benefiting 
from  a  very  strong  economic  rebound,  the 
general  government  registered  a  surplus  of 

(1)  Compared with a ‘no second wave’ scenario. Compared 
with a ‘general lockdown’ scenario, positive impacts 

were estimated at 0.6 pps of GDP in 2020 and 4.2 pps 
of GDP in 2021 (Burzyński M, et al., 2021). 

2 

 
 
                                                 
                                                                        
 
0.9% of GDP in 2021. A small deficit of -0.1% 
of GDP is projected for 2022. This is due to the 
expected  slowdown  in  GDP  growth  to  2.2%, 
which  would  lower  revenue  growth,  while  the 
high inflation rate pushes expenditure up. The 
general  government  debt 
is  gradually 
increasing,  although  from  a  low  level.  It 
reached  24.4%  of  GDP  in  2021,  which  is  still 
the 
very 
longer-term,  the  perspective  is  different.  This 
is  because  Luxembourg  faces  the  sharpest 
increase in pension-related spending of all EU 
impact  on  public 
countries.  The  expected 
finances  is  also  among  the  highest  in  the  EU 
and  threatens  Luxembourg’s  long-term  fiscal 
sustainability. 

low  at  present.  However, 

in 

on 

effects 

In  the  short  run,  Russia’s  invasion  of 
is  expected  to  have  mainly 
Ukraine 
indirect 
Luxembourg’s 
economy. These are related to the worsening 
conditions  on  global  financial  markets  and  a 
potentially slower economic recovery in the EU. 
The  increase  in  the  cost-of-living  allowance 
and  the  subsidies  put  in  place  to  stabilise 
electricity  and  gas  prices  have  helped  protect 
households’  purchasing  power  and  household 
spending.  Luxembourg’s  financial  system’s 
direct  exposure  to  Russia  and  Ukraine  as  a 
share of total assets is very limited. However, 
heightened  uncertainty  about  the  duration  of 
the  invasion  and  the  potential  escalation  of 
sanctions  and  retaliation  could  reduce  the 
value  of  fund  assets.  The  extent  of  this 
uncertainty  will  thus  determine  the  overall 
impact of Russia’s invasion. 

In  Luxembourg,  rising  oil  prices  have  a 
higher  impact  on  inflation  than  in  other 
EU  Member  States.  This  is  due  to  the 
relatively higher weight transport fuels have in 
the  harmonised  index  of  consumer  prices, 
caused  by  the  high  number  of  cross-border 
workers commuting by car and the significant 
freight  transport.  Consumer  price  inflation 
increased  by  3.5%  in  2021  and  the  annual 
rate  of  change  in  energy  prices  was  the 
second highest in the EU.  Higher energy prices 
are  expected  to  continue  feeding  into  higher 
inflation  in  2022.  Soaring  commodity  prices 
are  also  projected  to  induce  an  additional 
acceleration  of  goods’  prices.  Moreover, 
following  the  automatic  wage  indexations  in 

October  2021  and  April  2022,  the  prices  of 
services are expected to increase as well. As a 
result,  headline  inflation  is  expected  to  reach 
6.8% in 2022. The subsequent stabilisation of 
energy  prices  is  set  to  ease  inflationary 
pressures in 2023. 

and 

high 

concerns 

sustained 

Continued  strong  house  price  increases 
about 
have 
overvaluation 
household 
indebtedness.  A  long  period  of  rising  prices, 
led  by  strong  economic  and  demographic 
dynamics  in  the  context  of  staggered  house 
supply,  has  led  to  a  build-up  of  house  price 
overvaluation  while  household  debt  remains 
very  high.  Potential  price  correction  would 
affect  collateral  values  and  could  jeopardise 
resilience of borrowers and lenders, leading to 
tighter  credit  conditions  with  an  adverse 
impact  on  economic  growth.  Nominal  house 
prices rose by 14% annually both in 2020 and 
2021. 
Borrower-based  measures  were 
activated  in  January  2021  as  part  of  the 
macroprudential  framework  set  up  to  comply 
with  the  relevant  2019  European  Systemic 
Risk  Board  recommendation,  with  which  the 
ESRB assessed Luxembourg’s position as fully 
compliant  (ESRB,  2022a).  However,  continued 
strong  increases  of  house  prices  in  2021,  led 
the  ESRB  to  conclude  in  February  2022  that 
real-estate  related  risks  were  high  and  that 
in  place  were  partially 
the  measures 
appropriate  and  partially  sufficient  and  to 
argue  for  additional  income-based  measures, 
such  as  debt-to-income  limits  (ESRB,  2022b). 
In that respect, the deceleration in house-price 
growth  over  the  last  three  quarters  to  Q1-
2022 is a positive development. 

The  very  high  ratio  of  household  debt  to 
disposable income poses a risk to the real 
economy. In line with increasing house prices, 
household debt also increased in recent years 
and  some  households  need  to  spend  a  high 
share of their income on debt repayment. This 
situation  could deteriorate,  especially  in  times 
of  rising  interest  rates  or  economic  hardship, 
putting  further  pressure  on  the  real  economy. 
Compared to income, household debt remains 
among  the  highest  in  the  EU  (176%  of 
disposable  income).  Around  30%  of  housing 
loans  have  a  variable  rate  and  are  therefore 
exposed  to  interest  rate  changes.  Mortgages 

3 

 
are  concentrated  within  a  limited  number  of 
domestic  banks,  which  warrants  continued 
monitoring 
financial 
(Annex 16).  However, 
system 
risks  are  mitigated  by  effective 
oversight  frameworks  and  a  resilient  banking 
sector with banks that are well capitalised. 

Graph 1.1: Employment increased in 2020, 
although unevenly across sectors 

for 

housing 

Surging  house  prices  have  significantly 
worsened  housing  affordability  and  have 
become  one  of  the  main  sources  of 
inequality.  In  2020,  nearly  8  out  of  10 
households perceived the financial burden as a 
concern  (STATEC,  2021,  p.107).  Increasing 
housing  costs  are  weighing  more  heavily  on 
income  earners,  especially  younger 
lower 
generations.  As  stressed  by 
the  ESRB, 
structural  factors  also  play  a  major  role  in 
house-price  developments (2).  Specifically  the 
demand 
has 
residential 
permanently  exceeded  the  supply.  Since  well 
before  the  pandemic,  the  persistent  and 
abnormally (3) low reactivity of housing supply 
to  price  changes  has  led  to  an  acute  housing 
shortage.  Against  the  background  of  strong 
housing  demand,  addressing  constraints  that 
limit 
restricting 
construction, would help alleviate the shortage 
of  housing  in  the  medium  term.  In  particular, 
by increasing land mobilisation and affordable 
housing  and  by  improving  the  functioning  of 
the construction sector. These obstacles could 
through  alternative 
also  be  addressed 
measures 
complementing  macroprudential 
policies. Such as fiscal incentives and taxation, 
and land use development consistent with the 
deployment of key public services, for instance 
transport  and  education.  Luxembourg  has 
recently  taken  first  steps  in  this  direction, 
which  might  contribute 
to  price  growth 
deceleration. 

supply 

land, 

the 

of 

(2)  Structural factors, which are not usually taken into 

account by overvaluation measures, may lead to higher 
fundamental values for house prices (ESRB, 2022b). 

(3)  Mainly due to high land-ownership concentration in the 
hands of a few private, individual landowners, and 
enabling fiscal and institutional frameworks, against the 
background of strong demand (driven by strong 
economic and demographic dynamics). This particular 
set-up enables inter-generational strategies by which 
landed families maximise proceeds from land sales 
(either piecemeal sales to corporate developers, which 
compete for these transactions, or after self-paced 
development on their own, which is also allowed. 
(Paccoud et al., 2021). 

4 

Source: Eurostat, quarterly national accounts of 
Luxembourg 

in 

public 

support 

scaled-up 

Government 
protected 
employment,  job  creation  and  household 
income  during  the  pandemic, but the  risk 
of  poverty  is  rising  (European  Commission, 
2021a).  Large-scale  short-time work schemes 
and 
employment 
programmes  managed  to  save  a  significant 
amount of jobs and protected national income. 
After peaking at 7.7% in May 2020, the annual 
unemployment  rate  fell  to  the  2019  level 
long-term 
2021.  However, 
(5.6%) 
unemployment  is  more  persistent  and  affects 
almost  1  in  2  unemployed  workers,  giving  a 
gauge of the skills mismatch in Luxembourg’s 
labour  market.  A  larger  proportion  of  long-
term  unemployed  people  are  low-skilled  and 
older people, who are at a higher risk of social 
exclusion  and  poverty.  This  is  highlighted  by 
the 
the  social  scoreboard  underpinning 
European  Pillar  of  Social  Rights  (Annex 12). 
The  UN’s  monitoring  of  the  Sustainable 
Development  Goals  (SDGs)  also  points  to  a 
deterioration  of  the  poverty  index  (Annex 1). 
This  is  mainly  due  to  an  increase  in  the 
proportion  of  ‘people  at  risk  of  poverty  or 
social exclusion’ and ‘people at risk of income 
poverty  after  social  transfers’.  In  2020,  this 
proportion  reached  the  EU  average.  Poverty 
has  risen  steadily  and  faster  than  in  many 
other  Member  States  (MESA,  2020).  Large 
social  transfers  help  Luxembourg  perform 
relatively  well  on  most  SDGs  related  to 
fairness.  Without  these  transfers,  almost  half 
of the population would fall below the poverty 
rate. 

-1%0%1%2%3%4%  2017  2018  2019  2020  2021Public sectorOtherServices to firmsTransport, Accommodation and Food servicesLarge-scale job retention schemes limited layoffs and secured  labour income in lockdowns.                      Scaled-up  public employment programmes reduced unemployment and supported national income.             Wage-employment by sector (year-on-year % change) 
                                                 
       
Labour shortages could hamper economic 
and  employment  growth.  Reported  labour 
shortages  reached  an  all-time  high  in  2021 
and concerned both high- and low-skilled jobs. 
High  labour  intensity  makes  Luxembourg’s 
services-oriented economy more vulnerable to 
labour  supply  constraints.  To  preserve  its 
growth  model,  Luxembourg  should  tackle  the 
main  factors  limiting  labour  supply  for  the 
longer  term:  (i)  an  ageing  population,  (ii)  the 
need  for  reskilling  and  upskilling  to  enable  a 
faster green and digital transition, (iii) growing 
issues  with  housing  and  transport  and  (iv) 
education. 

The scale of the challenges also calls for 
further  diversification  of  the  innovation 
ecosystem  to  enable  the  transition  to  a 
data-based  economy.  Government  support 
for business investment in innovation remains 
marginal  (Annex 9).  Developing  activities  with 
high  productivity  and 
innovation  potential 
could enhance Luxembourg’s growth potential. 
large 
is 
Luxembourg 
public-investment 
new 
technologies.  These  projects  are  expected  to 
facilitate  the  digital  transformation  of  priority 
economic  sectors,  attract  private  international 
investment,  boost  business  innovation  and 
consolidate necessary skills. 

implementing 
in 
projects 

Graph 1.2: Labour Productivity has not 
increased in the last decade 

Source: Eurostat, annual national accounts of 
Luxembourg 

Economic  growth  in  Luxembourg will  rely 
increasingly  on  productivity  growth, 
which  has  stagnated  in  recent  years.  In 
2019,  labour  productivity  stood  below  the 
level  of  2009  (Graph  1.2)  while  employment 
and  GDP  have  both  increased  strongly.  With 

5 

shortages  aggravating,  economic 
labour 
growth in Luxembourg will increasingly rely on 
productivity  growth.  In  the  long  term,  capital 
investment  could  raise  productivity.  However, 
the  share  of  gross  fixed  capital  formation  to 
GDP is persistently one of the lowest in the EU. 
Innovation  and  digital  transformation,  which 
are  among  Luxembourg’s  main  challenges, 
also  have  the  potential  to  trigger  productivity 
growth (Annex 9). 

Intermediation 

Large-scale outsourcing did not translate 
for 
into  major  productivity  gains 
Luxembourg. 
services 
provided by firms outside the country account 
for a very high share of Luxembourg’s services 
exports,  especially  in  financial  services,  where 
around  70%  of  exports  content  is  imported. 
This  share  has  grown  faster  than  service 
production.  Thanks 
information  and 
communication  technologies  (ICT),  a  wider 
range  of  activities  could  potentially  be 
outsourced.  However,  while  decisions 
to 
in  most  cases  driven  by 
relocate  are 
multinationals’  interests,  their  medium-term 
potential  impacts  on  Luxembourg’s  economy 
might be more difficult to estimate (4). 

to 

Luxembourg  is  stepping  up  its  work  to 
maintain  its  competitive  advantage  by 
developing  its  centre  for  green  finance. 
is  striving  to  attract  highly 
This  sector 
specialised  workers  to  enter  higher-value 
front-office  activities.  Overall,  the  sector’s 
growth  relies  on  the  ability  to  maintain  and 
expand  the  attractiveness  of  investing  and 
working in Luxembourg. It will also depend on 
the  sector’s  ability 
improve  quality 
management  and  expertise  in  the  areas  of 
investment advice and in providing transparent 
information on green financial instruments. 

to 

Luxembourg  has  made  sizeable  progress 
on  the  green  transition,  starting  from  a 

(4)  Luxembourg’s funds industry occupies a specific 

position in the financial global network, where European 
investment funds are mainly created and managed by 
large US asset management firms, investing money via 
London, and with Luxembourg and Ireland functioning 
as satellites*. The main financial activities in 
Luxembourg are thus in middle and back offices dealing 
with financial administration. *(Wójcik, D., Urban, M., 
Dörry, S., 2021). 

20092010201120122013201420152016201720182019YearsReal GDP per worker (lhs)Real GDP per hour worked (rhs) 
           
                                                 
level.  Luxembourg 

is 
low  performance 
highly  dependent  on  energy  imports  for  final 
consumption and has one of the lowest shares 
of  renewable  energy  in  the  EU.  Greenhouse 
(GHG)  emissions  per  person  have 
gas 
consistently  exceeded  the 
level  of  other 
Member  States.  They  are  driven  by  road 
transport, which accounts for two thirds of CO2 
emissions. Nevertheless, in 2020, Luxembourg 
exceeded  its  renewable  energy  target  for 
transport  (Eurostat,  2022)  and  recorded  a 
sharp  reduction  in  GHG  emissions  per  person. 
This  coincided  with  the  outbreak  of  the 
COVID-19  pandemic.  Estimated  emissions  in 
2021  were  still  below  2019 
levels.  The 
phasing in of a carbon tax on 1 January 2021 
played a part in this improvement, but the fuel 
tax  gap  with  neighbouring  countries  remains 
significant. 

the 

country 

improvements, 

Overall,  Luxembourg  performs  relatively 
well  on  the  SDGs  although  challenges 
remain 
in  a  few  areas.  The  country 
performs  very  well  on  most  SDGs  related  to 
environmental  sustainability. However, despite 
recent 
still 
underperforms 
the  EU  average  for  CO2 
emissions and the share of renewables in the 
final  energy  consumption.  Luxembourg  does 
very  well 
to 
macroeconomic stability and productivity level, 
with  the  exception  of  a  relative  deterioration 
of public finances in the last five years and the 
stagnation  in  performance  of  the  education 
system,  which  will  be  an  additional  drag  on 
productivity.  In  spite  of the  very  high  national 
income level per capita, poverty has continued 
rising  in  Luxembourg,  which  undermines  the 
overall  good  performance  of  the  indicators 
(Annex 1).
related 

indicators 

fairness 

related 

the 

to 

in 

6 

 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 
THE RECOVERY AND RESILIENCE PLAN IS UNDERWAY 

sub-set 

Luxembourg’s  recovery  and  resilience 
plan  (RRP)  covers  a  broad  range  of 
investments  and  reforms  addressing  a 
significant 
challenges 
of 
identified 
in  the  European  Semester 
(Annex 2).  The  government  supplemented  the 
limited  financial  allocation  of  EUR 93.4 million 
in  grants  (0.15%  of  2019  GDP)  with  funds 
from  the  national  budget.  This  increased  the 
financial 
to  support 
investment  and  reforms  included  in  the  RRP. 
The  RRP  aims  to improve the  health  system’s 
resilience,  make  the  labour  market  more 
inclusive,  and  boost  investment  in  the  green 
and  digital  transition,  among  others.  The  plan 
is  also  expected to  help  address the  shortage 
increase 
of  affordable  housing  and 
institutional  resilience  by  reforming  the  anti-
money laundering framework. 

resources  available 

to 

laundering 

supervision 

measures included in the plan aim to make the 
of 
anti-money 
professionals  providing  trust  and  company 
services more effective. Another measure, with 
the  objective  to    increase  the  quality  and 
transparency of the business register, will help 
the  authorities  to  better  identify  the  ultimate 
beneficiaries of legal entities. This would deter 
criminals  from  using  these  entities to  launder 
illicit money. It is also an effective way for the 
authorities 
the  people  who 
ultimately own or control these entities. 

identify 

to 

Graph 2.1: One of the greenest RRPs 

impact 

is 
An  additional  economic 
expected  from  the  spillover  effects  of 
neighbouring  Member  States’  plans. 
Luxembourg’s  high  level  of  trade  openness 
and  financial  integration  in  the  EU  enables  it 
to  benefit  from  the  boost  in  external  demand 
generated by investment and reforms in other 
Member States’ RRPs (5). 

A  significant  share  of  funding  under 
Luxembourg’s  RRP  is  due  to  be  paid  at 
the  beginning.  Two  thirds  of  the  RRP 
measures  are  scheduled  for  the  first  two 
payment requests. A high number of measures 
were already part of the government’s reform 
and  investment  agenda  at  the  start  of  the 
Recovery and Resilience Facility (RRF). 

The  RRP  helps  tackle  money  laundering 
and  the  financing  of  terrorism.  The 

(5)  Simulations of the Commission’s Quest model show 
that in the baseline scenario, NextGenerationEU in 
Luxembourg could lead to an increase of between 0.8% 
and 1% of GDP from spillover effects in 2022 and 
2023 (if the funds are disbursed evenly over 6 and 3 
years, respectively). (Pfeiffer et al., 2021). 

Source: Luxembourg’s resilience and recovery plan 

is  well  above 

The  RRP  has  a  strong 
focus  on 
environmental and climate challenges.  As 
indicated  in  Annex 6,  the  RRP  has  a  strong 
focus  on  the  green  transition.  The  RRP’s  61% 
climate  contribution 
the 
mandatory  target  of  37%.  The  measures  in 
this  area  include  rolling  out  a  system  to 
generate renewable energy for a new housing 
area. This project investigates the feasibility of 
using geothermal energy for district heating. It 
is  potentially  relatively  easy  to  expand  this 
system,  which  could  help  decrease 
the 
country’s very high dependency on imports for 
energy consumption. The RRP will help  reduce 
the  high 
level  of  GHG  emissions  from 
transport  by  implementing  new  measures  to 
electrify  the public  sector fleet  and  through  a 
financing  scheme  to  expand  the  network  of 
charging  points  for  electric  vehicles.  However, 
the  financial  contribution  under  the  RRF  is 

7 

Green transitionDigital transformationGreen target  37%Digitaltarget 20%Green and digital contributions of the Luxembourg RRPPercentage of the RRP total allocationGreen target  37%Digitaltarget 20% 
 
                                                 
   
 
are 

certain 

addressed 

climate 
limited.  Therefore,  only 
challenges 
(sustainable 
transport  and  renewable  energy  generation). 
The  Housing  Pact  2.0  reform  included  in  the 
in  energy 
RRP  will 
efficiency  of  buildings  in  the  future  even 
though  there  is  no  investment  in  this  area  in 
the plan.  

investment 

lead 

to 

The  RRP  will  help  accelerate  the  digital 
transition.  The  32%  share  of  funding  for 
digital  is  well  above  the  mandatory  target  of 
20%.  Luxembourg  performs  well  in  digital 
public  services.  The  RRP  supports  the  digital 
public  administration  and  expands  the  digital 
offer of public services, putting in place online 
appointments  and  12  new  online  services. 
the 
is 
Another  measure 

develop 

to 

The  RRP  addresses  vulnerabilities  in  the 
health  sector.  The  COVID-19  pandemic  has 
highlighted  shortages  in  health  professions, 
against the background  of  increasing  demand 
for  healthcare.  Measures  in  the  RRP  aim  to 
make  staff  management  more  efficient  by 
investing  in  telemedicine  and  an  electronic 
register  of  health  professionals.  This  digital 
improve  day-to-day  staff 
register  should 
management and help anticipate shortages of 
doctors  and  nurses.  Policy  action  aims  to 
health 
improve 
the 
professions, 
competencies for healthcare professionals. 

of 
recasting 

attractiveness 

notably 

the 

by 

The  ‘skilling,  reskilling  and  upskilling’ 
component  of  the  RRP  is  part  of  the 

Housing Pact 2.0: the challenge of affordable housing  

The Housing Pact 2.0 aims to help municipalities develop affordable and sustainable housing, to improve 
housing and neighbourhood quality.  The government will acquire plots of land with construction permits 
and  residential  property  to  provide  affordable  housing  (newly  built  or  renovated)  to  rent  at  reasonable 
prices. In the medium term, this is expected to enable more and more people to rent affordable housing. 

