Recommendation for a COUNCIL RECOMMENDATION on the 2023 National reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg
Date: 2023-05-24
Institutions: European Commission, Secretariat-General
Subjects: Luxembourg, economic policy, economic recovery, economic reform, energy policy, fiscal policy, green economy, investment, stability pact, stability programme

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   EUROPEAN COMMISSION  Brussels, 24.5.2023  COM(2023) 616 final  Recommendation for a COUNCIL RECOMMENDATION on the 2023 National reform Programme of Luxembourg and delivering a Council opinion on the 2023 Stability Programme of Luxembourg {SWD(2023) 616 final}  
 
Recommendation for a 

COUNCIL RECOMMENDATION 

on the 2023 National reform Programme of Luxembourg and delivering a Council 
opinion on the 2023 Stability Programme of Luxembourg 

THE COUNCIL OF THE EUROPEAN UNION, 

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

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of 
the  surveillance  of  budgetary  positions  and  the  surveillance  and  coordination  of  economic 
policies1, and in particular Article 5(2) thereof, 

Having  regard  to  Regulation  (EU)  No  1176/2011  of  the  European  Parliament  and  of  the 
Council  of  16  November  2011  on  the  prevention  and  correction  of  macroeconomic 
imbalances2, and in particular Article 6(1) thereof, 

Having regard to the recommendation of the European Commission, 

Having regard to the resolutions of the European Parliament, 

Having regard to the conclusions of the European Council, 

Having regard to the opinion of the Employment Committee, 

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

Having regard to the opinion of the Social Protection Committee, 

Having regard to the opinion of the Economic Policy Committee, 

Whereas: 

(1) 

Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council3,  which 
established  the  Recovery  and  Resilience  Facility,  entered  into  force  on  19  February 
2021. The Recovery and Resilience Facility provides financial support to the Member 
States  for  the  implementation  of  reforms  and  investments,  entailing  a  fiscal  impulse 
financed  by  the  EU.  In  line  with  the  European  Semester  priorities,  it  contributes  to 
economic  and  social  recovery  and  to  the  implementation  of  sustainable  reforms  and 
investments,  in  particular  to  promote  the  green  and  digital  transition  and  make  the 
Member States’ economies more resilient. It also helps strengthen public finances and 
boost  growth  and  job  creation  in  the  medium  and  long  term,  improve  territorial 
cohesion  within  the  EU  and  support  the  continued  implementation  of  the  European 
Pillar of Social Rights. The maximum financial contribution per Member State under 
the Recovery and Resilience Facility was updated on 30 June 2022, in accordance with 
Article 11(2) of Regulation (EU) 2021/241.  

1 
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3 

OJ L 209, 2.8.1997, p. 1. 
OJ L 306, 23.11.2011, p. 25. 
Regulation  (EU)  2021/241  of  the  European  Parliament  and  of  the  Council  of  12  February  2021 
establishing the Recovery and Resilience Facility (OJ L 57, 18.2.2021, p. 17). 

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(2) 

On 22 November 2022, the Commission adopted the 2023 Annual Sustainable Growth 
Survey4,  marking  the  start  of  the  2023  European  Semester  for  economic  policy 
coordination. The European Council endorsed the priorities of the  survey  around the 
four  dimensions  of  competitive  sustainability  on  23  March  2023.  On  22  November 
2022,  on  the  basis  of  Regulation  (EU)  No  1176/2011,  the  Commission  also  adopted 
the  2023  Alert  Mechanism  Report,  in  which  it  identified  Luxembourg  as  one  of  the 
Member States that may be affected or may be at risk of being affected by imbalances, 
and for which an in-depth review would be needed. On the same date the Commission 
also  adopted  an  opinion  on  Luxembourg’s  2023  draft  budgetary  plan.  The 
Commission  also  adopted  a  recommendation  for  a  Council  recommendation  on  the 
economic policy of the euro area, which the Council adopted on 16 May 2023, as well 
as the proposal  for the 2023 Joint Employment  Report analysing the implementation 
of  the  Employment  Guidelines  and  the  principles  of  the  European  Pillar  of  Social 
Rights, which the Council adopted on 13 March 2023. 