  The main aspects of the reform are that municipalities sign an initial agreement with the State, after 
which they draw up local housing action plans. Of each new construction project consisting of 10 to 25 
units, at least 10% must be dedicated to affordable housing, and at least 15%  of projects consisting 
of  more  than  25  units.  This  should  lead  to  greater  social  diversity  and  should  reduce  social  and 
economic disparities in the new neighbourhoods. 

  Land prices  weigh  heavily on the  creation of affordable  housing. To  reduce prices, the Housing Pact 
2.0 Regulation authorises developers to build on an area that is up to 10% larger than the maximum 
allowed by law. This compensates developers for part of the land transferred to the municipality for 
the construction of affordable housing. 

for 

testing 

infrastructure 
ultrasecure 
connection  systems.  These  measures  are 
expected  to  support  the  business  sector’s 
innovation  and  digitalisation,  which  are 
Luxembourg’s main digital challenges. 

the 
The  RRP  also  helps  address 
insufficient supply of affordable housing. 
The  plan  contains  a  new  law  replacing  the 
Housing  Pact  (Box  1),  which  aims  to  increase 
for 
the  effectiveness  of  State  support 
municipalities to provide affordable housing. In 
particular,  the  Housing  Pact  2.0  aims  to 
improve the use of existing residential housing 
and increase the land potentially available for 
construction. 

government’s 
labour  market  policies, 
helping to  implement the  European  Pillar 
of Social Rights. Training under ‘FutureSkills’ 
is expected to attract job seekers, with special 
attention for those aged 45 and above. This is 
a  welcome  gradual  shift  from  the  pandemic-
related  emergency  measures  to  preserve  jobs 
to 
towards  more  sustainable  measures 
support  workers. 
job 
It  should  also  help 
seekers  aged  45  and  above  access  activities 
that  are  more  dynamic.  This  improves  their 
chances  to  join  and  stay  longer  in  the  labour 
market  while  promoting  economic  growth. 
However,  to  achieve  long-term  sustainability 
of the pension system, and ultimately of public 
finances (Section 3), these measures would be 
more  effective  in  combination  with  other 

8 

 
 
 
the  Organisation 

instruments,  notably  to 
the 
Skillsdësch, 

limit  early 
policy 
retirement. 
strategic 
coordination  board  mentioned  in  the  RRP,  is 
about to present the national skills strategy, in 
for 
collaboration  with 
Economic  Cooperation  and  Development 
(OECD).  This 
the 
foundations  of  a  more  structural  and 
integrated  approach  to  vocational  training. 
This  is  crucial  in  making the  most  of  people’s 
potential  and  thus  in  promoting  inclusive 
economic growth. 

strategy 

should 

lay 

Key deliverables of the recovery and resilience plan over 2022-2023  

 

 

Implement the Housing Pact 2.0 for affordable housing 

Implement vocational training programmes under the ’FutureSkills’ initiative 

  Digitalise healthcare system management 

 

Improve digital solutions for public services 

  Reform the framework for environment and biodiversity protection. 

9 

 
 
 
FURTHER PRIORITIES AHEAD 
FURTHER PRIORITIES AHEAD 

these 

faces 

include: 

additional 

(Section  2). 

in  the  RRP 

Luxembourg 
key 
challenges  that  are  not  or  only  partially 
covered 
In 
particular, 
i) sustainability 
issues,  mainly  stemming  from  the  pension 
system;  ii) legal  loopholes  that  could  be  used 
by  multinationals  engaging  in  aggressive  tax 
planning; 
in  the  education 
system  that  add  to  inequality;  iv) issues  with 
mobility  in  the  transport  network;  and  v) 
potential  bottlenecks  in  the  transition  away 
from fossil fuels. Addressing these challenges 
would help make further progress in achieving 
the  SDG  indicators  in  the  areas  related  to 
environmental  sustainability,  productivity  and 
fairness. 

iii) weaknesses 

Ensuring the sustainability of 
public finances 

Despite a favourable position in the short 
to  medium  term,  the  pension  system  is 
expected  to  face  rising  challenges  in  the 
long  term.  Public  finances  weathered  the 
COVID-19  crisis  relatively  well,  and  fiscal 
indicators  are  expected  to  improve  already  in 
2021.  However,  the  impact  of  demographic 
trends  on  public  spending  will  intensify  over 
the next decades. In particular, the number of 
pensioners per worker will steadily rise (i.e. the 
old-age  dependency  ratio),  reflecting  changes 
in the age pyramid. 

Luxembourg’s public pension is a pay-as-
you-go system, which has been in surplus 
consistently,  due  to  continued  increases 
in  cross-border  workers.  These  surpluses 
are  being  saved  in  a  reserve  kept  in  an 
independent  investment  fund.  The  positive 
balance  of  the  general  pension  scheme  is 
shrinking  progressively.  Spending  on  pensions 
from 
is  expected 
to  exceed 
In 
contributions  by 

the  early  2030s. 

revenue 

subsequent  years,  deficits  are  projected  to 
increase  progressively.  The  reserve  is  thus 
projected  to  fall  below  the  legal  threshold  of 
1.5  times  the  amount  of  annual  pension 
expenses  by  the  early  2040s (6)  and,  at 
unchanged policies, to be completely depleted 
by the mid-2040s. 

Graph 3.1: Pension spending in Luxembourg is 
projected to increase steadily and to almost 
double by 2070 (in terms of GDP). 

(1) Pension spending increase. Percentage points of GDP.  
Source: European Commission, The Ageing report 2021. 

in  the 

increase 

increases 

Projected 
in  spending  on 
pensions  threaten  the  sustainability  of 
the  system 
long  term.  With 
unchanged  policies,  Luxembourg  will  face  the 
EU’s  sharpest 
in  spending  on 
pensions, which will double, as a share of GDP, 
by  2070,  equivalent  to  an  increase  in  the 
government  deficit  of  close  to  9 pps  of  GDP 
(Graph  3.1)  (European  Commission,  2021b). 
This is among the highest in the EU, as is the 
projected spending on pensions (18% of GDP). 
This  will  significantly  increase  government 
debt  (after  the  pension  reserve is  exhausted), 
implying  a  high  risk  for  the  sustainability  of 

(6)  The legal threshold is the reserve amount, in terms of 
years of pension spending, below which reforms are 
required in order to avoid the system’s collapse. 
Projections show that the gap between the legal 
threshold and the full depletion of the reserve is about 
five years. This period seems to rule out a gradually 
phased-in reform before the system starts 
accumulating annual deficits recurrently. 

10 

-4 %-2 %0 %2 %4 %6 %8 %ELPTEEFRESDKITLVHRPLSELTATFIBGCYDENLCZBEIEROMTHUSKSILUProjected spending increase in percentage points of GDP(1) 
 
 
           
                                                 
 
the  system  and 
intergenerational fairness. 

its  ability 

to  ensure 

The 

have 

relatively 

the  most 

Raising  the  effective  retirement  age 
beneficial 
would 
macroeconomic  impact.  Population  ageing 
drives  the  change in  government  spending  on 
pensions. 
high 
pensions-to-wages ratio (86% in 2019) offers 
strong  financial  incentives  to  exit  the  labour 
market.  Together  with  the  facilitating  role  of 
early  retirement  schemes,  this  explains  the 
early  effective  retirement  age,  at  61.3  on 
average,  one  of  lowest  in  the  EU.  Therefore, 
raising  the  effective  retirement  age  has  the 
highest  potential  to  reduce  spending  on 
pensions.  Increasing  older  workers’  working 
lives  and  participation  rates  would  also 
support economic growth, as it would increase 
both  labour  supply  and  consumption  due  to 
higher lifetime incomes. Making an early start 
with  reforms  would  enable  them  to  be 
adjusted,  and  for  the  change  to  come  in 
gradually, improving intergenerational equity. 

large  financial  sector,  which  in  large  part 
explains  these  financial  flows.  However,  they 
also  reflect  the  large  presence  of  foreign-
controlled  companies  in  the  country,  which 
carry  out  intra-group  financing  or  treasury 
activities. 

to 

or 

is  the 

A  particular  concern 
lack  of 
withholding taxes on interest and royalty 
payments 
zero-tax 
low- 
jurisdictions,  or  measures  with  an 
equivalent  effect.  The  lack  of  withholding 
taxes,  outbound  payments  of  interest,  and 
royalties  from  Luxembourg-based  companies 
to non-EU jurisdictions could lead to little or no 
taxation  if  these  payments  are  not  taxed  or 
taxed at a low level in the recipient jurisdiction. 
No  measure  in  Luxembourg’s  tax  system 
addresses  this  issue  sufficiently.  The  OECD 
Pillar  2  rules  on  a  global  minimum  corporate 
tax-rate are yet to be implemented in the EU. 
Their scope  will help to address the outbound 
payment  issue  in  Luxembourg,  but  will  not 
foreseen 
fully  address 
exemptions  for  certain  sectors  and  entities  of 
certain sizes.  

it  because  of 

Tackling aggressive tax planning 

It  is  essential  to  tackle  aggressive  tax 
to  prevent  distortions  of 
planning 
competition  between  firms,  treat  EU 
taxpayers  fairly  and  safeguard  public 
finances.  Economic  evidence  suggests  that 
Luxembourg’s tax rules are used by companies 
that  engage 
in  aggressive  tax  planning. 
Luxembourg  has  the  EU’s  highest  incoming 
and  outgoing  foreign  direct  investments.  A 
large  majority  of  these  are  linked  to  special-
purpose entities (SPEs) (7). The large proportion 
of direct investment stocks held by SPEs may 
be  an  indication  of  aggressive  tax-planning 
practices. The level of capital flows (dividends, 
interest, but  also  royalties)  is  also  among  the 
highest  in  the  EU,  and  at  a  high  level 
compared  to  the  size  of  the  economy. 
Luxembourg  is  a  small  open  economy,  with  a 

(7)  A special purpose entity is a legal entity that has little 
or no employment, operations or physical presence in 
the jurisdiction where it is located. It is linked to another 
corporation, often by subsidiarity, typically located in a 
different jurisdiction. 

11 

Luxembourg  has  taken  some  steps  to 
fight  aggressive  tax  planning.  However, 
these  actions  have  been 
limited  and 
insufficient to  address  the  outbound  payment 
issue  in  the  tax  system,  which  could  be  used 
by  multinationals  for  aggressive  tax  planning. 
Luxembourg passed a law making interest and 
royalty  payments  to  non-EU  countries  on  the 
EU  list  of  non-cooperative  jurisdictions  non-
deductible.  This  act 
implemented  an  EU 
Council  commitment,  applicable  to  all  EU 
Member  States.  The 
law  adopted  by 
Luxembourg targets jurisdictions considered as 
non-cooperative,  and  does  not  cover  all  zero- 
and  low-tax  jurisdictions.  Therefore,  it  is  not 
sufficient  to  effectively  tackle  aggressive  tax 
planning. 

Addressing inequality in  
the educational system 

Pupils’ basic skills are lower than the EU 
to 
average 

strongly 

linked 

and 

 
 
                                                 
that 
levels 

showed 
skill 

(PISA) 
average 

It  can  also  support 

socioeconomic  background.  Increasing  the 
level of pupils’ basic skills is essential for both 
economic  growth  and  individual  and  social 
welfare. 
the  green 
transition and economic recovery. In 2018, the 
OECD  Programme  for  International  Student 
in 
Assessment 
Luxembourg, 
are 
significantly  lower  than  the  EU  average  in  all 
three  areas  tested. 
In  the  same  survey, 
Luxembourg recorded one of the largest score 
gaps  in  reading  between  advantaged  and 
disadvantaged  students  across  EU  countries. 
National  data  (LUCET,  2021)  show  that  the 
reading and mathematics skills of pupils’ with 
a  disadvantaged  or  non-Luxembourgish-  or 
non-German-language  background  are  much 
poorer than those of their peers. Learning gaps 
observed in the first years of schooling remain 
stable  or  even  increase  during  later  years. 
for 
Tackling 
Luxembourg to achieve the 2030 EU  headline 
targets  on  employment,  skills  and  poverty 
reduction. 

challenges 

these 

key 

is 

or 

of 

education 

secondary 

suggest 
are 

Pupils’  access  to  academic  pathways 
depends more on their socioeconomic and 
linguistic background than on their school 
Data 
performance. 
that 
disadvantaged 
oriented 
pupils 
disproportionately  more  often  to  the  lowest 
(régime 
track 
préparatoire)  and  less  often  to  the  highest 
track 
(enseignement  secondaire  classique; 
ESC) (LUCET, 2021). Furthermore, pupils’ study 
chances  show  a  strong  correlation  with  their 
linguistic  background:  pupils  with  a  non-
non-German-language 
Luxembourgish- 
background  access  ESC  much 
less  often. 
is 
Luxembourg’s 
challenging  for  all  but  especially  for  pupils 
who 
than 
Luxembourgish  at  home  (i.e.  over  60%).  The 
National Observatory of School Quality (ONQS) 
reported on the prevailing inequality based on 
pupils’ 
linguistic 
backgrounds.  The  way  languages  are  taught 
and  the  way  pupils  are  separated 
into 
different  school  tracks  add  to  this  inequality 
(ONQS,  2020).  The  ONQS  calls  to  develop  a 
national  curriculum  addressing  the  above 
challenges.  Language  learning  that  is  better 
adapted to pupils’ cognitive development could 

trilingual  school  system 

socioeconomic 

language 

speak 

other 

and 

a 

prevent early deficits in basic skills and enable 
all pupils to develop their full potential. 

Green transition and fossil energy  
dependence 

for 

the 

transport  system 

The National Mobility Plan 2035 has been 
adopted  to  foster  multimodality  and 
address  growing  traffic  congestion.  The 
National  Mobility  Plan  (PNM)  released  end  of 
April  2022  complements  the  Sustainable 
Mobility Strategy (Modu 2.0) adopted in 2018. 
Both  documents  detail 
infrastructure 
projects  and  other  measures  to  prepare 
Luxembourg’s 
the 
significant  growth  in  mobility  expected  up  to 
2035.  This  is  a  major  challenge  considering 
the  high  share  of  transport  in  Luxembourg’s 
GHG emissions. The PNM adds updated details 
about  the  direct  investments  expected  in 
infrastructure  and  public  transport  services  in 
the coming decade and provides guidelines for 
all  levels  of  government  on  how  to  minimize 
the need for mobility through spatial planning 
increasing  availability  of 
measures  and 
housing.  The  PNM  also  refers  to possible  new 
incentives  that  could  be  explored  to  foster 
multimodality,  although  in  a  rather  general 
manner. 

and 

face 

demand 

increasing 
Luxembourg  will 
electricity 
import 
dependency.  The  national  grid  will  be 
transformed  to  allow  growing  shares  of 
variable renewable energy sources, both from 
domestic  generation  and 
from 
compatible  with 
neighbouring 
demand  growth.  Significant  investments  will 
be  needed  to  reach  the  interconnection  and 
transmission  capacity  securing  electricity 
demand.  Luxembourg  has  high  electricity 
interconnection with other Member States but 
is very reliant on energy imports. 

countries 

supply 

Luxembourg is highly dependent on fossil 
energy  imports,  and  has  not  reached  its 
full  potential  for  renewable  energy 
production  and  consumption  efficiency. 
Luxembourg  imports  more  than  90%  of  its 
energy consumption, which consists mainly of 

12 

 
transition: 

further 
for 
green 
improving public transportation in national and 
regional  networks  and  further  incentivising 
desired behavioural changes. 

instance, 

oil (68.5%) and natural gas (17.8%). The high 
share  of  oil  reflects  the  central  role  of 
transportation in Luxembourg’s economy, with 
significant  freight  and  a  large  proportion  of 
the  workforce  commuting  from  neighbouring 
countries.  The  share  of  renewable  energy 
consumption  is  among  the  lowest  in  the  EU. 
Luxembourg  envisages  scaling  down  gas 
consumption  and  replacing  it  with  solar  (and 
possibly  geothermal)  to  heat  buildings  and,  in 
the medium term, with renewable hydrogen in 
the  heavy  industry.  However,  Luxembourg 
might  have  to  revise  its  national  strategy  in 
line with the EU’s response to Russia’s invasion 
of Ukraine. 

in 

the 

Commission’s 

Russia’s  invasion  of  Ukraine  calls  for 
Luxembourg  and  the  rest  of  the  EU  to 
step  up 
joint  action  on  the  energy 
transition  and  diversification  of  supply. 
Luxembourg  needs  to  strengthen  coordination 
with  other  Member  States  to  accelerate  the 
impact  of  ongoing  reforms  and  investments 
aiming  to  reduce  energy  consumption  and 
reduce reliance on imported fossil fuels as set 
out 
REPowerEU 
Communication.  It  is  important  to  note  that, 
according to 2020 data, 27% of Luxembourg’s 
gas imports come from Russia (8). Luxembourg 
may further exploit innovative energy sources, 
such as geothermal; the feasibility of which is 
being investigated under a given investment of 
the  recovery  and  resilience  plan.  Luxembourg 
has the goal to be climate neutral by 2050 at 
the 
latest,  and  has  adopted  an  energy 
efficiency  obligation  scheme  and  a  long-term 
strategy  on 
the  energy  performance  of 
buildings.  The  deployment  of  smart  meters  is 
almost  completed  and  provides  for  a  wide 
range  of  demand-driven  energy  services:  in 
particular,  allowing  consumers  to  become 
active  market  participants  through  the  self-
generation and self-consumption of electricity.  

Achieving  a  swift  and  fair  energy 
transition  would  also 
the 
recalibration  of  incentives.  Beyond  carbon 
taxation, 
and 
investment  would  help  enable  a  successful 

complementary 

require 

reforms 

(8)  Eurostat (2020), share of Russian imports over total 
imports of natural gas. Total imports include intra-EU 
trade. 

13 

 
                                                 
KEY FINDINGS 
KEY FINDINGS 

Luxembourg’s  recovery  and  resilience  plan 
includes  measures  to  address  a  series  of  its 
structural challenges through: 

  a  reform  helping  to increase  the  supply  of 

affordable housing; 

  vocational  training  programmes  aimed  to 
address  the  skills  mismatch  in  the  job 
market, promoting inclusive growth; 

  the electrification of the public sector fleet 
and  a  financing  scheme  to  expand  the 
network  of  charging  points  for  electric 
vehicles  supporting  the  decarbonisation  of 
transport; and 

  tackling  growing  traffic  congestion,  which 
would mean taking on a major challenge in 
Luxembourg  with  economic,  social  and 
environmental consequences; 

transition, 

  reducing  reliance  on  fossil  fuels  and 
accelerating 
in 
the  green 
particular, by investing in renewable energy 
and  promoting  energy  efficiency,  most 
notably  in  buildings  and  transport.  This 
could  be  done  by  encouraging  regional 
cooperation,  developing  the  transmission 
capacity  of  clean  energy  and  by  providing 
sufficient support to municipalities.  

  the 

of 

digitalisation 

public 
administration,  including  online  solutions 
for  citizens  and  businesses,  as  well  as  the 
digitalisation of the health sector.  

the 

In addition to the reforms and investment 
in  the  RRP,  Luxembourg  would  benefit 
from: 

  improving  the  long-term  sustainability  of 
the  pension  system  to  maintain  sound 
finances,  which  would  ensure 
public 
intergenerational  fairness.  Increasing  the 
participation  rate  of  older  workers  would 
also support economic growth ; 

to 

  taking  actions 
tackle 
effectively 
aggressive 
tax-planning,  which  would 
prevent distortions of competition between 
taxpayers  fairly  and 
treat  EU 
firms, 
safeguard public finances;  

  reducing  the  impact  of  inequalities  in  the 
education  system  and  promoting  equal 
opportunities  for  all  students,  which  would 
improve  the  situation  of  students  from 
lower  socio-economic  status  and  different 
linguistic backgrounds; 

14 

 
 
 
 
ANNEXES 

 
 
 
LIST OF ANNEXES 

Cross-cutting progress indicators 

Annex 1: Sustainable Development Goals 

Annex 2: Recovery and Resilience Plan - implementation 

Annex 3: Other EU instruments for recovery and growth 

Annex 4: Progress in the implementation of country-specific recommendations 

Environmental sustainability 

Annex 5: Green Deal 

Annex 6: Employment and social impact of the green transition 

Productivity 

Annex 7: Ressource efficiency and productivity 

Productivity 

Annex 7: Ressource efficiency and productivity 

Annex 8: Digital transition 

Annex 9: Innovation 

Annex 10: Industry and the single market 

Annex 11: Public administration 

Fairness 

Annex 12: Employment, skills and social policy challenges in light of the European Pillar of Social Rights 

Annex 13: Education and skills 

Annex 14: Health and health systems 

Annex 15: Economic and social performance at regional level 

Macroeconomic Stability 

Annex 16: Key financial sector developments 

Annex 17: Taxation 

Annex 18: Key economic and financial indicators 

Annex 19: Debt sustainability analysis 

References 

17 

19 

19 

21 

22 

24 

27 

27 

31 

33 

33 

34 

34 

35 

37 

38 

40 

42 

42 

44 

46 

48 

49 

49 

51 

53 

54 

56 

 
 
 
LIST OF TABLES 

Table A2.1: 
Table A4.1: 
Table A5.1: 
Table A7.1: 
Table A8.1: 
Table A9.1: 
Table A10.1: 
Table A11.1: 
Table A12.1: 
Table A13.1: 
Table A14.1: 
Table A15.1: 
Table A16.1: 
Table A17.1: 
Table A18.1: 
Table A19.1: 
Table A19.2: 

Key elements of the Luxembourg RRP 
Summary table on 2019, 2020 and 2021 CSRs 
Indicators underpinning progress on the European Green Deal from a macroeconomic perspective 
Key resource efficiency indicators - Luxembourg 
Key Digital Economy and Society Indicators 
Key Innovation Scoreboard Indicators 
Key Single Market and Industry Indicators 
Public administration indicators – Luxembourg 
Social Scoreboard for Luxembourg 
EU-level targets and other contextual indicators under the European Education Area strategic framework 
Key health indicators 
Main socio-economic indicators by degree of urbanisation, Luxembourg 2020 
Financial soundness indicators 
Indicators on taxation 
Key economic and financial indicators 
Debt sustainability analysis for Luxembourg 
Heat map of fiscal sustainability risks for Luxembourg 

LIST OF GRAPHS 

Graph A1.1: 

Progress towards SDGs in Luxembourg in the last five years 

Graph A2.1: 

Share of RRF funds contributing to each policy pillar 

Graph A3.1: 

ESIF 2014-2020 European Structural and Investment Funds - Total budget by fund 

Graph A3.2: 

Cohesion policy contribution to the SDGs (EUR billion) 

Graph A4.1: 

Luxembourg’s progress on the 2019-2020 CSRs (2022 European Semester cycle) 

Graph A5.1: 

Fiscal aspects of the green transition Taxation and government expenditure on environmental protection 

Graph A5.2: 

Thematic – Energy Share in energy mix (solids, oil, gas, nuclear, renewables) 

Graph A5.3: 

Thematic – Biodiversity  Terrestrial protected areas and organic farming 

Graph A5.4: 

Thematic – Mobility  Share of zero emission vehicles (% of new registrations) 

Graph A6.1: 

Fair green transition challenges 

Graph A6.2: 

Energy poverty by income decile 

Graph A11.1: 

Performance on open data maturity 

Graph A11.2: 

Performance on evidence-based policy making indicators 

Graph A13.1: 

Low achievement in reading by socio-economic status, PISA 2018 

Graph A14.1: 

Life expectancy at birth, years 

Graph A14.2: 

Projected increase in public expenditure on health-care over 2019-2070 (reference scenario) 

Graph A15.1: 

Territories most affected by the climate transition in Luxembourg 

Graph A17.1: 

Indicators on tax wedge (1) 

21 
25 
30 
33 
35 
37 
39 
41 
42 
44 
47 
48 
49 
52 
53 
54 
55 

19 

21 

22 

23 

24 

27 

27 

28 

28 

31 

32 

40 

40 

45 

46 

46 

48 

52 

18 

 
 
 
 
CROSS-CUTTING PROGRESS INDICATORS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 
ANNEX 1: SUSTAINABLE DEVELOPMENT GOALS 

the 

This  Annex  assesses  Luxembourg’s  progress 
on  the  Sustainable  Development  Goals 
(SDGs)  along 
four  dimensions  of 
competitive  sustainability.  The  17  SDGs  and 
their related indicators provide a policy framework 
under  the  UN’s  2030  Agenda  for  Sustainable 
Development.  The  aim  is  to  end  all  forms  of 
poverty,  fight 
inequalities  and  tackle  climate 
change,  while  ensuring  that  no  one is  left  behind. 
The  EU  and  its  Member  States  are  committed  to 
this  historic  global  framework  agreement  and  to 
playing  an  active  role  in  maximising  progress  on 
the SDGs. The graph below is based on the EU SDG 
indicator  set  developed  to  monitor  progress  on 
SDGs in an EU context. 

SDG 

indicators 

Luxembourg  already  performs  very  well  on 
several 
to 
environmental sustainability (SDGs 9 and 15) 
and is improving on others (SDGs 2, 7, 12 and 
13).  Notably,  the  share  of  renewable  energy  in 
final  energy  consumption  (SDG  7)  more  than 
doubled, up from 5.0% in 2015 to 11.7% in 2020. 

related 

indicator  (22.1% 

However, Luxembourg still performs under the EU 
average  for  this 
in  2020). 
Progress  was  also  achieved  in  reducing  average 
CO2  emissions  per  km  from  new  passenger  cars 
(SDGs  12  and  13).  Emissions  dropped  from 
127.5 g  per  km  in  2015  to  119.8 g  in  2020,  but 
are  still  above  the  EU  average  (108.2 g  in  2020). 
Luxembourg’s  RRP  has  the  highest  percentage  of 
green measures (61%) of the 22 RRPs approved in 
2021,  which  will  help  to  decarbonise  transport  in 
particular. 

Luxembourg performs very well on most SDG 
indicators related to fairness (SDGs 1, 2, 3, 4, 
5,  8  and  10).  Luxembourg  outperforms  the  EU 
average for most indicators related to good health 
and  well-being,  gender  equality,  inclusive  growth 
and  inequality  (SDGs  3,  5,  8  and  10).  However, 
there has been a deterioration in terms of poverty 
(SDG 1),  with  an  increase  of  the  percentage  of 
people  at  risk  of  poverty  or  social  exclusion  up 
from  18.4%  in  2015  to  19.9%  in  2020  (EU 
average in 2020 at 21.9%). The share of people at 

Graph A1.1: Progress towards SDGs in Luxembourg in the last five years 

For detailed datasets on the various SDGs see the annual EUROSTAT report ‘Sustainable development in the European Union’, 
https://ec.europa.eu/eurostat/web/products-statistical-books/-/KS-03-21-096; Extensive country specific data on the short-term 
progress of Luxembourg can be found here:  https://ec.europa.eu/info/business-economy-euro/recovery-coronavirus/recovery-and-
resilience-facility/luxembourgs-recovery-and-resilience-plan_en  

Source: Eurostat 

19 

 
 
 
 
 
 
promote  a  transparent  and  fair  economy.  This 
includes action to make the anti-money-laundering 
supervision  of  professionals  providing  trust  and 
company 
services  more  effective.  Another 
measure with the objective to increase the quality 
and transparency of the business register will help 
the  authorities  to  better  identify  the  ultimate 
beneficiaries  of  legal  entities.  This  would  deter 
criminals from using these entities to launder illicit 
money. 

risk  of  income  poverty  after  social  transfers  has 
also  gone  up  from  15.3%  in  2015  to  17.4%  in 
2020, above the EU average (17.1%). The number 
of  people  with  good  or  very  good  self-perceived 
health has further increased from 70.5% to 73.6% 
in  2020,  well  above  the  EU  average  (68.6%).  The 
long-term unemployment rate has decreased from 
2.2% of the active population in 2016 to 1.8% in 
2021  (EU  average  at  2.8%  in  2021).  The  RRP 
includes  measures  to  strengthen  the  resilience  of 
the  health  system,  including  by  digitalising  the 
sector,  and 
improving  skilling,  upskilling  and 
reskilling  for  people  to  join  the  labour  market. 
Trainings  under  Future  Skills  are  expected  to 
attract job seekers, with special attention for those 
aged 45 and above. 

of 

Luxembourg generally performs very well on 
SDG  indicators  related  to  productivity  (SDGs 
4,  8  and  9).  Notably,  in  the  area  of  industry, 
innovation and infrastructure (SDG 9), the share of 
households  with  very  high  capacity  network 
(VHCN)  coverage  (95.9%)  was  the  second  highest 
in  the  EU  in  2021  (EU  average:  70.2%).  This 
represents  significant  progress  on  this  indicator 
since  2016  (51.5%  in  2015,  EU:  25.2%).  The 
percentage 
co-publications 
international 
(79.5%)  in  the  total  number  of  publications  was 
the highest in the EU in 2020 (EU average: 45.2%). 
Despite  the  overall  ‘quality  of  education’  (SDG  4) 
being  above  EU  average,  underlying  indicators 
convey a diverging picture. On the one hand, post-
secondary  education  attainment  went  up  from 
51.5% in 2016 to 62.6% in 2021, well above the 
EU  average  (41.2%  in  2021).  On  the  other  hand, 
the  percentage  of  15-year-old  students  with  low  
reading scores has increased from 25.6% in 2015 
to 29.3% in 2018, which is high compared  to the 
EU  average  (22.5%  in  2018).  The  RRP  envisages 
several  reforms  and  investments  to  promote  a 
data-based  economy  and  the  digitalisation  of 
public administration. 

Luxembourg  performs  very  well  on  SDG 
indicators related to macroeconomic stability 
(8  and  16).  In  particular,  peace,  justice,  and  the 
quality  of  institutions  (SDG  16)  have  further 
improved. Real GDP per capita (SDG 8) remains the 
highest  in  the  EU  at  EUR 86 550  in  2021  (EU 
average  EUR 27 810).  However, 
the  general 
government  gross  debt  as  a  percentage  of  GDP 
(SDG  17)  has  deteriorated.  It  has  gone  up  from 
19.6%  in  2016  to  24.4%  in  2021,  remaining  in 
any  case  well  below  the  EU  average  (88.1%  in 
2021).  Luxembourg’s  RRP  includes  measures  to 

20 

 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 
ANNEX 2: RECOVERY AND RESILIENCE PLAN - IMPLEMENTATION 

Luxembourg 

in 
by 
Progress  made 
implementing  its  plan  is  published  in  the 
Recovery  and  Resilience  Scoreboard.  The 
Scoreboard  also  gives  a  clear  overview  of  the 
progress  made  in  implementing  the  RRF  as  a 
whole. 

The  Recovery  and  Resilience  Facility  (RRF)  is 
the  centrepiece  of  the  EU’s  efforts  to 
support  its  recovery  from  the  COVID-19 
pandemic  and  strengthen  resilience  against 
its 
future  shocks.  Luxembourg  submitted 
recovery  and  resilience  plan  (RRP)  on  30 April 
2021.  The  Commission’s  positive  assessment  on 
18 June  2021  and  the  Council’s  approval  on 
13 July  2021  paved  the  way  for  disbursing 
EUR 93.4  million  in  grants  under  the  RRF  over 
2021-2026.  The  financing  agreement  was  signed 
on  27 July  2021.  The  key  elements  of  the 
Luxembourg RRP are set out in Table A2.1. 

Table A2.1: Key elements of the Luxembourg RRP 

(1) See Pfeiffer P., Varga J. and in ’t Veld J. (2021), 
“Quantifying Spillovers of NGEU investment”, European 
Economy Discussion Papers, No. 144 and Afman et al. (2021), 
“An overview of the economics of the Recovery and Resilience 
Facility”, Quarterly Report on the Euro Area (QREA), Vol. 20, 
No. 3 pp. 7-16.  
Source: European Commission 2022 

Graph A2.1: Share of RRF funds contributing to each policy pillar 

(1) Each measure contributes to two policy areas of the six pillars. Therefore, the total contribution to all pillars displayed on this 
chart amounts to 200% of the estimated cost of Luxembourg’s RRP. The bottom part represents the amount of the primary pillar, 
the top part the amount of the secondary pillar. 
Source: RRF Recovery and Resilience Scoreboard, https://ec.europa.eu/economy_finance/recovery-and-resilience-
scoreboard/country_overview.html 

21 

Total allocationEUR 93.4 million in grants (0.15% of 2019 GDP)Investments and Reforms 12 investments and 10 reforms Total number of Milestones and Targets63Estimated macroeconomic impact (1) Raise GDP by 0.5%-0.6% by 2026 (0.6% in spillover effects)Pre-financing disbursed EUR 12 million (August 2021)First instalment Luxembourg did not yet submit a first payment request0%10%20%30%40%50%60%70%Green transitionDigital transformationSmart, sustainableand inclusive growthSocial and territorialcohesionHealth, andeconomic, social andinstitutional resiliencePolicies for the nextgeneration 
 
 
     
 
 
 
 
      
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 
ANNEX 3: OTHER EU INSTRUMENTS FOR RECOVERY AND GROWTH 

The EU’s budget of more than EUR 1.2 trillion 
for  2021-2027  is  the  investment  lever  to 
help  implement  EU  priorities.  Underpinned  by 
an  additional  amount  of  about  EUR 800  billion 
largest 
through  NextGenerationEU  and 
instrument, the Recovery and Resilience Facility, it 
represents  significant  firepower  to  support  the 
recovery and sustainable growth. 

its 

Graph A3.1: ESIF 2014-2020 European Structural 
and Investment Funds - Total budget by fund 

regions. 

support 

vulnerable 

In  2021-2027,  EU  Cohesion  policy  funds (9) 
development 
will 
long-term 
objectives 
investing 
in  Luxembourg  by 
EUR 70  million (10).  This  includes  EUR 9.3  million 
from  the  Just  Transition  Fund  to  alleviate  the 
socio-economic  impact  of  the  green  transition  in 
the  most 
Partnership 
agreements  and  programmes  of  the  2021-2027 
Cohesion policy funds take into account the 2019 
and  2020  country–specific  recommendations  and 
European  Semester  investment  guidance.  This 
ensures  synergies  and  complementarities  with 
other  EU  funding.  In  addition,  Luxembourg  will 
benefit  from  EUR 224  million  funding  for  the 
2023-2027  period  from  the  Common  Agricultural 
Policy,  which  supports  social,  environmental,  and 
economic 
in 
agriculture  and  rural  areas,  contributing  to  the 
European Green Deal, and ensuring long-term food 
security. 

sustainability  and 

innovation 

Note: EUR billion in current prices and % of total  
Source: Open Data Portal, finance implementation dataset, 
cut-off date 31/12/2021. European Commission, Cohesion 
Open Data. The data for the EAFRD and REACT-EU refer to the 
period 2014-2022 

in 

2014-2020. 

investment (12) 

In  2014-2020,  the  European  Structural  and 
Investment  Funds  (ESIF)  for  Luxembourg  are 
set to invest EUR 0.31 billion (11) from the EU 
budget.  The  total  investment  including  national 
financing amounts to EUR 0.64 billion (Graph 3.1), 
representing  around  0.16%  of  GDP  and  3.67%  of 
public 
By 
31 December  2021,  90%  of  the  total  had  been 
allocated  to  specific  projects  and  66%  had  been 
reported  as  spent.  This  left  EUR 220 million  to  be 
spent by the end of 2023 (13). Among the 11 ESIF 
thematic  objectives,  the  most  relevant  ones  for 
in  Luxembourg  are: 
cohesion  policy  funding 
i) research and innovation, ii) low-carbon economy, 
iii) sustainable  and  quality  employment,  iv) social 
inclusion, and v) education, training and vocational 
training  for  skills  and  lifelong  learning  (EUR 40 
million in total). By the end of 2020, the European 
Regional  Development  Fund  had  supported  55 
researchers  now  working  in  improved  facilities, 
106  firms  cooperating  with  research  institutions 
and  the  reduction  of  annual  primary  energy 
consumption 
by 
321 300 kWh/year.  In  addition,  21 000  people 

buildings 

public 

of 

(11)  ESIF includes the cohesion policy funds, the European 

Agricultural Fund for Rural Development and the European 
Maritime and Fisheries Fund. According to the ‘N+3 rule’, the 
funds committed for 2014-2020 must be spent by 2023 at 
the latest (by 2025 for EAFRD). Data source: Cohesion Open 
Data, cut-off date 31.12.2021 for ERDF, ESF+, CF, Interreg; 
cut-off date 31.12.2020 for EAFRD and EMFF. 

(9)  European Regional Development Fund (ERDF), European 

(12)  Public investment is gross fixed capital formation plus 

Social Fund Plus, Cohesion Fund, Just Transition Fund and, 
Interreg. 

(10)  Current prices, source: Cohesion Open Data . 

capital transfers, general government. 

(13)  Including REACT-EU. ESIF data on 

https://cohesiondata.ec.europa.eu/countries/LU 

22 

0.4165%0.1218%0.1117%EAFRDERDFESF 
 
                                                 
     
                                                 
 
Graph A3.2: Cohesion policy contribution to the SDGs (EUR billion) 

Source: European Commission, DG REGIO 

received  European  Social  Fund  support  (of  whom 
29%  had  a  migrant  background).  Out  of  12 603 
unemployed  or  inactive  participants  in  the  ESF 
programme  offers,  at  least  2 370  found  a  job  or 
became  self-employed,  within  6 months  after 
completing a programme offer. Some 4 506 young 
participants  received  a  quality  job,  continued 
education or apprenticeship offer under the Youth 
Guarantee, after completing an ESF project 

in 

achieving 

Cohesion  policy  funds  already  substantial 
help 
Sustainable 
In  Luxembourg, 
Development  Goals  (SDGs). 
cohesion  policy  funds  support  6  of  the  17  SDGs 
with  up  to  96%  of  funds  helping  to  attain  the 
goals. 

the 

REACT-EU 

instrument 

The 
(Recovery 
Assistance  for  Cohesion  and  the  Territories 
of  Europe)  under  NextGenerationEU  added 
EUR 139.6 million to the 2014-2020 cohesion 
policy  allocations  for  Luxembourg.  REACT-EU 
provided  support  to  ensure  a  balanced  recovery, 
boost  convergence  and  provide  vital  support  to 
regions  following  the  coronavirus  outbreak.  In 
Luxembourg  REACT-EU  helped: 
i)  purchase 
vaccines,  ii)  support  short-time  work  schemes 
(primarily  in  companies  scoring  best  against  the 
criteria of a green, digital and resilient recovery of 
the  economy),  iii)  improve  primary  healthcare,  iv) 
strengthen 
skills 
development, v) promote energy efficiency and vi) 
reduce  material  deprivation  with  direct  food 
delivery. 

education, 

training 

and 

the 

provide 

Technical 

Commission 
via 

tailor-made 
The 
expertise 
Support 
Instrument  to  help  Luxembourg  design  and 
implement growth enhancing reforms. Since 2018, 
Luxembourg  has  received  assistance  under  five 
technical  support  projects.  Projects  delivered  in 
2021  aimed  for  example  to  strengthen  the 
authorities’  accounting  capacity.  In  2022  a  new 
project will run to support reforms in this area.  

Luxembourg  also  benefits  from  other  EU 
programmes. For instance, the Connecting Europe 
Facility,  which  allocated  EUR 51.5 million  of  EU 
funding  to  specific  projects  on  strategic  transport 
networks,  and  Horizon  2020,  which  allocated 
EUR 199.1 million  of  EU  funding  to  research  and 
innovation projects. 