(3)  While the EU economies are showing remarkable resilience, the  geopolitical  context 
continues  to  have  a  negative  impact.  As  the  EU  stands  firmly  with  Ukraine,  the  EU 
economic  and  social  policy  agenda  is  focused  on  reducing  the  negative  impact  of 
energy shocks on both vulnerable households and companies in the short term, and on 
keeping  up  efforts  to  deliver  on  the  green  and  digital  transition,  support  sustainable 
and inclusive growth, safeguard macroeconomic stability and increase resilience in the 
medium  term.  It  also  focuses  heavily  on  increasing  the  EU’s  competitiveness  and 
productivity. 

(4) 

On  1  February  2023,  the  Commission  issued  the  Communication  A  Green  Deal 
Industrial  Plan  for  the  Net-Zero  Age5  to  boost  the  competitiveness  of  the  EU’s  net-
zero  industry  and  support  the  fast  transition  to  climate  neutrality.  The  plan 
complements  ongoing  efforts  under  the  European  Green  Deal  and  REPowerEU.  It 
aims to provide a more supportive environment for scaling up the EU’s manufacturing 
capacity  for  the  net-zero  technologies  and  products  required  to  meet  the  EU’s 
ambitious climate targets, as well as ensuring access to relevant critical raw materials, 
including  by  diversifying  sourcing,  properly  exploiting  geological  resources  in 
Member States and maximising the recycling  of raw materials. The plan  is  based on 
four pillars:  a predictable and simplified regulatory  environment,  speeding up access 
to finance, enhancing skills, and open trade for resilient supply chains. On 16 March 
2023,  the  Commission  also  issued  the  Communication  Long-term  competitiveness  of 
the EU: looking beyond 20306, structured along nine mutually reinforcing drivers with 
the objective to work towards a growth enhancing regulatory framework. It sets policy 
improvements,  well  focused 
priorities  aimed  at  actively  ensuring  structural 
investments and regulatory measures for the long-term competitiveness of the EU and 
its Member States. The recommendations below help address those priorities. 

(5) 

In 2023, the European Semester for economic policy coordination continues to evolve 
in  line  with  the  implementation  of  the  Recovery  and  Resilience  Facility.  Fully 
implementing  the  recovery  and  resilience  plans  remains  essential  for  delivering  the 
policy priorities under the European Semester, as the plans address all or a significant 
subset  of  the  relevant  country-specific  recommendations  issued  in  recent  years.  The 
2019, 2020 and 2022 country-specific recommendations remain equally relevant also 

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COM(2022) 780 final. 
COM(2023) 62 final.  
COM(2023) 168 final.  

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(6) 

(7) 

for  recovery  and  resilience  plans  revised,  updated  or  amended  in  accordance  with 
Articles 14, 18 and 21 of Regulation (EU) 2021/241.  
The REPowerEU Regulation7 adopted on 27 February 2023 aims to rapidly phase out 
the  EU’s  dependence  on  Russian  fossil  fuel  imports.  This  will  contribute  towards 
energy security and the diversification of the EU’s energy supply, while increasing the 
uptake of renewables, energy storage capacities and energy efficiency. The Regulation 
enables  Member  States  to  add  a  new  REPowerEU  chapter  to  their  national  recovery 
and  resilience  plans  in  order  to  finance  key  reforms  and  investments  that  will  help 
achieve the REPowerEU objectives. They will also help boost the competitiveness of 
the EU’s net-zero industry as outlined in the Green Deal  Industrial Plan for the Net-
Zero Age and address the energy-related country-specific recommendations issued to 
the  Member  States  in  2022  and,  where  applicable,  in  2023.  The  REPowerEU 
Regulation  introduces  a  new  category  of  non-repayable  financial  support,  made 
available  to  Member  States  to  finance  new  energy-related  reforms  and  investments 
under their recovery and resilience plans.  