23 

0.000.010.010.010.020.030.000.010.010.020.020.030.03SDG 3 Good health and well beingSDG 4 Quality educationSDG 1 No povertySDG 7 Affordable and clean energySDG 9 Industry, innovation, infrastructureSDG 8 Decent work and economic growth 
     
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
ANNEX 4: PROGRESS IN THE IMPLEMENTATION OF COUNTRY-SPECIFIC 
RECOMMENDATIONS 
RECOMMENDATIONS 

the  policy  action 

to  date (15),  as  well  as 

The  Commission  assessed  the  2019-2021 
country-specific  recommendations  (CSRs) (14) 
addressed  to  Luxembourg  in  the  context  of 
the  European  Semester.  The  assessment  takes 
taken  by 
into  account 
Luxembourg 
the 
commitments  in the  Recovery  and  Resilience  Plan 
(RRP) (16).  At 
the  RRP 
implementation, overall 82% of the CSRs focusing 
on  structural  issues  in  2019  and  2020  have 
recorded  at  least  “some  progress”  while  18% 
recorded  “limited”  or  “no  progress”  (Graph  A4.1). 
Considerable  additional  progress  in  addressing 
structural  CSRs  is  expected  in  the  years  to  come 
with further implementation of the RRP. 

this  early  stage  of 

Graph A4.1: Luxembourg’s progress on the 2019-
2020 CSRs (2022 European Semester cycle) 

Source: European Commission 

(14)  2021 CSRs: https://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=CELEX%3A32021H0729%2816%29&qi
d=1627675454457  
2020 CSRs: EUR-Lex - 32020H0826(16) - EN - EUR-Lex 
(europa.eu) 
2019 CSRs: EUR-Lex - 32019H0905(16) - EN - EUR-Lex 
(europa.eu) 

(15)  Incl. policy action reported in the National Reform 

Programme, as well as in the RRF reporting (bi-annual 
reporting on the progress with implementation of milestones 
and targets and resulting from the payment request 
assessment). 

(16)  Member States were asked to effectively address all or a 

significant subset of the relevant country-specific 
recommendations issued by the Council in 2019 and 2020 in 
their RRPs. The CSR assessment presented here takes into 
account the degree of implementation of the measures 
included in the RRP and of those done outside of the RRP at 
the time of assessment. Measures foreseen in the annex of 
the adopted Council Implementing Decision on the approval 
of the assessment of the RRP which are not yet adopted nor 
implemented but considered as credibly announced, in line 
with the CSR assessment methodology, warrant “limited 
progress”. Once implemented, these measures can lead to 
“some/substantial progress” or “full implementation”, 
depending on their relevance. 

24 

No Progress4%Limited Progress14%Some Progress64%Substantial Progress18% 
 
                                                 
      
 
Table A4.1: Summary table on 2019, 2020 and 2021 CSRs 

(Continued on the next page) 

25 

LuxembourgAssessment in May 2022*RRP coverage of CSRs until 20262019 CSR1Limited ProgressIncrease the employment rate of older workers by enhancing their employment opportunities and employability.Some ProgressRelevant RRP measures planned as of 2022.Improvethelong-termsustainabilityofthepensionsystem,includingby further limiting early retirement.No Progress2019 CSR 2Limited ProgressReduce barriers to competition in regulated professional business services.Limited Progress2019 CSR 3Some ProgressFocus economic policy related to investment on fostering digitalisation Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.and innovation,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.stimulating skills development,Substantial ProgressRelevant RRP measures planned as of 2021 and 2022.improving sustainable transport,Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025.and increasing housing supply, including by increasing incentives and lifting barriers to build.Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024  and 2025.2019 CSR4Limited ProgressAddress features of the tax system that may facilitate aggressive tax planning, in particular by means of outbound payments.Limited Progress2020 CSR1Some ProgressTakeallnecessarymeasures,inlinewiththegeneralescapeclauseoftheStabilityandGrowthPact,toeffectivelyaddresstheCOVID-19pandemic,sustaintheeconomyandsupporttheensuingrecovery.Wheneconomicconditionsallow,pursuefiscalpoliciesaimedatachievingprudentmedium-termfiscalpositionsandensuring debt sustainability, while enhancing investment. Not relevant anymoreNot applicableImprovetheresilienceofthehealthsystembyensuringappropriateavailability of health workers.Some ProgressRelevant RRP measures planned as of 2021, 2022 and 2025. Accelerate reforms to improve the governance of the health system and e-health. Some ProgressRelevant RRP measures planned as of 2021, 2022 and 2025.2020 CSR2Substantial ProgressMitigate the employment impact of the COVID-19 crisis, with special consideration for people in a difficult labour market position.Substantial ProgressRelevant RRP measures planned as of 2021 and 2022.2020 CSR 3Some ProgressEnsure effective implementation of measures supporting the liquidity of businesses, in particular SMEs and the selfemployed. Substantial ProgressNot applicableFront-loadmaturepublicinvestmentprojects[tofostertheeconomicrecovery] Substantial ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.and promote private investment to foster the economic recovery. Some ProgressFocusinvestmentonthegreenanddigitaltransition,inparticularonsustainable transport Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2025.and buildings, Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023, 2024  and 2025.cleanandefficientproductionanduseofenergy,contributingtoaprogressive decarbonisation of the economy. Some ProgressRelevant RRP measures planned as of 2022, 2023, 2024  and 2025.Foster innovation [in particular in the business sector] Some ProgressRelevant RRP measures planned as of 2022 and 2023.and digitalisation, in particular in the business sector. Some ProgressRelevant RRP measures planned as of 2021, 2022, 2023 and 2024.2020 CSR 4Limited ProgressEnsureeffectivesupervisionandenforcementoftheanti-moneylaunderingframeworkasregardsprofessionalsprovidingtrustandcompany services, and investment services. Some ProgressRelevant RRP measures planned as of 2021 and 2023.Stepupactiontoaddressfeaturesofthetaxsystemthatfacilitateaggressivetaxplanning,inparticularbymeansofoutboundpayments. Limited Progress 
 
 
 
  
 
Table (continued) 

(*) See footnote 16 
Source: European Commission 

26 

2021 CSR1Some ProgressIn2022,pursueasupportivefiscalstance,includingtheimpulseprovidedbytheRecoveryandResilienceFacility,andpreservenationally financed investment.Full ImplementationNot applicableWheneconomicconditionsallow,pursueafiscalpolicyaimedatachievingprudentmedium-termfiscalpositionsandensuringfiscalsustainability in the medium term.Full ImplementationNot applicableAt the same time, enhance investment to boost growth potential.Payparticularattentiontothecompositionofpublicfinances,onboththerevenueandexpendituresidesofthebudget,andtothequalityofbudgetarymeasuresinordertoensureasustainableandinclusiverecovery.Prioritisesustainableandgrowth-enhancinginvestment,inparticularinvestmentsupportingthegreenanddigitaltransition. Some ProgressNot applicableGiveprioritytofiscalstructuralreformsthatwillhelpprovidefinancingforpublicpolicyprioritiesandcontributetothelong-termsustainabilityofpublicfinances,including,whererelevant,bystrengtheningthecoverage,adequacyandsustainabilityofhealthand social protection systems for all.Limited ProgressNot applicable 
 
  
 
ENVIRONMENTAL SUSTAINABILITY 
ENVIRONMENTAL SUSTAINABILITY 
ANNEX 5: GREEN DEAL 
ANNEX 5: GREEN DEAL 

EU 

into 

intends 
to 
The  European  Green  Deal 
transform 
a  modern, 
the 
resource-efficient  and  competitive  economy 
where  there  are  no  net  emissions  of 
greenhouse  gases 
in  2050  and  where 
economic growth is decoupled from resource 
use.  This  annex  offers  a  snapshot  of  the  most 
significant 
relevant 
developments  in  Luxembourg  in  the  respective 
building  blocks  of  the  European  Green  Deal.  It  is 
complemented by Annex 6 on the employment and 
social  impact  of  the  green  transition  and  Annex 7 
for circular economy aspects of the Green Deal.  

economically 

and 

take 

targets  under 

it  does  not 

total  GHG  emissions 

for  greenhouse  gas 

further  action, 
If 
Luxembourg  will  miss  its  EU  and  domestic 
targets 
reduction. 
According to its Climate Law, Luxembourg aims to 
reach  climate  neutrality  (zero  net  emissions)  by 
2050.  Luxembourg’s  national  energy  and  climate 
plan  also  aims  for  a  55%  reduction  of  the 
country’s  greenhouse  gas  (GHG)  emissions  by 
2030 compared to the 2005 level  for sectors not 
covered  by  the  emissions  trading  system  (ETS). 
This  is  more  ambitious  than  the  current  2030 
the  Effort  Sharing 
reduction 
Regulation  (ESR)  (40%)  and  the  Commission 
proposal  under  the  ‘Fit  for  55’  package  (50%). 
in  Luxembourg 
While 
they 
increased  between  2015  and  2019, 
decreased  when  the  COVID-19  pandemic  started 
in  2020,  with  a  drop  of  15%  compared  to  the 
previous  year.  This  drop  was  mostly  due  to 
decreased  activity  in  the  transport  sector.  As  a 
result,  Luxembourg  exceeded  its  2020  emission-
reduction  target  in  effort-sharing  sectors  (20% 
reduction 
of 
2 percentage  points.  However,  emissions  are 
expected  to 
if  no  additional 
measures are taken. In such a scenario, the 2030 
ESR and Commission proposed ‘Fit for 55’ targets 
will  be  missed  by  26  and  36 percentage  points, 
respectively. The recovery and resilience plan (RRP) 
of  Luxembourg  allocates  61%  of  resources  to 
climate  objectives.  The  RRP  also  outlines  reforms 
and  investment  to  accelerate  the  transition  to  a 
more sustainable, low-carbon and climate-resilient 
economy (17).  However,  the  financial  contribution 
under  the  Recovery  and  Resilience  Facility  is 
limited. Therefore, only certain climate and energy 

increase  again 

to  2005 

compared 

levels) 

(17)  Share of financial allocation contributing to climate 

objectives calculated as in Annex VI of the RRF Regulation. 

27 

renewable-energy 

challenges  are  addressed:  sustainable  transport 
and 
Energy 
renovation  of  buildings,  on  the  other  hand,  does 
not  feature  prominently  in  any  RRP  investment 
measure. 

generation. 

Graph A5.1: Fiscal aspects of the green transition 
Taxation and government expenditure on 
environmental protection 

Source: Eurostat 

Graph A5.2: Thematic – Energy 
Share in energy mix (solids, oil, gas, nuclear, 
renewables) 

The energy mix is based on gross inland consumption, and 
excludes heat and electricity. The share of renewables 
includes biofuels and non-renewable waste 
Source: Eurostat 

Luxembourg’s  fiscal  indicators  show  that 
there  can  be  more  space  for  environmental 
taxes. Luxembourg’s environmental tax revenues, 
both as a share of total tax revenues and a share 
of GDP, are below the EU average. Environmental 
taxes are mostly made up of energy taxes and, to 
a  smaller  extent,  transport  taxes.  A  very  small 
percentage  are  taxes  on  pollution  (for  more 
indicators on taxation, see Annex 17). At the same 
time,  the  government  spends  a  smaller  share  of 
spending  on  environmental  protection  than  in  the 
EU overall. Budgetary exposure to climate hazards 

0%1%2%3%4%5%6%Environmental taxes (% ofGDP)Environmental taxes (% oftotal taxation)Government expenditure onenvironmental protection (% oftotal expenditure)LU (2020)EU27 (2020)0%20%40%60%80%100%200520102015201820192020RenewablesNuclearGasOilSolid fossil fuels, peat and oil shale 
 
 
                                                 
          
 
      
 
 
(i.e.  the  climate  risk  to  public  finances  due  to 
uninsured assets) is considered low to moderate. 

the 

achieved 

Luxembourg 

Although  it  saw  a  substantial  increase  from 
2019  to  2020,  Luxembourg  has  a  relatively 
low  share  of  renewable-energy  consumption 
(11%). 
2020 
renewable-energy  target  thanks  to  statistical 
transfers from Lithuania and Estonia. Thus, it still 
requires  significant 
its 
renewable-energy  contribution  to  the  EU  2030 
target, which is a 25% share of renewable energy 
in  gross  final  energy  consumption.  The  main 
energy  sources  used  in  Luxembourg  are  oil  and 
petroleum products (68%), reflecting the relatively 
large transit traffic through the country. 

investment  to  deliver 

Graph A5.3: Thematic – Biodiversity  
Terrestrial protected areas and organic farming 

For terrestrial protected areas data for 2018, and data for the 
EU average (2016, 2017) is lacking 
Source: European environment agency (terrestrial protected 
areas) and Eurostat (organic farming) 

Graph A5.4: Thematic – Mobility  
Share of zero emission vehicles (% of new 
registrations) 

Zero-emission vehicles (passenger cars) include battery and 
fuel cell electric vehicles (BEV, FCEV) 
Source: European Alternative Fuels Observatory.  

In  2020,  the  primary  and  final  energy 
consumption  in  Luxembourg  plummeted  due 

28 

to COVID-19-related restrictions. Both primary 
energy consumption and final energy consumption 
fell  by  13%  compared  with  the  2019  level. 
According to the national climate and energy plan, 
energy efficiency is a top priority in achieving both 
energy  and  climate  objectives.  Luxembourg’s 
national  contribution  to  the  2030  EU-level  target 
is  set  at  a  40  to  44%  reduction  in  final  energy 
to  3.06  Mtoe 
consumption,  which  amounts 
(compared to the 2020 level of 3.8 Mtoe). As such, 
additional action is needed to further reduce final 
energy consumption.  

In  terms  of  biodiversity  and  ecosystem 
health,  the  results  are  mixed.  Luxembourg  is 
the EU front runner with 51.42% of protected land 
areas in 2020. However, it is below the EU average 
in terms of utilised agricultural area under organic 
farming  and  of  share  of  forest  areas.  Moreover, 
while  more  of  the  country’s  habitats  now  have  a 
good conservation status, more and more species 
have  a  bad  or  poor  conservation  status.  The 
country is under high pressure due to its high level 
of  urbanisation  and  agricultural  activities. 
Luxembourg  has  one  of  the  highest  rates  of  net 
land  take  in  the  EU.  It  also  has  a  high  share  of 
livestock in farm production, generating significant 
natural resource and biodiversity pressure.  

significantly 

Air  quality  in  Luxembourg  is  generally  good, 
with  some  exceptions.  Emissions  of  key  air 
in 
pollutants  have  decreased 
Luxembourg  over  the  last  few  years.  In  2020, 
there  were  no  reports  that  the  limit  values  laid 
down  by  the  Ambient  Air  Quality  Directive  were 
exceeded.  However,  Luxembourg  will  likely  not 
meet  its  commitments  for  ammonia  for  2020-
2029  and  2030  onwards.  The  European 
Commission  monitors  an  infringement  procedure 
against  Luxembourg  for  persistent  breaches  of 
air-quality  requirements  due  to  excess  nitrogen 
dioxide  limit  values  in  several  air-quality  zones. 
These  breaches  have  severe  adverse  effects  on 
health and the environment. Luxembourg is among 
the Member States facing the greatest challenges 
in tackling nutrient pollution from agriculture. 

Transport  accounts  for  the  largest  share  of 
emissions in Luxembourg. Therefore, increasing 
the  share  of  sustainable  transport  is  critical  to 
reach  the  climate  targets.  Luxembourg  is  close to 
the  EU  average  in  terms  of  market  development 
for  zero-emission  passenger  vehicles.  The  uptake 
of electric cars is increasing fast. However, strong 
reliance  on  individual  transport  has  increased 

0%10%20%30%40%50%2016201720192020Terrestrial protected areas (% total area)Area under organic farming (% total utilised agricultural area)EU27 (terrestrial)EU27 (organic)0%2%4%6%8%10%12%201620172018201920202021% of new registrationsLUEU27 
      
 
      
congestion.  Further  investment  in  shared  zero-
emission  transport  remains  important  to  tackle 
these  challenges.  The  country  already  has  the 
highest  share  of  electrified  railway  kilometres  in 
the EU. 

29 

 
Table A5.1: Indicators underpinning progress on the European Green Deal from a macroeconomic 
perspective 

(1) The 2030 non-ETS GHG target is based on the Effort Sharing Regulation. The Fit for 55 targets are based on the Commission 
proposal to increase the EU's climate ambition by 2030. Renewables and energy efficiency targets and national contributions 
under the Governance Regulation (Regulation (EU) 2018/1999).  (2) Distance to target is the gap between Member States’ 2030 
target under the Effort Sharing Regulation and projected emissions, with existing measures (WEM) and with additional measures 
(WAM) respectively, as a percentage of 2005 base year emissions. (3) Percentage of total revenues from taxes and social 
contributions (excluding imputed social contributions). Revenues from the Emissions Trading System are included in environmental 
tax revenues (in 2017 they amounted to 1.5% of total environmental tax revenues at the EU level). (4) Covers spending on gross 
fixed capital formation to be used for the production of environmental protection services (i.e. abatement and prevention of 
pollution) covering all sectors, i.e. government, industry and specialised providers. (5) The climate protection gap indicator is part 
of the EU adaptation strategy (February 2021), and is defined as the share of non-insured economic losses caused by climate-
related disasters. (6) Sulphur oxides (SO2 equivalent), ammonia, particulates < 10 µm, nitrogen oxides in total economy (divided 
by GDP). (7) Transportation and storage (NACE Section H). (8) Zero emission vehicles include battery electric vehicles (BEV) and 
fuel cell electric vehicles (FCEV). (9) European Commission Report (2019) Benchmarking smart metering deployment in the EU-28. 
(10) European Commission (2021). Each year the Digital Economy Society Index is re-calculated for all countries for previous 
years to reflect any possible changes in the choice of indicators and corrections to the underlying data. Country scores and 
rankings may therefore differ compared with previous publications. 
Source: Eurostat, JRC, European Commission, European Environment Agency, European Alternative Fuels Observatory 

30 

TargetTarget2005201920202030WEMWAM2030WEMWAMNon-ETS GHG emission reduction target (1)MTCO2 eq; %; pp (2)10.1-9%-22%-40%-2613-50%-363200520162017201820192020Share of energy from renewable sources in gross final consumption of energy (1)%1%5%6%9%7%12%25%Energy efficiency: primary energy consumption (1)Mtoe4.84.24.34.54.53.9-Energy efficiency: final energy consumption (1)Mtoe4.54.04.24.34.43.83.1201520162017201820192020201820192020Environmental taxes (% of GDP)% of GDP1.81.71.61.71.81.42.42.42.2Environmental taxes (% of total taxation)% of taxation (3)5.14.74.54.34.43.66.05.95.6Government expenditure on environmental protection% of total exp.1.931.781.982.092.062.241.661.701.61Investment in environmental protection% of GDP (4) 0.250.290.330.36--0.420.380.41Fossil fuel subsidiesEUR2020bn0.040.040.030.030.03-56.8755.70-Climate protection gap (5)score 1-4Net GHG emissions1990 = 100817891959683797669GHG emissions intensity of the economykg/EUR'100.220.200.200.200.200.190.320.310.30Energy intensity of the economykgoe/EUR'100.090.080.090.090.090.080.120.110.11Final energy consumption (FEC)2015=100100.0101.2104.7109.0110.095.5103.5102.994.6FEC in residential building sector2015=100100.0103.1105.198.190.797.5101.9101.3101.3FEC in services building sector2015=100100.0100.8113.2116.1130.9124.3102.4100.194.4Smog-precursor emission intensity (to GDP) (4)tonne/EUR'10 (6)0.630.590.580.570.61-0.990.93-Years of life lost caused due to air pollution by PM2.5per 100.000 inh.480434406415346-863762-Years of life lost due to air pollution by NO2per 100.000 inh.9185648344-12099-Nitrate in ground watermg NO3/litre------21.720.7-Terrestrial protected areas% of total-40.451.4-51.451.4-25.725.7Marine protected areas% of total-------10.7-Organic farming% of total utilised agricultural area3.23.54.24.44.44.68.08.59.100-0606-1212-18Net land takeper 10,000 km213.011.05.0201520162017201820192020201820192020GHG emissions intensity of transport (to GVA) (7)kg/EUR'102.522.262.072.102.342.060.890.870.83Share of zero emission vehicles (8)% in new registrations0.20.30.70.91.85.61.01.95.45674698812Share of electrified railways%95.395.395.395.391.0-55.656.0-32.235.736.936.636.1-28.928.8-YearLUEUShare of smart meters in total metering points (9) - electricity% of total201825.235.8Share of smart meters in total metering points (9) - gas% of total201816.613.1ICT used for environmental sustainability (10)%202180.065.9Number of plug-in electric vehicles per charging pointCongestion (average number of hours spent in road congestion per year by a representative commuting driver)Progress to policy targetsNational contribution to 2030 EU targetDigitalFiscal and financialindicators1.6 out of 4 (increase from historical level of 1). This is a low/medium risk category (4 being a high risk).ClimateEnergyPollutionBiodiversity2000-20062006-20122012-20186.517.518.0MobilityLUXEMBOURGEU'Fit for 55'DistanceDistance 
 
   
 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 
ANNEX 6: EMPLOYMENT AND SOCIAL IMPACT OF THE GREEN TRANSITION 

The  green  transition  not  only  encompasses 
environmental 
to 
improvements 
sustainability, but also includes a significant 
social  dimension.  While  measures  here  include 
the  opportunity  for  sustainable  growth  and  job 
creation,  it  must  also  be  ensured  that  no  one  is 
left  behind  and  all groups  in  society  benefit  from 
the transition.  

transport, 
environmental 

Luxembourg’s  recovery  and  resilience  plan 
(RRP)  outlines  reforms and  investment  for a 
fair  green  transition.  The  measures  focus  on 
renewable-energy 
sustainable 
generation, 
and 
protection 
biodiversity  conservation.  Luxembourg's  RRP  puts 
a  significant  focus  on  the  green  transition,  with 
60.9% of the RRP’s total allocation contributing to 
the  climate  objective.  The  Neischmelz  project,  for 
example,  primarily  focuses  on  energy  and  the 
green transition. However, it also pursues a social 
it  helps  beneficiaries  of  housing 
objective: 
subsidies  and  applicants  for  subsidised  rental 
housing  cope  with  the  shortage  of  affordable 
housing. 
In  synergy  with  the  Recovery  and 
Resilience  Facility,  the  European  Social  Fund  Plus 
will  help  unlock  the  potential  for  ‘green  jobs’  in 
Luxembourg.  The  Just  Transition  Fund  (EUR 9.26 
million, current prices) will help mitigate the social 
impact  of  the  transition  in  areas  suffering  from 
the  highest  levels  of  greenhouse  gas  emissions 
(see Annex 3). The integrated national  energy and 
climate  plan  of  20 May  2020  pays  special 
attention  to  energy  poverty.  It  refers  to  existing 
measures such as social welfare benefits for those 
in  energy  poverty,  and  to  further  measures  that 
are  being  under  development,  notably  on  building 
renovation  and  affordable  renting  and  living. 
However,  it  could  provide  more  details  on  social, 
employment  and  skills 
impacts  of  planned 
objectives.  Nevertheless,  reforms  of  the  adult 
learning  system  and training  will  help  people  find 
new  jobs  and  increase  job  mobility  against  the 
background of the green transition. 