On 8 March 2023, the Commission adopted a communication providing fiscal policy 
guidance for 2024. It aims to support the preparation of Member States’ stability and 
thereby  strengthen  policy  coordination8.  The 
convergence  programmes  and 
Commission recalled that the general escape clause of the Stability and Growth Pact 
will be deactivated at  the end of 2023.  It  called  for fiscal  policies in  2023-2024 that 
ensure  medium-term  debt  sustainability  as  well  as  raise  potential  growth  in  a 
sustainable manner. Member States were invited to set out in their 2023 stability and 
convergence programmes how their fiscal plans will ensure that the 3% of GDP deficit 
reference value is adhered to as well as plausible and continuous debt reduction, or for 
debt  to  be  kept  at  prudent  levels  in  the  medium  term.  The  Commission  invited 
Member States to phase out national fiscal measures introduced to protect households 
and  firms  from  the  energy  price  shock,  starting  with  the  least  targeted  ones.  It 
indicated that, if support measures needed to be extended because of renewed energy 
price  pressures,  Member  States  should  target  such  measures  much  better  than  in  the 
past  towards  vulnerable  households  and  firms.  The  Commission  proposed  that  the 
fiscal  recommendations would be quantified and differentiated and be formulated on 
the basis of net primary expenditure, as proposed in its Communication on orientations 
for  a  reform  of  the  EU  economic  governance  framework9.  It  recommended  that  all 
Member States should  continue to  protect  nationally  financed investment and ensure 
the  effective  use  of  the  Recovery  and  Resilience  Facility  and  other  EU  funds,  in 
particular  in  light  of  the  green  and  digital  transition  and  resilience  objectives.  The 
Commission  indicated  that  it  will  propose  to  the  Council  to  open  deficit-based 
excessive deficit procedures in spring 2024 on the basis of the outturn data for 2023, in 
line with existing legal provisions. 

(8) 

On  26  April  2023,  the  Commission  presented  legislative  proposals  to  implement  a 
comprehensive  reform of the EU's economic  governance rules. The central  objective 
of the proposals is to strengthen public debt sustainability and promote sustainable and 

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Regulation  (EU)  2023/435  of  the  European  Parliament  and  of  the  Council  of  27  February  2023 
amending Regulation (EU) 2021/241 as regards REPowerEU chapters in recovery and resilience plans 
and  amending  Regulations  (EU)  No  1303/2013,  (EU)  2021/1060  and  (EU)  2021/1755,  and  Directive 
2003/87/EC (OJ L 63, 28.2.2023, p. 1). 
COM(2023) 141 final. 
COM(2022) 583 final. 

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(9) 

inclusive growth in all Member States through reforms and investments. The proposals 
aim at providing Member States with more control over the design of their medium-
term plans, while putting in place a more stringent enforcement regime to ensure that 
Member  States  deliver  on  the  commitments  undertaken  in  their  medium-term  fiscal-
structural plans. The objective is to conclude the legislative work in 2023. 

On 21 April 2021, Luxembourg submitted its national recovery and resilience plan to 
the  Commission,  in  accordance  with  Article  18(1)  of  Regulation  (EU)  2021/241. 
Pursuant  to  Article  19  of  Regulation  (EU)  2021/241,  the  Commission  assessed  the 
relevance, effectiveness, efficiency and coherence of the recovery and resilience plan, 
in  accordance  with  the  assessment  guidelines  of  Annex  V  to  that  Regulation.  On  13 
July 2021, the Council adopted its Decision on the approval of the assessment of the 
recovery  and  resilience  plan  for  Luxembourg10.  The  release  of  instalments  is 
conditional on a decision by the Commission, taken in accordance with Article 24(5) 
of Regulation (EU) 2021/241, that Luxembourg has satisfactorily fulfilled the relevant 
milestones  and  targets  set  out  in  the  Council  Implementing  Decision.  Satisfactory 
fulfilment  presupposes  that  the  achievement  of  preceding  milestones  and  targets  has 
not been reversed. 