The  economy  has  slightly  reduced  its carbon 
footprint  and  although  key  energy-intensive 
sectors  remain  sizeable,  the  green  economy 
is  relatively 
large  and  provides  strong 
potential  for  job  creation.  The greenhouse gas 
(GHG)  emissions 
intensity  of  Luxembourg’s 
economy  decreased  slightly  between  2015  and 
2020  (in  terms  of  gross  value  added).  It  stands 
40% below the EU average. However, the average 
to 
carbon 

footprint  per  worker  amounts 

17.77 tonnes  of  GHG  emissions  remaining  above 
the  EU  average  of  13.61  (see  Graph A6.1).  The 
cement and steel  sectors have been identified (18) 
as the highest GHG emitters (19). They provide jobs 
for  4 000  workers,  for  whom  up  and  reskilling 
could be particularly important. The environmental 
goods and services sector already provides jobs to 
a  comparatively  large  share  of  the  employed 
population (4.6%; EU average: 2.2%) (20). Wind and 
solar  energy  potential  and  energy  efficiency 
improvements offer further opportunities for green 
jobs (21). 

Graph A6.1: Fair green transition challenges 

Source: Eurostat, World Inequality Database 

in 

rural  areas 

As  for  the  social  dimension  of  the  green 
transition,  ensuring  access  to  essential 
transport  and  energy  services  appears 
overall  less  of  a  challenge  in  Luxembourg.  A 
stable  share  of  the  population  at  risk  of  poverty 
lives 
(14.5%;  EU  average: 
18.7%) (22).  The  share  of  the  population  being 
unable  to  keep  their  homes  adequately  warm 
significantly increased from 0.9% in 2015 to 3.6% 
in  2020.  However,  this  remains  below  the  EU 
average (8.2%). Lower-income groups are affected 
most (see Graph A6.2). Consumption patterns vary 
the  average  carbon 
across 

the  population: 

(18)  SWD(2021) 275 final 

(19)  2020 European Semester: Overview of Investment Guidance 
on the Just Transition Fund 2021-2027 per Member State 
(Annex D) 

(20)  There is currently no common EU-wide definition of green 
jobs. The environmental goods and services sector (EGSS) 
accounts only report on an economic sector that generates 
environmental products, i.e. goods and services produced for 
environmental protection or resource management. 

(21)  https://publications.jrc.ec.europa.eu/repository/ 

handle/JRC126047 

(22)  Based on COM(2021) 568 final (Annex I) as a proxy for 

potential transport challenges in the context of the green 
transition (e.g. due to vulnerability to fuel prices). 

31 

0.00.40.81.21.6GHG tonnes per Euro of grossadded value (LU/EU)GHG tonnes per worker(LU/EU)Employment share in energy-intensive industries (LU/EU)Share of population in ruralareas at risk of poverty(LU/EU)Energy poverty(LU/EU)Carbon inequality(LU/EU)LuxembourgEU 2020Luxembourg 2015 
 
     
                                                 
 
footprint  of  the  top  10% of  emitters is  about  7.5 
times higher than that of the bottom 50% of the 
population (5.3 times in the EU). 

Graph A6.2: Energy poverty by income decile 

Source: Eurostat EU-SILC survey (2020) 

Tax  systems  are  key  to  ensuring  a  fair 
transition  towards  climate  neutrality (23). 
Luxembourg’s  revenues  from  total  environmental 
taxes remained stable between 2015 and 2019 at 
1.7%  of  GDP,  but  dropped  to  1.4%  in  2020 
(compared  to  an  EU  average  of  2.2%).  It  cut  the 
income  tax  wedge  for  low-income  earners (24) 
from  28.4%  in  2015  to  24.4%  in  2019  (with  an 
increase  to  26.8%  in  2021)  compared  to  an  EU 
average of 31.9% in 2021 (see Annex 17). 

(23)  COM(2021) 801 final. 

(24)  Tax wedge for a single earner at 50% of the national 
average wage (Tax and benefits database, European 
Commission/OECD). 

32 

0%5%10%15%20%25%12345678910Unable to keep home adequately warm (per income decile)Income decileLuxembourgEuropean Union 
     
                                                 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESSOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESSOURCE EFFICIENCY AND PRODUCTIVITY 

ranking  among 
In  2020,  Luxembourg’s 

the  EU’s  best 
country 
is 
performers. 
resource 
productivity  reached  EUR 3.88  Purchasing  Power 
Standard per kg. 

Luxembourg’s  economic  growth  is  not  yet 
decoupled  from  the  generation  of  waste.  In 
2020,  Luxembourg’s  rate  of  municipal-waste 
recycling  was  around  52.8%,  above  the  EU 
average  of  around  48%,  and  slightly  above  the 
EU’s target of 50%. Significant progress has been 
made  in  the 
in  decreasing  the 
country’s  landfill  rate  (from  52.8%  in  2008  to 
23.8% in 2018). However, Luxembourg’s recycling 
performance  has  stagnated  over  the  past  years, 
and further action is needed to reach the 2025 EU 
target  of  55%.  Moreover,  despite  a  decrease  in 
recent  years,  Luxembourg  had  the  fourth  highest 
value of municipal-waste generation in 2018. 

last  decade 

top 

is  a 

performer 

Luxembourg 
in 
environmental  technology.  Luxembourg  ranked 
first  out  of  all  EU  countries  in  the  2021  Eco-
Innovation  Scoreboard  with  a  total  score  of  171. 
The  country  is  thus  an  eco-innovation  leader. 
Moreover,  in  4  out  of  5  components  of  the  Eco-
Luxembourg 
of 
Innovation 
outperforms  the  EU  average  (in  eco-innovation 
inputs, eco-innovation outputs, resource-efficiency 
outcomes  and  socio-economic  outcomes). 
It 
performs  below  the  EU  average  in  the  fifth 
component (eco-innovation activities). 

2021, 

Index 

while 

minimising 

The  efficient  use  of  resources  is  key  to 
ensuring  competitiveness  and open strategic 
autonomy, 
the 
environmental  impact.  The  green  transition 
presents  a  major  opportunity  for  European 
clean 
creating  markets 
industry 
technologies  and  products.  It  will  have  an  impact 
across  the  entire  value  chain  in  sectors  such  as 
energy and transport, construction and renovation, 
food  and  electronics, 
create 
sustainable, 
jobs  across 
Europe. 

local  and  well-paid 

thus  helping 

for 

by 

After  a  substantial  decrease,  Luxembourg 
has recently progressed in circular secondary 
material use. Between 2010 and 2016, the rate 
of  circular  material  use  dropped  significantly  in 
Luxembourg. The country still has a long way to go 
to return to its 2010 level. However, with 13.6% of 
circular  material  use 
in  2020,  Luxembourg 
managed  to reach  and  exceed  the  EU  average 
(12.8%),  but  it  is  still  far  behind  the  EU’s  best 
performers. 
In  February  2021,  Luxembourg 
adopted  a  new  circular-economy  strategy  called 
Circular  Economy  Strategy  Luxembourg,  to  be 
implemented  within  3  years.  The  strategy  is 
comprehensive  and  targets  the  entire  lifecycle  of 
products. 

Resource  productivity  is  well  above  the  EU 
average.  Resource  productivity  expresses  how 
efficiently the economy uses material resources to 
produce  wealth.  Improving  resource  productivity 
can  help  to  minimise  negative  impacts  on  the 
environment  and  reduce  dependency  on  volatile 
raw-material  markets.  Resource  productivity  is 
high  and  steadily  increasing  in  Luxembourg;  the 

Table A7.1: Key resource efficiency indicators - Luxembourg 

Source: Eurostat 

33 

SUB-POLICY AREA201520162017201820192020EU27 CircularityResource Productivity (Purchasing power standard (PPS) per kilogram)3.23.33.23.53.53.62.22020Material Intensity (kg/EUR)0.30.30.30.30.30.30.42020Circular Material Use Rate (%)9.77.110.610.810.513.612.82020Material footprint (Tones/capita)32.629.131.528.727.528.614.62019Waste Waste generation (kg/capita, total waste)-17 217-14 828--5 2342018Landfilling (% of total waste treated)-39.0-23.8--38.52018Recycling rate (% of municipal waste)47.449.248.749.048.952.847.82020Hazardous waste (% of municipal waste)-3.6-4.8--4.32018CompetitivenessGross value added in environmental goods and services sector (% of GDP)1.61.81.82.22.8-2.32019Private investment in circular economy (% of GDP)------0.12018Latest year EU 27 
 
 
 
 
 
 
       
 
PRODUCTIVITY 
PRODUCTIVITY 
ANNEX 7: RESSOURCE EFFICIENCY AND PRODUCTIVITY 
ANNEX 7: RESSOURCE EFFICIENCY AND PRODUCTIVITY 

34 

 
 
 
 
 
ANNEX 8: DIGITAL TRANSITION 
ANNEX 8: DIGITAL TRANSITION 

The Digital Economy and Society Index (DESI) 
monitors EU Member States’ digital progress. 
The Digital Decade comprises four cardinal points: 
human  capital,  connectivity,  integration  of  digital 
technology  and  digital  public  services (25).  This 
Annex describes Luxembourg’s DESI performance. 

Luxembourg  generally  performs  well  on  the 
DESI indicators related to human capital, but 
continues  to  lack  ICT  specialists.  The  country 

Table A8.1: Key Digital Economy and Society Indicators 

scores well above the EU average for basic digital 
skills and ICT specialists. Nevertheless, the lack of 
ICT specialists is an issue: the share of businesses 
reporting  hard-to-fill  vacancies  for  jobs  requiring 
ICT  specialist  skills  is  well  above  the  EU  average 
(66.6% compared to 55.4%). 

Luxembourg  is  among  the  EU  leaders  in 
digital connectivity. It scores considerably above 
the EU average and almost reaches full availability 
for very high capacity network coverage. However, 
5G  services  were  commercially  launched  only  in 
the  second  half  of  2020  and  have  reached  a 

(*) The 5G coverage indicator does not measure users' experience, which may be affected by a variety of factors such as the type 
of device used, environmental conditions, number of concurrent users and network capacity. 5G coverage refers to the percentage 
of populated areas as reported by operators and national regulatory authorities. 
Source: Digital Economy and Society Index 

(25)  2030 Digital Compass: the European Way for the Digital 

Decade Communication, COM(2021) 118 final. 

35 

EUEU top-performanceHuman capitalDESI 2020DESI 2021DESI 2022DESI 2022DESI 2022At least basic digital skillsNANA64%54%79%% individuals202120212021ICT specialists6.1%6.3%6.7%4.5%8.0%% individuals in employment aged 15-7420192020202120212021Female ICT specialists16%20%20%19%28%% ICT specialists20192020202120212021ConnectivityFixed Very High Capacity Network (VHCN) coverage92%95%96%70%100%% households201920202021202120215G coverage (*)NA0.0%12.7%65.8%99.7%% populated areas2020202120212021Integration of digital technologySMEs with at least a basic level of digital intensityNANA54%55%86%% SMEs202120212021Big data16%19%19%14%31%% enterprises20182020202020202020CloudNANA29%34%69%% enterprises202120212021Artificial IntelligenceNANA13%8%24%% enterprises202120212021Digital public servicesDigital public services for citizensNANA9375100Score (0 to 100)202120212021Digital public services for businessesNANA9782100Score (0 to 100)202120212021Luxembourg 
 
 
 
 
                                                 
 
 
 
 
   
 
 
 
 
 
 
 
coverage of only 13% compared to an EU average 
of 66%. 

Digital  technologies  are  well  integrated  in 
business activities. Luxemburg only scores close 
to  the  EU  average  for  small  and  medium  sized 
enterprises  having  basic  digital  skills.  As  to  the 
integration  of  advanced  technologies,  it  scores 
well  in  AI  and  big  data,  but  is  lagging  behind  the 
EU average in the use of cloud services. 

Luxembourg  scores  well  in  digital  public 
services.  The  country  performs  considerably 
above  the  EU  average  in  digital  public  services  – 
both  for  people  and  businesses.  The  country  has 
multiple  initiatives  and  programmes  in  place, 
aimed to further digitalise the public sector. 

36 

 
ANNEX 9: INNOVATION 
ANNEX 9: INNOVATION 

This  Annex  provides  a  general  overview  of 
the  performance  of  Luxembourg’s  research 
and  innovation  system.  Luxembourg  performs 
strongly  in  innovation  according  to  the  2021 
edition of the European Innovation Scoreboard (26). 
However,  its  performance  remains  below  the  EU 
average. Innovation suffers from underinvestment 
in  R&D.  Total  R&D  intensity  reached  1.13%  in 
2020, still far below the EU average. 

Luxembourg has been unable to raise its R&D 
intensity,  notably  in  terms  of  private  R&D, 
and  science-business  linkages  remain  weak. 
If unresolved, this can hinder the efforts to further 
diversify  its  economy.  R&D  intensity  is  low  and 
declining  (1.13%  in  2020  compared  to  1.42%  in 
2010), notably due to low business R&D intensity. 
Therefore,  it  remains  a  challenge  to  ensure  the 
much-needed  diversification  of  the  economy. 
Luxembourg  took  concrete  steps  over  the  last 
years  to  develop  a  policy  mix  aimed  to  foster 
business innovation. For example, it set up the ‘Fit 
4’  performance  programmes  targeting  start-ups 
and 
enterprises. 
Nevertheless,  government  support  to  business 
innovation still  remains marginal  (0.036% of GDP 

small  and  medium-sized 

Table A9.1: Key Innovation Scoreboard Indicators 

the 

in 2019, compared to an EU average of 0.196%). 
Science-business  linkages  remain  under-exploited, 
as  evidenced  by 
low  share  of  public 
expenditure  on  R&D  financed  by  businesses.  To 
tackle  some  of 
these  key  challenges  and 
accelerate its transition to a data-driven economy, 
Luxembourg’s 
resilience  plan 
recovery  and 
envisages substantial support for the development 
of quantum communication infrastructure, which is 
expected  to  help  Luxembourg  accumulate  key 
research  and  innovation  capabilities  in  this  field, 
while  providing  opportunities  for  science-business 
cooperation.  

Luxembourg  is  dependent  on  an  always-
larger highly skilled foreign labour force. The 
relatively  small  population  cannot  supply  the 
labour  demand  of 
the  economy.  Moreover, 
universities  offer  few  vocational  careers  and  in 
some  cases  they  only  cover  part  of  the  course 
cycles. As a result, students need to complete their 
degrees abroad, leading to some not returning. 

Source: DG Research and Innovation - Common R&I Strategy and Foresight Service - Chief Economist Unit  
Data: Eurostat, OECD, DG JRC, Science-Metrix (Scopus database and EPO’s Patent Statistical database), Invest Europe. 

(26)  2021 European Innovation Scoreboard, Country profile: 

Luxembourg 
https://ec.europa.eu/docsroom/documents/45924  

37 

CompoundEUannual growthaverage2010-2020R&D Intensity (GERD as % of GDP)1.421.251.171.181.13-0.72.32Public expenditure on R&D as % of GDP0.480.590.550.540.520.80.78Business enterprise expenditure on R&D (BERD) as % of GDP0.940.660.620.640.61-1.11.53Scientific publications of the country within the top 10% most cited publications worldwide as % of total publications of the country 13.113.112.4::-0.79.9PCT patent applications per billion GDP (in PPS)1.51.61.5::0.83.5Public-private scientific co-publications as % of total publications9.510.11311.910.71.29.05Public expenditure on R&D financed by business enterprise (national) as % of GDP0.0080.0070.0120.014:6.60.054New graduates in science & engineering per 1000 pop. aged 25-34:1.92.52.6:1.316.3Total public sector support for BERD as % of GDP:0.054:0.036:-9.70.196Share of environment-related patents in total patent applications filed under PCT (%)1710.69::-7.612.8Venture Capital (market statistics) as % of GDP0.0370.0120.0210.0270.0400.90.054Employment in fast-growing enterprises in 50% most innovative sectors3.14.66.96.2:7.95.52020Luxembourg 2010201520182019Finance for innovation and Economic renewalKey indicators Quality of the R&I systemAcademia-business cooperationHuman capital and skills availabilityPublic support for business enterprise expenditure on R&D (BERD)Green innovation  
 
                                                 
 
 
   
 
 
 
 
 
 
ANNEX 10: INDUSTRY AND THE SINGLE MARKET 
ANNEX 10: INDUSTRY AND THE SINGLE MARKET 

quantitative  constraints  and  some  regulated  fees. 
The  recent  reform  on  proportionality  may  be 
conducive  for  proportionality  tests  before  the 
adoption  of  new  professional 
regulations. 
Nevertheless,  more  direct  action  on  existing 
regulations  would  help  Luxembourg  reap  the 
economic benefits of improved competition. 

of 

Reform 
bankruptcy 
Luxembourg’s 
legislation  has  been  pending  approval  in 
Parliament  for  more  than  2  years.  In  this 
regard,  a  much  more  concerted  push  for  the 
reform is needed. While some support is available 
to entrepreneurs for a second chance, their fear of 
failure is among the highest in the EU. Bankruptcy 
reforms  would  facilitate  early  restructuring  and 
insolvency 
second  chances.  A  more  effective 
regime  would  foster  entrepreneurship  and  help 
struggling firms to exit or restructure. 

prosperity,  well-being 

Productivity  growth  is  a  critical  driver  of 
and 
economic 
convergence over the long run. A major source 
of  productivity  for  the  EU  economy  is  a  well-
functioning single market, where fair and effective 
competition  and  a  business  friendly  environment 
are  ensured, 
in  which  small  and  medium 
enterprises  (SMEs)  can  operate  and  innovate 
without  difficulty.  Businesses  and  industry  rely 
heavily  on 
robust  supply  chains  and  face 
bottlenecks that have a negative impact on firms’ 
productivity 
levels,  employment,  turnover  and 
entry/exit  rates.  This  may  affect  the  Member 
States’  capacity  to  deliver  on  Europe’s  green  and 
digital transformation. 

Luxembourg’s  economy  is  well  integrated 
into the single market. Up to 80% of the goods 
and services produced in Luxembourg are exported 
and  the  share  of  Luxembourg  SMEs  that  export 
goods  outside  the  EU  (13.7%)  is  above  the  EU 
average (9.7%). 

Technological integration in SME’s and levels 
of  private  investment  remain  low  compared 
with  the  high-potential.  Luxembourg  has 
launched  initiatives  to  boost  digitalisation  and 
innovation  in  light  of  the  country’s  ambition  to 
transition  to  a  data-driven  economy.  More  than 
one third of businesses do not invest intensively in 
digital  technologies  or  unlock  the  opportunities  of 
digitalisation. Enterprises scored low in the Digital 
Intensity Index (38%; EU average: 41%) and SMEs 
are lagging behind big companies in e-commerce. 
In  2019,  9%  of  SMEs  were  selling  online  (EU 
average:  17.5%),  against  19%  of  big  firms  (EU 
average: 39%). 

Luxembourg’s  regulatory  stance  is  generally 
more  restrictive  than  most  in  the  EU (27). 
While  progress  has  been  evident  in  a  number  of 
areas  (notably  architecture,  engineering  and  retail 
sales), unnecessary restrictions persist, particularly 
in  the  legal  profession.  Reducing  these  barriers 
would  benefit  Luxembourg  because  it  would  lead 
to  lower  prices  and  wider  consumer  choice.  For 
lawyers, restrictions are for example the obligation 
the 
to 
requirement  to  have  EU  citizenship  and  the 
inability to market their services. Notaries are also 
subject  to  restrictive  regulations,  in  particular, 

organisation, 

professional 

join 

a 

(27)  The Commission’s restrictiveness indicator (2021) as well as 
the OECD product market regulation indicators (2018) show 
higher restrictions than EU average. 

38 

 
 
                                                 
 
Table A10.1: Key Single Market and Industry Indicators 

(*) latest data available. 
Source: See above in the table the respective source for each indicator in the column “Description”. 

39 

POLICY AREAINDICATOR NAMEDESCRIPTION20212020201920182017Growth ratesEU27 average*Value added by source (domestic)VA that depends on domestic intermediate inputs, % [source: OECD (TiVA), 2018]64.8362.6%Value added by source (EU)VA imported from the rest of the EU, % [source: OECD (TiVA), 2018]22.7419.7%Value added by source (extra-EU)% VA imported from the rest of the world, % [source: OECD (TiVA), 2018]12.417.6%Cost competitivenessProducer energy price (industry)Index (2015=100) [source: Eurostat, sts_inppd_a]122.695.2102.8101.794.829.3%127.3Material Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]159581136%26%Labour Shortage using survey dataAverage (across sectors) of firms facing constraints, % [source: ECFIN CBS]1915343025-24%14%Sectoral producer pricesAverage (across sectors), 2021 compared to 2020 and 2019, index [source:Eurostat]2.4%5.4%Concentration in selected raw materialsImport concentration a basket of critical raw materials, index [source: COMEXT]0.140.150.130.120.138%17%Installed renewables electricity capacity Share of renewable electricity to total capacity, % [source:Eurostat, nrg_inf_epc]69.3064.6059.1058.8018%47.8%Net Private investmentsChange in private capital stock, net of depreciation, % GDP [source: Ameco]1.63.944.2-61.9%2.6%Net Public investmentsChange in public capital stock, net of depreciation, % GDP [source: Ameco]1.81.10.2-0.6-400%0.4%Single Market integrationIntra-EU tradeRatio of Intra-EU trade to Extra-EU trade, index [source: Ameco]3.052.742.842.652.4524%1.59Professional services restrictivenessRegulatory restrictiveness indicatorRestrictiveness of access to and exercise of regulated professions (professions with above median restrictiveness, out of the 7 professions analysed in SWD (2021)185 [source: SWD (2021)185; SWD(2016)436 final])6   60%3.37Professional qualifications recognitionRecognition decisions w/o compensationProfessionals qualified in another EU MS applying to host MS, % over total decisions taken by host MS [source: Regulated professions database]5745%Transposition - overall5 sub-indicators, sum of scores [source: Single Market Scoreboard]Below averageAbove averageAbove averageBelow averageInfringements - overall4 sub-indicators, sum of scores [source: Single Market Scoreboard]AboveOn averageOn averageOn averageInvestment protectionConfidence in investment protectionCompanies confident that their investment is protected by the law and courts of MS if something goes wrong, % of all firms surveyed [source: Flash Eurobarometer 504]4956%BankruptciesIndex (2015=100) [source: Eurostat, sts_rb_a]n.a.n.a.n.a.n.a.n.a.n.a.70.1Business registrationsIndex (2015=100) [source: Eurostat, sts_rb_a]110.4151.2140.6125-11.7%105.6Late paymentsShare of SMEs experiencing late payments in past 6 months, % [source: SAFE]4850.750.2n.a.n.a.-4%45%EIF Access to finance index - LoanComposite: SME external financing over last 6 months, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.650.710.540.28130.6%0.56EIF Access to finance index - EquityComposite: VC/GDP, IPO/GDP, SMEs using equity, index from 0 to 1 (the higher the better) [source: EIF SME Access to Finance Index]0.060.090.080.0519.4%0.18% of rejected or refused loansSMEs whose bank loans’ applications were refused or rejected, % [source: SAFE]2.79.96.350n.a.12.4%SME contractorsContractors which are SMEs, % of total [source: Single Market Scoreboard]51514748486.3%63%SME bidsBids from SMEs, % of total [source: Single Market Scoreboard]4141375053-23%70.8%Public procurement SINGLE MARKETCompliance - cooperation EC and MSBUSINESS ENVIRONMENT - SMEsBusiness demographyAccess to financeInvestment dynamicsHEADLINE INDICATORSEconomic structureRESILIENCEShortages/supply chain disruptionsStrategic dependencies 
 
   
 
ANNEX 11: PUBLIC ADMINISTRATION 
ANNEX 11: PUBLIC ADMINISTRATION 

capacity 

administrative 

Good 
enables 
economic  prosperity,  social  progress  and 
fairness. Public administrations at all government 
levels deliver crisis response, ensure the provision 
of  public  services  and  contribute  to  building 
resilience  for  the  sustainable  development  of  the 
EU economy. 

for 
and 

including 
upstream 

improvement, 
stakeholder 
downstream 
consultation, 
evaluation  of  legislation  (Graph  11.2).  Advance 
impact assessments are limited, while there are no 
systematic 
impact  assessments. 
Furthermore,  concerns  have  been  raised,  as 
recommendations 
the 
consultation process are often not followed. (30) 

stakeholders 

subsequent 

of 

in 

Overall,  Luxembourg’s  public  administration 
is  one  of  the  most  effective  of  the  EU (28).  It 
has  the  highest  trust  among  people  of  all  EU 
countries (78%; EU average 52%) (29). Additionally, 
87% of surveyed people indicate that the provision 
of  public  services  is  rather  good  or  very  good, 
compared to an EU average of 53%. 

Graph A11.1: Performance on open data maturity 

Graph A11.2: Performance on evidence-based 
policy making indicators 

(1) RIA stands for Regulatory Impact Assessment 
Source: OECD iREG indicators 

Source: Open Data Maturity Report 2021 

indicators 

The  provision  of  open  government  data  is 
behind  the  EU  average  (Graph  11.1),  as  is 
for  public 
performance  on 
procurement  and  evidence-based  policy 
making  (Graph  11.2).  Low  provision  of  open 
data  reduces  the  potential  of  information  to  hold 
institutions 
people. 
Luxembourg’s ranking in procurement indicators is 
explained  by  the  relatively  low  share  of  contract 
notices published on Tenders Electronic Daily (TED) 
and  the  country’s  low  score  for  measures  to 
information  quality.  Evidence-based 
improve 
is  another  area  with  room  for 
policymaking 

accountable 

the 

to 

(28)  Worldwide Governance Indicators, 2020.  

in  adult 

learning,  against 

The  performance  of  Luxembourg's  civil 
service management varies per indicator. The 
gender  gap  in  senior  civil  service  positions  is  one 
of the largest in the EU and is widening. However, 
Luxembourg performs relatively well in employees’ 
participation 
the 
backdrop  of  a  relatively  low  share  of  public 
administration  employees  with  tertiary  education. 
Luxembourg  is  actively  trying  to  address  this,  for 
example  by  putting  in  place  a  new  recruitment 
procedure  in  2019  and  drawing  up  the  new 
organisation  development  strategy  FP2025.  This 
proactivity  yields  results  as  the  share  of  public 
administration  employees  with  tertiary  education 
is rising and the average age of the civil service is 
falling.  This  is  in  contrast  to  the  ageing  trend  in 
most other Member States. 

E-government scores are relatively good. The 
recent  rise  in  the  share  of  e-government  users  is 
encouraging  as  Luxembourg  used  to  rank  below 

(29)  European Commission, Standard Eurobarometer 95, Spring 

2021 

(30)  Rule of Law Report 2021 

40 

00.10.20.30.40.50.60.70.80.9LUEU27 averageOpen Data PolicyOpen Data QualityOpen Data PortalOpen Data Impact00.20.40.60.811.21.41.61.8LUEU27averageLUEU27averageMethodologyRIA (1)OversightStakeholder consulationSystematic adoptionEx-post evaluationTransparency 
 
     
                                                 
     
                                                 
 
independence have been reported. (31) 

to  support 

the  median  in  2019  and  2020.  The  recovery  and 
the  digital 
resilience  plan  aims 
transition  by  investing  in  the  digitalisation  of 
public  administration  and  people’s  digital  skills. 
The  ultimate  goal  is  to  improve  the  delivery  of 
services  and  increase  the  effectiveness  of  the 
administration.  

The  justice  system  performs  effectively.  The 
effectiveness  of  civil  justice  keeps  being  high, 
although the length of proceedings is significantly 
longer  at  second  and  third  instances.  The  number 
of  pending  civil  cases  is  low,  and  a  consistent 
clearance  rate  of  around  100%  shows  that  civil 
justice  deals  with  its  caseload  effectively.  The 
overall  quality  of  the  justice  system  is  good, 
barring the limited  scope of available  online tools 
for  justice.  No  systemic  deficiencies  in  judicial 

Table A11.1: Public administration indicators – Luxembourg 

(1) High values indicate good performance, except indicators # 7 and 8. 
(2) Break in the series in 2018 and 2021. 
(3) Measures the user centricity (including for cross-border services) and transparency of digital public services as well as the 
existence of key enablers for the provision of those services. 
(4) Break in the series in 2021. 
(5) Defined as the absolute value of the difference between the share of men and women in senior civil service positions. 
Source:  ICT use survey, Eurostat (# 1); E-government benchmark report (# 2); Open data maturity report (# 3); Fiscal Governance 
Database (# 4, 9, 10); Labour Force Survey, Eurostat (# 5, 6, 8), European Institute for Gender Equality (# 7), Single Market 
Scoreboard public procurement composite indicator (# 11); Organisation for Economic Co-operation and Development Indicators 
of Regulatory Policy and Governance (# 12). 

(31)  For more detailed analysis of the performance of the justice 
system in Luxembourg, see the 2022 EU Justice Scoreboard 
(forthcoming) and the country chapter for Luxembourg of the 
Commission’s 2022 Rule of Law Report (forthcoming). 

41 

LU20172018201920202021EU27177.065.062.064.079.070.82nananana87.170.93nananana66.381.1462.067.067.067.0na56.8533.734.535.438.542.955.3620.122.922.116.118.518.6729.837.242.848.443.821.8812.111.611.711.012.121.390.820.820.820.82na0.72100.90.90.90.9na1.5110.3-3.01.0-2.0na-0.7121.43nana1.43na1.7Gender parity in senior civil service positions (5)Share of public sector workers between 55 and 74 years (4)Public financial management Medium-term budgetary framework indexStrength of fiscal rules indexEvidence-based policymakingIndex of regulatory policy and governance practices in the areas of stakeholder engagement, Regulatory Impact Assessment (RIA) and downstream evaluation of legislation Indicator (1)E-government Share of individuals who used internet within the last year to interact with public authorities (2)2021 e-government benchmark´s overall score (3) Open government and independent fiscal institutions2021 open data maturity indexScope index of fiscal InstitutionsEducational attainment level, adult learning, gender parity and ageingShare of public administration employees with tertiary education, levels 5-8  (4)Public procurement composite indicatorParticipation rate of public administration employees in adult learning (4) 
                                                 
 
      
 
 
 
 
 
 
FAIRNESS 
FAIRNESS 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
ANNEX 12: EMPLOYMENT, SKILLS AND SOCIAL POLICY CHALLENGES IN LIGHT OF 
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  
THE EUROPEAN PILLAR OF SOCIAL RIGHTS  

The European Pillar of Social Rights provides 
for  upward  convergence 
the  compass 
towards better working and living conditions 
in the EU. Implementing its 20 principles on equal 
opportunities and access to the labour market, fair 
working conditions, social protection and inclusion, 
supported  by  the  2030  EU  headline  targets  on 
employment,  skills  and  poverty  reduction,  will 
strengthen the EU’s  drive towards a digital,  green 
and  fair  transition.  This  Annex  provides  an 
overview  of  Luxembourg’s  progress  in  achieving 
the  goals  under  the  European  Pillar  of  Social 
Rights. 

Table A12.1: Social Scoreboard for Luxembourg 

Update of 29 April 2022. Members States are classified on 
the Social Scoreboard according to a statistical methodology 
agreed with the EMCO and SPC Committees. It looks jointly at 
levels and changes of the indicators in comparison with the 
respective EU averages and classifies Member States in seven 
categories. For methodological details, please consult the 
Joint Employment Report 2022. Due to changes in the 
definition of the individuals' level of digital skills in 2021, 
exceptionally only levels are used in the assessment of this 
indicator; NEET: neither in employment nor in education and 
training; GDHI: gross disposable household income.  
Source: Eurostat 

Although 
significantly 

the 

labour  market 

improved 
in  2021,  some  challenges 

the  overall  employment 

remain.  Following  unprecedented  measures  to 
protect  employment  in  response  to  the  COVID-19 
rate  quickly 
crisis, 
recovered,  up  to  74.3%  in  the  fourth  quarter  of 
2021  (from  71.7%  in  the  first  quarter  of  2020). 
Nonetheless, the employment rate remains low for 
some  groups,  notably  older  workers (aged  55-64) 
with  a  rate  of  47.1%  in  the  fourth  quarter  of 
2021.  This  is  around  14  percentage  points  below 
the EU average. The unemployment rate (ages 15-
74)  fell  relatively  sharply  in  2021  (to  4.3%  the 
fourth quarter of 2021 from a peak of 7.9% in the 
third  quarter  of  2020).  Nevertheless,  the  increase 
in  long-term  unemployment  as  a  percentage  of 
the  total  deserves  specific  attention,  in  particular 
as the share of people aged 35 to 40 among long-
term  job-seekers  has  significantly  risen  since 
2019. This trend could be linked to the mandatory 
registration  of  minimum-income  recipients  with 
the 
Increased 
recruitment  difficulties  in  2021  point  to  growing 
skills  mismatches  in  the  labour  market.  The 
ongoing  skills  strategy,  which  is  part  of  the 
recovery  and  resilience  plan  will  help  to  address 
this  challenge.  EU  cohesion  policy  funds  will 
support measures to strengthen policies aiming for 
an  active  labour  market,  with  a  focus  on  young 
people,  low-skilled  people,  long-term  unemployed 
people, women and people over 45. Overall, there 
is  scope  for  further  progress 
in  order  for 
Luxembourg  to  help  the  EU  in  reaching  its  2030 
headline target on employment. 

employment 

service. 

public 

status. 

Luxembourg’s 

The rate of early school-leaving is relatively 
low  but  increased  steadily  (9.3%  in  2021, 
below  the  EU  average),  pupils’  basic  skills 
are  below  the  EU  average  and  their 
performance  is  strongly  linked  to  socio-
economic 
education 
system  faces  specific  challenges  against  the 
background  of  an  increasingly  diverse  school 
population 
the 
Programme  for  International  Student  Assessment 
(PISA)  of  the  Organisation  for  Economic  Co-
operation  and  Development  showed  that  average 
skill 
lower  than  the 
respective  EU  averages  in  all  three  areas  tested. 
Luxembourg  had  a  high  overall  participation  in 
adult  learning  over  the  previous  four  weeks  in 
2021  (17.9%  versus  10.8%  in  the  EU,  despite  a 
decline  from  19.1%  in  2019)  and  a  rather  high 
participation among unemployed people (34.4% in 

levels  are  significantly 

(see  Annex 13). 

In  2018, 

42 

9.364.08.87.45.074.15.31.8110.219.924.239.422.18.563.20.1Critical situationTo watchWeak but improvingGood but to monitorOn averageDynamic labour markets and fair working conditionsEmployment rate(% population aged 20-64) (2021)Unemployment rate(% population aged 15-74) (2021)Long-term unemployment(% population aged 15-74) (2021)GDHI per capita growth (2008=100) (2020)Housing cost overburden (% of population) (2020)Children aged less than 3 years in formal childcare (% of under 3-years-olds) (2020)Self-reported unmet need for medical care (% of population 16+) (2020)Better than averageSocial protection and inclusionAt risk of poverty or social exclusion (in %) (2020)At risk of poverty or social exclusion for children (in %) (2020)Impact of social transfers (other than pensions) on poverty reduction (% reduction of AROP) (2020)Disability employment gap (ratio) (2020)Best performersEqual opportunities and access to the labour marketEarly leavers from education and training(% of population aged 18-24) (2021)Individuals' level of digital skills (% of population 16-74) (2021)Youth NEET(% of total population aged 15-29) (2021)Gender employment gap (percentage points) (2021)Income quintile ratio (S80/S20) (2020) 
 
 
 
   
 
 
 
than  high 

2021  versus  12.7%  in  the  EU).  Nonetheless,  low 
skilled  people  participate  in  learning  much  less 
(6.8%) 
(24.6%). 
Strengthening  the  quality  and  inclusiveness  of 
education  and  training  is  key  for  Luxembourg  to 
help the EU in reaching its 2030 headline targets 
on skills and on employment. 

skilled  people 

EU 

some 

groups 

average, 

While  the share  of people at risk of  poverty 
or social exclusion remains stable and below 
the 
are 
disproportionately  affected,  and 
in-work 
poverty  and  housing-cost  burden  remain 
major  challenges.  The  share  of  adults  not  born 
in  the  EU  that  are  at  risk  of  poverty  or  social 
exclusion was 35.6% in 2020, compared to 15.4% 
for  people  born  in  Luxembourg.  Despite  a  slight 
decrease  of  the  in-work  poverty  rate  in  2020 
(11.9%  compared  to  12.1%  in  2019),  the  rate  is 
among the highest in the EU (EU average 9%). In-
work poverty is significantly higher for people not 
born  in  the  EU  (22.9%  in  2020)  than  for  people 
born  in  the  EU  (13.8%)  and  people  born  in 
Luxembourg  (5.4%).  There  is  thus  scope  for 
strengthened  social-policy  action  in  order  for 
Luxembourg  to  help  the  EU  in  reaching  its  2030 
headline  target  on  poverty  reduction.  To  foster 
inclusion, 
equal 
Luxembourg intends to support, with the European 
Social Fund Plus, innovative approaches consisting 
of policies aiming for an active labour market and 
training.  These  approaches  aim  to  strengthen 
pathways 
improve 
towards  employment  and 
cooperation  with  social  partners,  to  help  people 
join and stay on the labour market. 

opportunities 

social 

and 

43 

 
 
ANNEX 13: EDUCATION AND SKILLS 
ANNEX 13: EDUCATION AND SKILLS 

Area 

Education 

This  Annex  outlines  the  main  challenges  for 
Luxembourg’s education and training system 
in  light  of  the  EU-level  targets  of  the 
European 
strategic 
framework  and  other  contextual  indicators, 
based  on  the  analysis  from  the  2021 
Education  and  Training  Monitor. Luxembourg’s 
education  and  training  system  struggles  with 
equity  challenges  that  could  worsen  due  to  the 
pandemic.  Luxembourg  lags  significantly  behind 
the  EU  average  and  EU-level  targets  in  terms  of 
performance in reading, mathematics and science. 