(10)  On 28 April 2023, Luxembourg submitted its 2023 National Reform Programme and, 
on 27 April 2023, its 2023 Stability Programme, in line with Article 4(1) of Regulation 
(EC)  No  1466/97.  To  take  account  of  their  interlinkages,  the  two  programmes  have 
been  assessed  together.  In  accordance  with  Article  27  of  Regulation  (EU)  2021/241, 
the 2023 National Reform Programme also reflects  Luxembourg’s biannual reporting 
on the progress made in achieving its recovery and resilience plan.  

(11)  The  Commission  published  the  2023  country  report  for  Luxembourg11  on  24  May 
2023.  It  assessed  Luxembourg’s  progress  in  addressing  the  relevant  country-specific 
recommendations adopted by the Council between 2019 and 2022, and took stock of 
Luxembourg’s  implementation  of  the  recovery  and  resilience  plan.  Based  on  this 
analysis, the country report identified gaps with respect to those challenges that are not 
addressed  or  only  partially  addressed  by  the  recovery  and  resilience  plan,  as  well  as 
new  and  emerging  challenges.  It  also  assessed  Luxembourg’s  progress  on 
implementing the European Pillar of Social Rights and on achieving the EU headline 
targets on employment, skills and poverty reduction, as well as progress in achieving 
the UN’s Sustainable Development Goals. 

(12)  The  Commission  carried  out  an  in-depth  review  under  Article  5  of  Regulation  (EU) 
No  1176/2011  for  Luxembourg  and  published  its  results  on  24  May  202312.  It 
concluded  that  Luxembourg  is  not  experiencing  macroeconomic  imbalances.  In 
particular, vulnerabilities relating to high house prices and high household debt have 
recently  increased  but  overall  seem  to  be  contained  so  far  and  are  expected  to  ease 
over the medium term. Strong population growth alongside increased mortgage credit, 
incentivised  by  fiscal  support,  has  pushed  up  demand  for  housing,  while  supply  has 
been  restricted  by  the  limited  land  available  for  construction  and  by  land  hoarding. 
The widening  gap between housing demand and  supply has resulted in  strong house 
price  increases  with  growing  risks  of  house  prices  overvaluation  and  deteriorating 

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Council Implementing Decision of 13 July 2021 on the approval of the assessment of the recovery and 
resilience plan for Luxembourg (ST 10155/21; ST 10155/21 ADD 1). 
SWD(2023) 616 final. 
SWD(2023) 638 final. 

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affordability.  House  prices  clearly  cooled  in  late  2022,  and  the  number  of  housing 
transactions  declined  sharply,  as  the  rise  in  interest  rates  have  led  to  a  turn  in  the 
market.  However,  a  sharp  correction  in  house  prices  is  not  expected  as  incomes  are 
holding  up  well  and  the  supply  shortage  is  expected  to  continue.  Household  debt  is 
very  high  in  terms  of  disposable  income  and  has  been  increasing  while  borrowing 
cooled  somewhat  in  late  2022.  Households’  financial  assets  are  also  substantial, 
indebtedness  increases  towards  the  higher  levels  of  income  and  wealth,  and  the 
banking  sector  is  sound,  which  overall  mitigates  macro-financial  risks.  Additional 
the  adoption  and 
policy  efforts, 
implementation of recent measures, including recurrent taxes to increase the supply of 
buildable land, combined with the ongoing reform of land-use planning, could help to 
boost  housing  supply,  including  through  the  supply  of  affordable  and  social  housing 
targeted to those most in need. The efficiency of the rental market could be improved 
too.  In  addition,  reducing  the  mortgage  interest  deductibility,  which  was  recently 
significantly  increased,  would  reduce  the  fiscal  incentives  to  borrow  which  supports 
high house prices.  

including  by  stepping  up  and  prioritising 

(13)  Based  on  data  validated  by  Eurostat,13  Luxembourg’s  general  government  surplus 
decreased from 0.7% of GDP in 2021 to 0.2% in 2022, while general government debt 
rose slightly from 24.5% of GDP at the end of 2021 to 24.6% at the end of 2022. 