Participation  in  early  childhood  education 
and care (ECEC) is below the EU average but 
receives  increasing  support.  88.4%  of  children 
take  part  in  ECEC  from  the  age  of  3,  which  is 
below  the  EU  average  (92.8%)  and  the  new  EU-
level target of 96% set for 2030. Luxembourg has 
invested  heavily  in  extending  access  to  ECEC  and 
non-formal day care facilities in the last 10 years, 
nearly  tripling  the  number  of  places  and  doubling 
the  availability  of  childminders.  However,  funding 
and qualification requirements are different in the 

formal from those in the non-formal ECEC sectors, 
which impacts on the system’s quality and equity. 

The rate of early school leaving has been on 
the rise for three years in a row, and pupils’ 
basic  skills  are  below  the  EU  average  and 
strongly linked to socio economic status. The 
rate  of  early  leavers  from  education  and  training 
(9.3%) is below the EU average (9.7%) but for the 
first  time  surpassing  the  EU-level  target  (below 
9%).  Luxembourg’s  education  system 
faces 
challenges  against 
the  background  of  an 
increasingly  diverse  school  population.  Pupils  with 
Luxembourgish  as  their  first  language  are  a 
minority, both in primary and secondary education. 
In 2018, the programme for International Student   
for 
Assessment 
Economic  Co-operation  and  Development  (OECD) 
showed  that  in  Luxembourg  average  skill  levels 
are  significantly  lower  than  the  respective  EU 
averages  in  all  three  areas  tested.  Luxembourg 
recorded one of the largest score gaps in reading 
between  advantaged  and  disadvantaged  students 
across  EU  countries.  National  data  show  that  the 

the  Organisation 

(PISA)  of 

Table A13.1: EU-level targets and other contextual indicators under the European Education Area 
strategic framework 

Notes: The 2018 EU average on PISA reading performance does not include ES; b = break in time series, u = low reliability, : = not 
available; Data is not yet available for the remaining EU-level targets under the European Education Area strategic framework, 
covering underachievement in digital skills, exposure of vocational educational training graduates to work based learning and 
participation of adults in learning. 
Source: Eurostat (UOE, LFS); OECD (PISA).  

44 

96%86.3%91.9%88.4%201992.8%2019Reading< 15%25.6% 20.4%29.3%201822.5%2018Mathematics< 15%25.8% 22.2%27.2%201822.9%2018Science< 15%25.9% 21.1%26.8%201822.3%2018< 9%9.3%b11.0%9.3%9.7%Men10.5%b12.5%10.4%11.4%Women8.1%b9.4%8.1% 7.9%Cities7.7%b, u9.6%9.9%u8.7%Rural areas8.9%b12.2%8.1%10.0%Born in Luxembourg6.9%b10.0%7.0%8.5%EU-born15.7%b20.7%: 21.4%Non-EU-born:b, u23.4%16.4%u21.6%45%50.3%b36.5%62.6%41.2%Men45.0%b31.2%58.0%35.7%Women55.5%b41.8%67.4%46.8%Cities78.1%b46.2%85.7%51.4%Rural areas41.5%b26.9%50.2%29.6%Born in Luxembourg44.7%b37.7%53.5%42.1%EU-born57.5%b32.7%70.9%40.7%Non-EU-born51.4%b27.0%64.5%34.7%21.1% 38.3%21.8%201938.9%201920152021IndicatorTargetLuxembourgEU27LuxembourgEU27Participation in early childhood education (age 3+)Lowachieving 15-year-olds in:TotalBy genderBy degree of urbanisationEarly leavers from education and training (age 18-24)Share of school teachers (International standard classification of education 1-3) who are 50 years or overBy country of birthTotalBy genderBy degree of urbanisationBy country of birthTertiary educational attainment (age 25-34) 
 
 
 
   
 
reading  and  mathematics  skills  of  pupils  with  a 
disadvantaged non Luxembourgish or non-German 
language  background  are  much  poorer  than  the 
skills of their peers. Learning gaps observed in the 
first  years  of  schooling  remain  stable  or  even 
increase during later years. 

Graph A13.1: Low achievement in reading by socio-
economic status, PISA 2018 

Tertiary  education  attainment  and  graduate 
employment  rates  are  among  the  highest  in 
the  EU.  62.6%  of  the  population  aged  25  to  34 
holds a tertiary degree, the highest rate in the EU. 
This  is  partly  thanks  to  the  high  proportion  of 
graduates 
in  the  migrant  population  (69.1%, 
compared to 53.5% of native Luxembourgers). The 
employment  rate  of  recent  tertiary  graduates  in 
2021 was 87.0%, above the EU average of 84.9%, 
but still 7 percentage points lower than in 2019. 

plan 

national 
(RRP) 

recovery 
fosters 

and 
Luxembourg’s 
skills 
resilience 
development.  Overall  participation 
in  adult 
learning  is  high  (16.3%;  EU  average:  9.2%)  but 
lower  among  low-skilled  and  older  workers.  The 
RRP  includes  investment  in  vocational  training 
programmes  for 
jobseekers  and  for  workers 
placed 
in  short-time  work.  These  vocational 
training programmes are expected to help mitigate 
the  employment  impact  of  the  COVID-19  crisis. 
The RRP also envisages a reform on the design of 
further vocational training programmes. 

*The EU average does not include Spain 
Source: Organisation for Economic Cooperation and 
Development (2019), PISA 2018 

on 

on 

their 

than 

their 

Pupils’ access to academic pathways depends 
more  on  their  socio-economic  and  linguistic 
background 
school 
performance.  Data  suggest  that  compared  to 
their  peers,  disadvantaged  pupils  are  oriented 
disproportionately  more  often  to  the  lowest  track 
of  secondary  education  (régime  préparatoire)  and 
less  often  to  the  highest  track  (enseignement 
secondaire classique; ESC) than could be expected 
performance. 
based 
Furthermore,  pupils’  study  chances  show  a  strong 
correlation  with  their  linguistic  background:  pupils 
with  a  non-Luxembourgish-  or  non-German-
language background access ESC much less often. 
The  National  Observatory  of  School  Quality 
(ONQS) reported on the prevailing inequality based 
linguistic 
on 
backgrounds.  The  way  languages  are  taught  and 
the way pupils are separated into different school 
tracks  add  to  this  inequality.  The  ONQS  calls  to 
develop  a  national  curriculum  better  addressing 
the above challenges. 

socioeconomic 

academic 

pupils’ 

and 

45 

0%10%20%30%40%50%EU*LUStudents in the top socio-economic quartileAll studentsStudents in the bottom socio-economic quartile 
                    
ANNEX 14: HEALTH AND HEALTH SYSTEMS 
ANNEX 14: HEALTH AND HEALTH SYSTEMS 

Especially  relevant  in  light  of  the  ongoing 
COVID-19 pandemic, resilient healthcare is a 
prerequisite  for  a  sustainable  economy  and 
society.  This  Annex  provides  a  snapshot  of  the 
healthcare sector in Luxembourg. 

Graph A14.1: Life expectancy at birth, years 

Graph A14.2: Projected increase in public 
expenditure on health-care over 2019-2070 
(reference scenario) 

Source: European Commission (Directorate-General for 
Economic and Financial Affairs) and Ageing Working Group 
(Economic Policy Committee), The 2021 Ageing Report: 
Economic & Budgetary Projections for the EU Member States 
(2019-2070) 

in  crises 

Luxembourg’s  health  workforce  strongly 
depends  on  staff  who  are  resident 
in 
neighbouring  countries,  making  it  particularly 
vulnerable 
that  necessitate  border 
closures.  This  concerns  two  thirds  of  nurses  and 
one  quarter  of  doctors  practising  in  Luxembourg. 
The  country  also  has  the  second  lowest  ratio  of 
doctors  per  1 000  inhabitants  in  the  EU.  The  age 
structure (most physicians were over 50 in 2017) 
adds to this challenge. 

The  health  strategy  included  in  the  recovery 
and  resilience  plan  (RRP)  aims  to  reduce 
reliance  on  foreign  health  workers.  Measures 
in  the  RRP  aim  to  make  staff  management  more 
efficient  investing  EUR 1.2 million  (1.3%  of  the 
total  RRP)  in  telemedicine  and  an  electronic 
register of health professionals. Policy action aims 
to 
the  attractiveness  of  health 
professions  for  residents,  implementing  skills-mix 
approaches,  expanding  training  opportunities  and 
putting  in  place  a  new  bachelor’s  programme  in 
general  medicine.  New  academic  programmes  for 
nurses will be launched in the coming years. 

improve 

Source: Eurostat database 

Life  expectancy  in  Luxembourg  is  above  the 
EU average, but fell by 6 months in 2020 due 
to  COVID-19.  As  of  17 April  2022,  1.69 
1 000 
cumulative 
inhabitants  were  reported  and  382  confirmed 
cumulative COVID-19 cases per 1 000 inhabitants. 
Luxembourg  fares  comparatively  well  in  avoiding 
deaths from treatable causes. 

COVID-19 

deaths 

per 

Health spending per person in Luxembourg is 
above  the  EU  average.  However,  health 
spending relative to GDP was the lowest in the EU 
in  2019,  although  it  was  expected  to  increase 
more compared with the EU on average. The public 
share  of  spending  on  health  is  above  the  EU 
average. Public expenditure on health is projected 
to  increase  by  1.1  percentage  points  of  GDP  by 
2070  (compared  to  0.9  percentage  points  for  the 
EU) (32). 

(32)  European Commission (Directorate-General for Economic and 
Financial Affairs) and Ageing Working Group (Economic Policy 
Committee), The 2021 Ageing Report: Economic & Budgetary 
Projections for the EU Member States (2019-2070). 

46 

80.980.981.81.380.482.782.182.382.782.220162017201820192020EULuxembourg6.63.60.91.102468EULuxembourg% of GDP20192070increase 
 
  
                                                 
  
 
Table A14.1: Key health indicators 

Notes:  Doctors' density data refer to practising doctors in all countries except FI, EL, PT (licensed to practice) and SK 
(professionally active). Nurses' density data refer to practising nurses in all countries (imputation from year 2014 for FI) except IE, 
FR, PT, SK (professionally active) and EL (nurses working in hospitals only).  
More information: https://ec.europa.eu/health/state-health-eu/country-health-profiles_en 
Source: Eurostat Database; except: * Eurostat Database and OECD, ** ECDC. 

47 

20162017201820192020EU average (latest year) Treatable mortality per 100 000 population (mortality avoidable through optimal quality healthcare)70.973.167.763.192.1 (2017)Cancer mortality per 100 000 population235.5235.4225.3218.5252.5 (2017)Current expenditure on health, % GDP 5.25.35.35.49.9 (2019)Public share of health expenditure, % of current health expenditure83.684.084.185.079.5 (2018)Spending on prevention, % of current health expenditure 2.22.22.22.52.8 (2018)Acute care beds per 100 000 population389.9377.5370.3329.4387.4 (2019)Doctors per 1 000 population *2.93.03.03.8 (2018)Nurses per 1 000 population *11.711.78.2 (2018)Consumption of antibacterials for systemic use in the community, daily defined dose per 1 000 inhabitants per day **21.420.920.719.814.814.5 (2020) 
 
   
 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 
ANNEX 15: ECONOMIC AND SOCIAL PERFORMANCE AT REGIONAL LEVEL 

at  risk  of  poverty  or  social  exclusion  in  2020 
against 16.5% in cities and 18.2% in rural areas. 

Table A15.1: Main socio-economic indicators by 
degree of urbanisation, Luxembourg 2020 

Source: Eurostat 

its 

Luxembourg  has  the  highest  greenhouse  gas 
emissions per person in the EU. Transport is the 
main  source  of  emissions  (66% (34),  reflecting 
Luxembourg’s  position  as  logistical  hub  and  the 
impact  of 
large  cross-border  commuting 
workforce  (not  included  in  the  population  count). 
Industrial emissions are concentrated in the south 
of  the  country.  The  main  industrial  emitters  are 
the  cement  industry  in  Rumelange  and  the  steel 
industry in Esch-sur-Alzette (respectively 42% and 
27%  of  the  country’s  total  industrial  greenhouse 
gas  emissions).  The  three  most  energy-intensive 
sectors  are  special  cement,  steel  and  glass,  with 
the  steel  industry  accounting  for  40%  of  the 
country’s power consumption. 

Graph A15.1: Territories most affected by the 
climate transition in Luxembourg 

is  an 

The  regional  dimension 
important 
factor  when  assessing  economic  and  social 
developments  in  Member  States.  Taking  into 
account  this  dimension  enables  a  well-calibrated 
and targeted policy response that fosters cohesion 
and  ensures  sustainable  and  resilient  economic 
development across all regions. 

Luxembourg remained the Member State with 
the  highest  national-income  level  per  head, 
reaching  168%  of  the  EU  average  in  2019  (in 
purchasing  parity  standards).  This  level  reached 
219%  of  the  EU  average  in  2007,  but  has  being 
deteriorating  since  the  global  financial  crisis. 
Although the economy expanded at a higher pace 
compared with the EU average, the contribution of 
non-resident  workers  and  firms  to  economic 
growth has increased even faster. This resulted in 
a  relative  deterioration  of  the  wealth  created  by 
the  resident  population  compared  to  the  EU 
average. 

The  country’s  trade  openness,  financial 
integration  in  the  EU  and  labour  intensity 
explain  this  trend.  In  particular,  the  central 
location of Luxembourg in the EU, at the heart of 
the 
‘Greater  Region’,  encompassing  German, 
Belgian  and  French  regions,  enables  it  to  attract 
not only commuters but also permanent residents.  

Labour  productivity  is  much  higher  than  in 
the  rest  of  the  EU,  at  166%  of  the  EU 
average  in  2018.  However,  it  grew  at  a  lower 
pace during the last decade,  at an annual  rate of 
0.2%  (against  1%  at  EU  level).  The  country  is 
considered a strong innovator. 

Significant 
differences 
socio-economic 
between  Luxembourg’s  various  territories 
persist. In 2020, the unemployment rate in towns 
and suburbs was significantly higher, (8.8%), than 
in cities (5.4%) and rural areas (5.5%). Differences 
are  very  significant 
in  terms  of  educational 
attainment.  In  cities,  more  than  76%  of  the 
population  has  a  tertiary  degree,  but  this  share 
drops to 39% in towns and suburbs and to 40% in 
rural  areas.  The  share  of  NEETs (33)  is  also  higher 
in towns, suburbs and rural areas (Table 1). 

The  incidence  of  poverty  is  higher  in  towns 
and suburbs, where 22.5% of the population was 

Source: European Commission 

(33)  NEETs are defined as young people (aged 20–34) neither in 
employment nor in education and training. It is measured as 
% of total population aged 20-34. 

(34)  Statec (2020) 

48 

Luxembourg Unemployment ratePopulation with post-secondary educationNot in education employment or training (NEET)At risk of porverty or social exclusion (AROPE)% of active population% of population aged 25-64%%Cities5.4076.104.9016.50Towns and suburbs8.8039.0010.0022.50Rural Areas 5.5040.008.0018.20 
 
                                                 
 
             
 
 
                                                 
 
MACROECONOMIC STABILITY 
MACROECONOMIC STABILITY 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 
ANNEX 16: KEY FINANCIAL SECTOR DEVELOPMENTS 

quarter  of  2021,  compared  to  2.2%  in  the  euro 
area.  On  the  liability  side,  deposits  from  the 
resident  non-bank  sector  increased  by  19%  over 
the last 12 months. 

to  persist 

Mortgage lending has grown rapidly in recent 
years,  feeding  back  into  rapidly  rising  real 
estate  prices  and  leading  to  high  levels  of 
indebtedness.  The  vulnerabilities 
household 
continue 
to  date,  despite  recent 
borrower-based measures taken to address them. 
Following the 2019 European Systemic Risk Board 
recommendation, the local supervisor, the national 
financial  supervisor,  set  a  loan-to-value  limit  on 
residential  mortgages  and  set  the  countercyclical 
buffer  rate  for  banks  at  0.50%,  effective  from 
1 January  2021.  As  a  result,  Luxembourg  was 
assessed  as  fully  compliant  with  the  ESRB 
recommendation.  However,  these  measures  have 
not  dampened  house-price  growth  significantly, 
resulting 
in  further  overvaluation  which  was 
affirmed by the ESRB in February 2022. 

financial 
centre, 
As  an 
international 
Luxembourg  faces  an 
inherent  money-
laundering  risk.  In  order  to  address  the  issue  a 
first vertical risk assessment of legal persons and 
arrangements  was  concluded  in  February  2022. 
The risk assessment exemplifies the importance of 
mitigating  measures  to  reduce  the  risks.  In  this 
regard,  Luxembourg  relies  on  a  multi-pronged 

This  Annex  provides  an  overview  of  key 
developments 
in  Luxembourg’s  financial 
sector.  Luxembourg  is  the  second-largest  fund 
administration  centre  globally  after  the  US.  In 
2021, 
the  volume  of  Luxembourg-domiciled 
investment  funds  climbed  to  EUR 5.9 trillion,  after 
growing  by  17.8%  in  2021.  The  expansion  was 
driven largely by the economic recovery, the rise in 
valuations,  notably  in  equity  markets;  and  by  a 
significant 
from 
households  and  companies  towards  investment 
funds.  Moreover,  Luxembourg’s  fund  industry  has 
positioned itself as one of the favoured domiciles 
for sustainable investment funds in the EU. 

reallocation 

savings 

of 

domiciled 

significance.  Banks 

Luxembourg  is  a  major  financial  centre  with 
global 
in 
Luxembourg have assets of EUR 955 billion, about 
20 times the size of the economy. However, only a 
small  part  of  financial  institutions  in  Luxembourg 
has direct links with the domestic economy. Of the 
124  banks  based  in  Luxembourg,  about  7  cater 
directly to domestic retail clients. 

Luxembourg’s  banks  have  remained  resilient 
in  the  face  of  the  shock  of  the  pandemic 
crisis.  They  continued  to  display  solid  capital 
ratios, although their profitability has weakened in 
the  low  interest  rate  environment.  Luxembourg’s 
non-performing loans ratio was among the lowest 
of  the  EU,  at  0.6%  of  gross  loans  in  the  third 

Table A16.1: Financial soundness indicators 

(1) Last data: Q3 2021. 
(2) Includes issuance by supranationals such as EU. 
Source: European Central Bank, Eurostat, Refinitiv 

49 

20172018201920202021Total assets of the banking sector (% of GDP)1 784.71 780.61 853.71 944.81 990.8Share (total assets) of the five largest bank (%)26.226.327.731.6-Share (total assets) of domestic credit institutions (%)113.213.012.814.112.8Financial soundness indicators:1- non-performing loans (% of total loans)0.70.80.60.70.6- capital adequacy ratio (%)22.521.419.721.721.0- return on equity (%)5.75.55.24.45.9NFC credit growth (year-on-year % change)3.24.54.9-1.6-4.5HH credit growth (year-on-year % change)7.87.32.67.710.1Cost-to-income ratio (%)156.059.362.261.661.1Loan-to-deposit ratio (%)176.675.676.562.458.4Central bank liquidity as % of liabilities0.90.80.61.11.6Private sector debt (% of GDP)286.5282.7302.0316.8-Long-term interest rate spread versus Bund (basis points)22.616.913.29.71.7Market funding ratio (%)62.462.361.962.3-Green bond issuance (bn EUR)27.17.18.19.315.5 
 
 
 
 
 
     
 
that 

approach.  As  a  first  prong,  Luxembourg 
is 
undertaking reforms to strengthen the register by 
granting  sanctioning  powers  to  the  register  of 
beneficial  owners,  so 
it  can  obtain 
appropriate,  accurate  and  up-to-date  information. 
These  reforms  are  well  advanced.  As  a  second 
prong, 
of 
improved 
further 
professionals  providing 
company 
services is being considered. Reports of suspicions 
filed  by  these  professionals  have  increased  over 
time.  However,  not  all  categories  of  professionals 
report in line with the high risk exposure and some 
categories do not report any suspicion at all. 

trust  and 

supervision 

50 

 
ANNEX 17: TAXATION 
ANNEX 17: TAXATION 

This  Annex  provides  an 
indicator-based 
overview  of  Luxembourg’s  tax  system.  It 
includes  information  on  the  tax  structure,  i.e.  the 
types  of  tax  that  Luxembourg  derives  most 
revenue from, the tax burden for workers, and the 
progressivity  and  redistributive  effect  of  the  tax 
system. 
information  on  tax 
collection  and  compliance  and  on  the  risks  of 
aggressive tax planning. 