(14)  The  general  government  balance  has  been  impacted  by  the  fiscal  policy  measures 
adopted to mitigate the economic and social impact of the increase in energy prices. In 
2022, such revenue-decreasing measures included a reduction in taxes on products to 
lower consumer prices for petrol, diesel and heating oil by 7.5ct per litre; while such 
expenditure-increasing  measures  included  the  introduction  of  an  energy  tax  credit14, 
aid  for  companies  affected  by  rising  energy  prices  and  limiting  gas  price  increases. 
The Commission estimates the net budgetary cost of these measures at 0.5% of GDP 
in  2022.  The  general  government  balance  has  also  been  impacted  by  the  budgetary 
cost of temporary protection to displaced persons from Ukraine, which is estimated at 
0.1% of GDP in 2022. At the same time, the estimated cost of COVID-19 temporary 
emergency measures dropped to 0.1% of GDP in 2022, from 0.8% in 2021. 

(15)  On  18  June  2021,  the  Council  recommended  that  in  2022  Luxembourg15  pursue  a 
supportive  fiscal  stance,  including  from  the  impulse  provided  by  the  Recovery  and 
Resilience Facility, and preserve nationally financed investment. 

(16)  According to the Commission estimates, the fiscal stance16 in 2022 was supportive, at  
-0.9%  of  GDP,  as  recommended  by  the  Council.  As  recommended  by  the  Council, 
Luxembourg  continued  to  support  the  recovery  with  investments  financed  by  the 
Recovery  and  Resilience  Facility.  Expenditure  financed  by  Recovery  and  Resilience 
Facility grants and other EU funds amounted to 0.1% of GDP in 2022 (0.1% of GDP 

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Eurostat-Euro Indicators, 47/2023, 21.4.2023 
Payable tax credits can exceed the tax liability and affect non-taxpayers as well as taxpayers; therefore, 
they are classified as expenditure in national accounts (ESA 2010, articles 20.167 and 20.168).  
Council  Recommendation  of  18  June  2021  delivering  a  Council  opinion  on  the  2021  Stability 
Programme of Luxembourg, OJ C 304, 16.2021, p. 73. 
The  fiscal  stance  is  measured  as  the  change  in  primary  expenditure  (net  of  discretionary  revenue 
measures), excluding Covid-19 crisis-related temporary emergency measures but including expenditure 
financed  by  non-repayable  support  (grants)  from  the  Recovery  and  Resilience  Facility  and  other  EU 
funds,  relative  to  medium-term  potential  growth. For  more  details  see  Box 1  in  the  Fiscal  Statistical 
Tables. 

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therefore  preserved  nationally  financed 

in 2021). Nationally financed investment provided a neutral contribution to the fiscal 
stance.17  Luxembourg 
investment,  as 
recommended  by  the  Council.  At  the  same  time,  the  growth  in  nationally  financed 
primary current expenditure (net of new revenue measures) provided an expansionary 
contribution of 1.3 percentage points to the fiscal stance. This significant expansionary 
contribution included the additional impact of measures to mitigate the economic and 
social impact of the increase in energy prices (additional net budgetary cost of 0.5% of 
GDP),  as  well  as  the  costs  to  offer  temporary  protection  to  displaced  persons  from 
Ukraine  (0.1%  of  GDP).  At  the  same  time,  subsidies,  other  current  expenditure  and 
intermediate  consumption  also  contributed  (0.3%  of  GDP)  to  the  growth  in  net 
primary  current  expenditure.  Luxembourg  therefore  did  not  sufficiently  keep  under 
control  the  growth  in  nationally  financed  current  expenditure.  The  significant 
expansionary  contribution  of  nationally  financed  current  expenditure  was  only 
partially due to the measures to address the economic and social impact of the increase 
in energy prices, as well as the costs to offer temporary protection to displaced persons 
from Ukraine. 

(17)  The macroeconomic scenario underpinning the budgetary projections in  the Stability 
Programme is favourable in 2023 and thereafter. The government projects real GDP to 
grow by 2.4% in 2023 and 3.8% in 2024. By comparison, the Commission 2023 spring 
forecast projects a lower real GDP growth of 1.6% in 2023 and 2.4% in 2024, mainly 
due to lower growth contributions from net exports in 2023 and domestic demand in 
2024.18 

(18) 

In its 2023 Stability Programme, the government expects that the general government 
balance will deteriorate to a deficit ratio of 1.5% of GDP in 2023. The deterioration in 
2023 mainly reflects additional measures to support household and corporate incomes 
in  the  wake  of  high  energy  prices  and  inflation.  According  to  the  Programme,  the 
general government debt-to-GDP ratio is expected to increase from 24.6% at the end 
of 2022 to 26.1% at the end of 2023. The Commission 2023 spring forecast projects a 
government  deficit of 1.7% of GDP for 2023. This  is  slightly higher than the deficit 
projected  in  the  Stability  Programme,  mainly  due  to  somewhat  lower  tax  revenue, 
according to the Commission forecast. The Commission 2023 spring forecast projects 
a slightly lower general government debt-to-GDP ratio, of 25.9% at the end of 2023. 
The  difference  is  due  to  higher  nominal  GDP  growth  in  2023,  according  to  the 
Commission forecast. 

(19)  The  government  balance  in  2023  is  expected  to  continue  to  be  impacted  by  the 
measures adopted to mitigate the economic and social impact of the increase in energy 
prices. They consist of measures extended from 2022 (in particular, limiting gas price 
increases  by  subsidising  household  energy  costs  and  network  charges,  stabilising 
electricity prices through subsidies to households, and measures to support businesses) 
and new measures, such as subsidies for heating supply through district networks and 
for  large  dwellings,  as  well  as  subsidies  for  promoting  self-consumption  through 

17 

18 

Other nationally financed capital expenditure  provided a contractionary contribution of 0.4 percentage 
points of GDP, due to a decline in  ‘Other capital transfers’  mainly  related to  phasing out of  business 
support  and  recovery  assistance  in  the  context  of  the  COVID-19  pandemic  (Recovery  and  solidarity 
fund for businesses). 

For  nominal  GDP  the  picture  is  slightly  different;  the  Stability  Programme  forecasts  nominal  GDP 
growth rates of 4.7% in 2023 and 6.0% in 2024, while the Commission 2023 spring forecast projects  a 
higher rate of 7.1% in 2023, and a comparable rate of 5.9% in 2024. 

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photovoltaic electricity by companies. The net budgetary cost of the support measures 
is projected in the Commission 2023 spring forecast at 1.1% of GDP in 2023.19 Some 
measures in 2023 are targeted to the most vulnerable households or firms, while most 
measures  do  not  preserve  the  price  signal  to  reduce  energy  demand  and  increase 
energy  efficiency.  As  a  result,  the  amount  of  targeted  support  measures,  to  be  taken 
into  account  in  the  assessment  of  compliance  with  the  fiscal  recommendation  for 
2023, is  estimated in the Commission  2023 spring  forecast  at  0.6% of GDP  in  2023 
(compared to 0.4% of GDP in 2022). 

(20)  On 12 July 2022, the Council recommended20 that Luxembourg take action to ensure 
in  2023 that the  growth  of nationally  financed primary  current  expenditure  is  in  line 
with  an  overall  neutral  policy  stance21,  taking  into  account  continued  temporary  and 
targeted support to households and firms most vulnerable to energy price hikes and to 
people fleeing Ukraine. Luxembourg should stand ready to adjust current spending to 
the  evolving  situation.  Luxembourg  was  also  recommended  to  expand  public 
investment  for  the  green  and  digital  transitions,  and  for  energy  security  taking  into 
account  the  REPowerEU  initiative,  including  by  making  use  of  the  Recovery  and 
Resilience Facility and other Union funds. 