It  also  provides 

by very large values in a few Member States. The 
Annual  Report  on  Taxation  2021  highlights  scope 
for  improvement  in  the  rate  of  tax-return  e-
filing (35).  The  value  added  tax  (VAT)  gap  (an 
indicator of the effectiveness of VAT enforcement 
and  compliance) (36)  has  been 
in 
Luxembourg at 6.6%, well below the EU-wide gap 
of  10.5%.  The  effective  average  corporate-tax 
rates were well above the EU average in 2020. 

reduced 

Luxembourg’s  tax  revenues  in  relation  to 
GDP are slightly below the EU average. More 
than half of all tax revenue comes from the 
taxation  of  income,  while  some  other  tax 
bases  are  underused.  Luxembourg’s 
tax 
revenues  as  a  share  of  GDP  were  slightly  below 
the EU aggregate in 2020. Personal and corporate 
income  tax  revenue  account  for  54%  of  all  tax 
revenue  (36%  and  18%  of  tax  revenue  in  2020, 
respectively).  Nevertheless,  this  share  was  below 
the EU aggregate, as were income tax revenues as 
a  share  of  GDP.  Revenues  from  consumption  and 
environmental  taxes  as  a  share  of  GDP  were 
among  the  lowest  in  the  EU.  However,  revenues 
from  capital  taxes  as  a  share  of  GDP  were  the 
highest of all Member States. While revenues from 
property  taxes  in  general  were  relatively  high, 
revenues from recurrent property taxes, which are 
particularly  conducive  to  growth,  were  among  the 
lowest of all Member States. 

Luxembourg’s income tax burden is relatively 
low  across  the 
income  distribution.  The 
income tax wedge in 2020 was substantially lower 
than  the  EU  average  at  various  income  levels,  i.e. 
for single people at the average wage (100%) and 
at  50%,  67%  and  167%  of  the  average  wage. 
Second  earners  at  a  wage  level  of  67%  of  the 
average  wage,  whose  spouse  earned  the  average 
wage,  faced  a  tax  wedge  slightly  below  the  EU 
average. However, the difference between the tax 
wedge  of  second  earners  at  67%  of  the  average 
wage  and  the  one  of  single  people  at  the  same 
wage level was among the highest in the EU. The 
tax-benefit  system  helped  reduce  inequality  as 
measured by the Gini coefficient in 2020, but the 
reduction was smaller than the EU average. 

Luxembourg  is  doing  moderately  well  on 
digitalisation  of  the  tax  administration, 
which  can  help  reduce  tax  arrears  and  cut 
compliance  costs.  Outstanding  tax  arrears  have 
increased by 1 percentage point to 12.8% of total 
net  revenue.  This  is  significantly  below  the  EU 
average of 31.8%, though that average is inflated 

Lastly,  the  risk  of  aggressive  tax  planning 
appears  high  in  Luxembourg.  First,  dividends, 
interest  and  royalties  (paid  and  received)  are 
among  the  highest  in  the  EU,  and  at  a  high  level 
compared  to  the  size  of  the  economy.  Second, 
Luxembourg  has  the  EU’s  highest  incoming  and 
outgoing  foreign  direct  investments  (FDI).  A  large 
majority  of  this  FDI  (81%)  is  linked  to  special-
purpose entities. These high FDI flows via special-
purpose entities as a percentage of total FDI also 
suggest  the  use  of  Luxembourg  by  companies 
engaging in aggressive tax planning. 

(35)  European Commission, Directorate-General for Taxation and 
Customs Union, Annual Report on Taxation 2021 : review of 
taxation policies in the EU Member States, Publications 
Office, 2021, https://data.europa.eu/doi/10.2778/294944, 
see section 2.1.4 Improving tax administration of the Annual 
Report on Taxation 2021 for further details 

(36)  The VAT Gap is defined as the difference between the 

amount of VAT amount actually collected and the VAT Total 
Tax Liability (VTTL). The VTTL is an estimated amount of VAT 
that is theoretically collectable based on the VAT legislation 
and ancillary regulations. 

51 

 
 
 
                                                 
 
Table A17.1: Indicators on taxation 

(1) Forward-looking effective tax rate (Organisation for Economic Co-operation and Development). 
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission and Organisation for Economic Co-operation and Development (OECD) 

Graph A17.1: Indicators on tax wedge (1) 

The tax wedge measures the difference between the total labour cost of employing a worker and the worker’s net earnings: sum 
of personal income taxes and employee and employer social security contributions, net of family allowances, expressed as a 
percentage of total labour costs (the sum of the gross wage and social security contributions paid by the employer). 
(1) The second earner average tax wedge measures how much extra personal income tax (PIT) plus employee and employer social 
security contributions (SSCs) the family will have to pay as a result of the second earner entering employment, as a proportion of 
the second earner’s gross earnings plus the employer SSCs due on the second earner’s income. For a more detailed discussion see 
OECD (2016), Taxing Wages 2016, OECD Publishing, Paris. http://dx.doi.org/10.1787/tax_wages-2016-en 
(*) EU-27 simple average as there is no aggregated EU-27 value. 
Source: European Commission 

52 

2010201820192020202120102018201920202021DatasourceTotal taxes (including compulsory actual social contributions) (% of GDP)35.739.339.538.538.137.940.139.940.1Eurostat [gov_10a_taxag]Labour taxes (as % of GDP)15.817.818.218.920.020.720.721.5TAXUD, Data on TaxationConsumption taxes (as % of GDP)9.98.78.98.310.811.111.110.8TAXUD, Data on TaxationCapital taxes (as % of GDP)10.012.712.411.27.18.28.17.9TAXUD, Data on TaxationTotal property taxes (as % of GDP)1.02.52.42.51.92.22.22.3TAXUD, Data on TaxationRecurrent taxes on immovable property (as % of GDP)0.10.10.10.11.11.21.21.2TAXUD, Data on TaxationEnvironmental taxes as % of GDP2.31.71.71.42.42.42.42.2TAXUD, Data on TaxationTax wedge at 50% of Average Wage (Single person) (*)25.326.524.425.826.833.932.432.031.531.9OECDTax wedge at 100% of Average Wage (Single person) (*)35.338.238.539.540.241.040.240.139.939.7DG ECFIN, Tax & BenefitsCorporate Income Tax - Effective Average Tax rates (1) (*)24.223.223.219.819.519.3DG ECFIN, Tax & BenefitsDifference in GINI coefficient before and after taxes and cash social transfers (pensions excluded from social transfers)9.76.95.26.98.47.97.48.3Eurostat [ilc_di12] and EMPL calculationsOutstanding tax arrears: Total year-end tax debt (including debt considered not collectable) / total revenue (in %) (*)11.812.831.931.8OECDVAT Gap (% of VTTL)8.56.611.210.5DG TAXUD, VAT GAP StudyDividends, Interests and Royalties (paid and received) as a share of GDP (%)410.4374.0372.910.710.5Eurostat [bop_fdi6_pos]FDI flows through SPEs (Special Purpose Entities), % of total FDI flows (in and out)95.394.181.347.846.236.7Eurostat [bop_fdi6_inc]Tax structureProgressivity & fairnessTax administration & complianceFinancial Activity RiskLuxembourgEU-2726.832.340.246.644.0At 50% of Average Wage (Singleperson)At 67% of Average Wage (Singleperson)At 100% of Average Wage (Singleperson)At 167% of Average Wage (Singleperson)For second earner at 67% ofAverage Wage (Two earner couple,1st earner 100% of AW) (1)Tax wedge 2021 (%)LUEU-27 (*) 
 
 
   
 
   
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 
ANNEX 18: KEY ECONOMIC AND FINANCIAL INDICATORS 

Table A18.1: Key economic and financial indicators 

(1) Net international investment position - NIIP excluding direct investment and portfolio equity shares. 
(2) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU foreign-
controlled branches. 
Source: Eurostat and European Central Bank as of 2 May 2022, where available; European Commission for forecast figures 
(Spring forecast 2022) 

53 

2004-072008-122013-1820192020202120222023Real GDP year-on-year (y-o-y)5.20.62.73.3-1.86.92.22.7Potential growth (y-o-y)3.92.22.32.62.32.82.73.0Private consumption (y-o-y)1.82.42.62.5-6.97.43.62.9Public consumption (y-o-y)1.73.62.83.97.74.73.32.0Gross fixed capital formation (y-o-y)4.42.80.39.8-4.612.31.32.1Exports of goods and services (y-o-y)8.31.64.45.81.39.73.83.1Imports of goods and services (y-o-y) 7.32.94.66.91.610.44.33.1Contribution to GDP growth:Domestic demand (y-o-y)1.81.91.43.1-1.85.21.91.6Inventories (y-o-y)0.1-0.10.20.10.2-0.30.00.0Net exports (y-o-y)3.3-1.31.10.2-0.22.00.41.1Contribution to potential GDP growth:Total labour (hours) (y-o-y)1.91.31.61.10.70.80.91.2Capital accumulation (y-o-y)1.31.31.00.90.71.00.90.9Total factor productivity (y-o-y)0.7-0.4-0.30.60.91.00.80.8Output gap1.1-1.6-0.90.1-3.90.0-0.5-0.8Unemployment rate4.64.96.05.66.85.35.25.1GDP deflator (y-o-y)4.13.81.70.64.36.84.02.1Harmonised index of consumer prices (HICP, y-o-y)3.22.71.11.60.03.56.82.3Nominal compensation per employee (y-o-y)4.02.22.21.90.45.14.83.6Labour productivity (real, hours worked, y-o-y)1.9-1.1-0.10.02.36.5-1.40.2Unit labour costs (ULC, whole economy, y-o-y)2.24.32.32.14.11.45.13.4Real unit labour costs (y-o-y)-1.80.50.71.5-0.2-5.11.11.3Real effective exchange rate (ULC, y-o-y)1.02.01.6-0.7....Real effective exchange rate (HICP, y-o-y)1.10.10.5-0.50.40.8..Net savings rate of households (net saving as percentage of net disposable income)5.26.17.97.918.1...Private credit flow, consolidated (% of GDP)40.45.111.319.644.1...Private sector debt, consolidated (% of GDP)218.0287.4300.6302.0316.8...of which household debt, consolidated (% of GDP)46.255.160.566.869.2...of which non-financial corporate debt, consolidated (% of GDP)171.8232.3240.2235.2247.6...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)...0.50.6...Corporations, net lending (+) or net borrowing (-) (% of GDP)7.20.5-0.3-6.41.13.64.14.5Corporations, gross operating surplus (% of GDP)28.630.931.228.629.432.332.031.5Households, net lending (+) or net borrowing (-) (% of GDP)-0.20.20.50.75.01.90.8-0.2Deflated house price index (y-o-y)8.11.24.28.313.8...Residential investment (% of GDP)3.23.23.74.03.73.6..Current account balance (% of GDP), balance of payments6.85.74.84.64.14.83.83.8Trade balance (% of GDP), balance of payments29.636.541.336.937.235.1..Terms of trade of goods and services (y-o-y)0.01.1-0.1-0.91.71.3-0.7-0.1Capital account balance (% of GDP)0.4-0.40.0-0.1-0.10.0..Net international investment position (% of GDP)10.112.160.258.253.452.8..NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)..-3 429.5-4 076.8-4 203.4-4 635.1..IIP liabilities excluding non-defaultable instruments (% of GDP) (1)..9 794.811 038.510 951.111 236.2..Export performance vs. advanced countries (% change over 5 years)28.016.317.28.821.2...Export market share, goods and services (y-o-y)4.5-1.33.84.214.3-0.2-0.9-1.1Net FDI flows (% of GDP)..45.9 111.8 11.5 108.9..General government balance (% of GDP)1.20.81.62.3-3.40.9-0.10.1Structural budget balance (% of GDP)..2.02.2-1.60.90.10.4General government gross debt (% of GDP)8.017.721.322.324.824.424.725.1forecast 
 
 
 
 
   
 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 
ANNEX 19: DEBT SUSTAINABILITY ANALYSIS 

This  Annex  assesses  fiscal  sustainability 
risks for Luxembourg over the short, medium 
and  long  term.  It  follows  the  same  multi-
the  2021  Fiscal 
dimensional  approach  as 
Sustainability  Report, updated  on the basis  of the 
Commission 2022 spring forecast. 

Table  1  presents 
the  baseline  debt 
projections.  It  shows  the  projected  government 
debt  and  its  breakdown  into  the  primary  balance, 
the  snowball  effect  (the  combined  impact  of 
interest payments and nominal GDP growth on the 
debt  dynamics)  and  the  stock-flow  adjustment. 
These projections assume that no new fiscal policy 
measures  are  taken  after  2023,  and  include  the 
expected  positive  impact  of  investments  under 
NextGenerationEU. 

Graph  1  shows  four  alternative  scenarios 
around  the  baseline, to  illustrate the  impact 
of changes in assumptions. The ‘historical SPB’ 
scenario  assumes  that  the  structural  primary 
balance (SPB) gradually returns to its past average 

level.  In  the  ‘lower  SPB’  scenario,  the  SPB  is 
permanently  weaker  than  in  the  baseline.  The 
‘adverse interest-growth rate’ scenario assumes a 
less  favourable  snowball  effect  than 
in  the 
baseline.  In  the  ‘financial  stress’  scenario,  the 
country  temporarily  faces  higher  market  interest 
rates in 2022.  

Graph 2 shows the outcome of the stochastic 
projections.  These  projections  show  the  impact 
on  debt  of  2  000  different  shocks  affecting  the 
government’s 
economic 
growth,  interest  rates  and  exchange  rates.  The 
cone covers 80% of all the simulated debt paths, 
therefore excluding tail events. 

budgetary 

position, 

Table  2  shows  the  S1  and  S2  fiscal 
sustainability 
indicators  and  their  main 
drivers.  S1  measures  the  consolidation  effort 
needed to bring debt to 60% of GDP in 15 years. 
S2  measures  the  consolidation  effort  required  to 
stabilise  debt  over  an  infinite  horizon.  The  initial 
budgetary position measures the effort required to 
cover  future  interest  payments,  the  ageing  costs 
component  accounts  for  the  need  to  absorb  the 

Table A19.1: Debt sustainability analysis for Luxembourg 

Source: European Commission 

54 

Table 1. Baseline debt projections20192020202120222023202420252026202720282029203020312032Gross debt ratio (% of GDP)22.324.824.424.725.124.022.721.220.319.719.319.119.219.4Change in debt1.42.5-0.40.30.4-1.1-1.4-1.4-0.9-0.6-0.4-0.20.00.2of whichPrimary deficit-2.63.2-1.00.0-0.20.0-0.1-0.30.00.20.40.60.70.9Snowball effect-0.4-0.3-2.9-1.3-1.0-1.1-1.2-1.1-0.9-0.8-0.7-0.7-0.7-0.7Stock-flow adjustment4.5-0.43.61.71.70.00.00.00.00.00.00.00.00.0Gross financing needs (% of GDP)3.17.52.93.63.31.81.61.31.41.51.61.81.92.1S1S2Overall index (pps. of GDP)-3.57.4of whichInitial budgetary position-2.0-0.4Debt requirement-2.9Ageing costs1.47.8of whichPensions1.46.1Health care0.20.9Long-term care0.11.3Others-0.3-0.5                                                                       Table 2. Breakdown of the S1 and S2 sustainability gap indicators0510152025303540452019202120232025202720292031BaselineHistorical SPB scenarioLower SPB scenarioFinancial stress scenarioAdverse 'r-g' scenarioGraph 1. Deterministic debt projections (% of GDP)p10-p20p20-p40p40-p60p60-p80p80-p9001020304020192020202120222023202420252026Graph 2. Stochastic debt projections(% of GDP)MedianBaseline 
 
 
 
 
     
 
Table A19.2: Heat map of fiscal sustainability risks for Luxembourg 

(1) Debt level in 2032: green: below 60% of GDP, yellow: between 60% and 90%, red: above 90%. (2) The debt peak year 
indicates whether debt is projected to increase overall over the next decade. Green: debt peaks early; yellow: peak towards the 
middle of the projection period; red: late peak. (3) Fiscal consolidation space measures the share of past fiscal positions in the 
country that were more stringent than the one assumed in the baseline. Green: high value, i.e. the assumed fiscal position is 
plausible by historical standards and leaves room for corrective measures if needed; yellow: intermediate; red: low. (4) Probability 
of the debt ratio exceeding in 2026 its 2021 level: green: low probability, yellow: intermediate, red: high (also reflecting the initial 
debt level). (5) The difference between the 90th and 10th percentiles measures uncertainty, based on the debt distribution under 
2000 different shocks. Green, yellow and red cells indicate increasing uncertainty. 
Source: European Commission (for further details on the Commission’s multi-dimensional approach, see the 2021 Fiscal 
Sustainability Report). 

change 

in  ageing-related 

projected 
public 
expenditure  such  as  pensions,  health  care  and 
long-term  care,  and 
requirement 
measures  the  additional  adjustment  needed  to 
reach the 60% of GDP debt target. 

the  debt 

risk 

sustainability 

Finally,  the  heat  map  presents  the  overall 
fiscal 
classification 
(Table A19.2).  The  short-term  risk  category  is 
based  on  the  S0  indicator,  an  early-detection 
indicator of fiscal stress in the upcoming year. The 
medium-term  risk  category  is  derived  from  the 
debt  sustainability  analysis  (DSA)  and  the  S1 
indicator.  The  DSA  assesses  risks to  sustainability 
based  on  several  criteria: the  projected  debt level 
in 10 years’ time, the debt trajectory (‘peak year’), 
the plausibility of fiscal assumptions and room for 
tighter  positions  if  needed  (‘fiscal  consolidation 
space’),  the  probability  of  debt  not  stabilising  in 
the  next  5  years  and  the  size  of  uncertainty.  The 
long-term  risk  category  is  based  on  the  S2 
indicator and the DSA. 

macroeconomic  and 
financial  variables,  as 
illustrated  by  alternative  scenarios  and  stochastic 
simulations,  all  pointing  to  low  risks  (Table  A19.1 
and  A19.2).  Moreover,  the  sustainability  gap 
indicator  S1  (at  -3.5  percentage  points.  of  GDP) 
signals  that  no  additional  fiscal  effort  would  be 
needed to reduce debt to 60% of GDP in 15 years’ 
time  (Table 2).  Overall,  the  low  risk  reflects  the 
current balanced budget and low debt, which more 
than  compensate  the  projected  ageing  costs 
increase, primarily related to public pensions. 

Long-term  risks  to  fiscal  sustainability  are 
high.  Over  the  long  term,  the  sustainability  gap 
indicator  S2  (at  7.4  percentage  points  of  GDP) 
points to high risks, leading to the overall high risk 
assessment.  The  S2  indicator  suggests  that,  to 
stabilise  debt  over  the  long  term,  it  will  be 
to  address  budgetary  pressures 
necessary 
stemming 
from  population  ageing,  primarily 
related to pension and long-term care expenditure 
(Table 2). 

short-term 

Overall, 
fiscal 
sustainability are low. The Commission’s early-
detection indicator (S0) does not signal short-term 
fiscal risks (Table A19.2).  

risks 

to 

Medium-term  risks  to  fiscal  sustainability 
are  low.  Both  elements  of  the  Commission’s 
medium-term  analysis  lead  to  this  conclusion. 
First,  the  debt  sustainability  analysis  (DSA)  shows 
that  government  debt,  is  projected  to  fall  from 
around  25%  of  GDP  in  2022  to  around  19%  of 
GDP  in  2032  in  the  baseline  (Table 1).  This  debt 
path  is  rather  robust  to  possible  shocks  to  fiscal, 

55 

BaselineHistorical SPBLower SPBAdverse 'r-g'Financial stressOverallLOWLOWLOWLOWLOWLOWDebt level (2032), % GDP1911212120Debt peak year20232023202320232023Fiscal consolidation space83%73%86%83%83%Probability of debt ratio exceeding in 2026 its 2021 level36%Difference between 90th and 10th percentiles (pps. GDP)28HIGHHIGHDeterministic scenariosStochastic projectionsLOWLOWLOWLOWShort termMedium termLong termOverall                               (S0)Overall     (S1+DSA)S1Debt sustainability analysis (DSA)S2Overall     (S2+DSA)Overall 
 
  
 
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