(21) 

In  2023,  the  fiscal  stance  is  projected  in  the  Commission  2023  spring  forecast  to  be 
expansionary  (-1.5%  of  GDP),  in  a  context  of  high  inflation.  This  follows  an 
expansionary fiscal stance in 2022 (-0.9% of GDP). The growth in nationally financed 
primary  current  expenditure  (net  of  discretionary  revenue  measures)  in  2023  is 
projected to provide an expansionary contribution of 1.3 percentage points to the fiscal 
stance. This includes the increased cost of the targeted support measures to households 
and firms most vulnerable to energy price hikes by 0.3% of GDP. The expansionary 
contribution  of  nationally  financed  net  primary  current  expenditure  is  therefore  only 
partly due to the targeted support to households and firms most vulnerable to energy 
price  hikes.  The  expansionary  growth  in  nationally  financed  primary  current 
expenditure  (net  of  discretionary  revenue  measures)  is  also  driven  by,  among  other 
factors,  social  benefits  other  than  in  kind,  subsidies  related  to  untargeted  energy 
measures, permanent increases in public sector wages, a one-time contribution to the 
EU budget, and the reduction in VAT rates. In sum, the projected growth of nationally 
financed  primary  current  expenditure  is  not  in  line  with  the  recommendation  of  the 
Council.  Expenditure  financed  by  Recovery  and  Resilience  Facility  grants  and  other 
EU funds is projected to amount to 0.2% of GDP in 2023, while nationally financed 
investment is projected to provide an expansionary contribution to the fiscal stance of 
0.1 percentage points. Luxembourg plans to finance additional investment through the 
Recovery and Resilience Facility and other EU funds, and it is  projected to  preserve 
nationally  financed  investment.22  It  plans  to  finance  public  investment  for  the  green 
and  digital  transitions,  and  for  energy  security,  such  as  electrification  of  public 
transport,  reinforcement  of  the  tram  and  rail  network,  a  climate  and  energy  fund  to 

19 

20 

21 

22 

The  figure represents the level of annual budgetary cost of those  measures, including current revenue 
and expenditure as well as – where relevant – capital expenditure measures. 
Council  Recommendation  of  12  July  2022  on  the  National  Reform  Programme  of  Luxembourg  and 
delivering a Council opinion on the 2022 Stability Programme of Luxembourg OJ C 334, 01.09.2022, 
p. 128. 
Based  on  the  Commission  spring  2023  forecast,  the  medium-term  (10-year  average)  potential  output 
growth  of  Luxembourg,  which  is  used  to  measure  the  fiscal  stance,  is  estimated  at  7.8%  in  nominal 
terms. 
Other nationally financed capital expenditure is projected to provide a neutral contribution to GDP.  

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support  the  acquisition  of  photovoltaic  panels,  digitalisation  of  public  services  and 
digital communication security (quantum technology), which are partly funded by the 
Recovery and Resilience Facility and other EU funds.  

(22)  According  to  the  Stability  Programme  the  general  government  deficit  is  expected  to 
increase to 1.7% of GDP in 2024. The increase in 2024 mainly reflects the extension 
of support measures to cushion households and corporate incomes against the effects 
of  the  inflationary  surge.  The  programme  expects  the  general  government  debt-to-
GDP ratio to increase to 27.5% at the end of 2024. Based on policy measures known at 
the  cut-off  date  of  the  forecast,  the  Commission  2023  spring  forecast  projects  a 
government  deficit  of  1.5%  of  GDP  in  2024.  This  is  slightly  lower  than  the  deficit 
projected  in  the  programme,  mainly  due  to  a  smaller  increase  in  compensation  of 
employees  and  social  transfers,  according  to  the  Commission  forecast.  The 
Commission  2023  spring  forecast  projects  a  lower  general  government  debt-to-GDP 
ratio, of 27.0% at the end of 2024. 

(23)  The Stability Programme envisages the extension of the energy support measures until 
the  end  of  2024.  The  Commission  currently  assumes  the  net  cost  of  energy  support 
measures  at  0.5%  of  GDP  in  202423,  compared  to  1.1%  of  GDP  in  2023.  These 
estimates hinge upon the assumption of no renewed energy price increases. The energy 
support measures that are currently planned to remain in place in 2024 do not appear 
targeted  to  vulnerable  households  or  firms.  Most  of  them  do  not  fully  preserve  the 
price signal to reduce energy demand and increase energy efficiency. 

(24)  Council Regulation (EC) No 1466/97 calls for an annual improvement in the structural 
budget balance toward the medium-term objective by 0.5% of GDP as a benchmark.24 
Taking  into  account  fiscal  sustainability  considerations,25  an  improvement  in  the 
structural balance of at least 0.3% of GDP for 2024 would be appropriate. To ensure 
such an improvement, the growth in net nationally financed primary expenditure26 in 
2024 should not exceed 4.8%, as reflected in this recommendation. At the same time, 
the  remaining  energy  support  measures  (currently  estimated  by  the  Commission  at 
1.1% of GDP in 2023) should be phased out in in 2023, contingent on energy market 
developments and starting from the least targeted ones, and the related savings should 
be used to reduce the government deficit Based on Commission estimates, this would 
lead to a growth in net primary expenditure below the recommended maximum growth 
rate for 2024. However, according to the Commission 2023 spring forecast, the growth 
in  net  national  financed  primary  current  expenditure  in  2023  is  not  in  line  with  the 
recommendation  of  the  Council.  If  this  is  confirmed,  lower  growth  in  net  primary 
expenditure in 2024 would be appropriate. 

23 

24 

25 

26 

The Commission's definition of energy measures only includes fiscal policy measures directly affecting 
energy prices or providing temporary income support for energy consumption. General inflation support 
measures are not classified as energy measures, which explains a difference in the estimated budgetary 
cost of energy support measures between the Stability Programme and the Commission’s forecast. 
Cf. Article 5 of Council Regulation (EC) No 1466/97, which also requires an adjustment of more than 
0.5%  of  GDP  for  Member  States  with  a  government  debt  exceeding  60%  of  GDP,  or  with  more 
pronounced debt sustainability risks. 
The Commission estimated that Luxembourg would need a stable structural primary balance to ensure 
that  government  debt  is  kept  at  prudent  levels  in  the  medium  term.  This  estimate  was  based  on  the 
Commission autumn 2022 forecast. The starting point  for this estimate  was the projected government 
deficit and debt for 2024 which assumed the withdrawal of energy support measures in 2024.  
Net  primary  expenditure  is  defined  as  nationally  financed  expenditure  net  of  discretionary  revenues 
measures and excluding interest expenditure as well as cyclical unemployment expenditure. 

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(25)  Assuming  unchanged  policies,  the  Commission  2023  spring  forecast  projects  net 
nationally financed primary expenditure to grow at 2.9% in 2024, which is below the 
recommended growth rate. 

(26)  According to the programme, government investment is expected to remain stable at 
4.5%  of  GDP  in  2023  and  2024.  The  programme  refers  to  reforms  and  investments, 
that  are  expected  to  contribute  to  sustainable  and  inclusive  growth.  These  include 
investments  to  foster  the  energy  and  digital  transitions,  which  are  also  part  of  the 
Recovery and Resilience Plan. 

(27)  The Stability Programme outlines a medium-term fiscal path until 2027. According to 
the  programme,  the  general  government  deficit  is  expected  to  gradually  decline  to 
1.0% of GDP in 2025 and to 0.8% by 2026, before slightly increasing to 0.9% in 2027. 
The general government deficit is therefore planned to remain below 3% of GDP over 
the programme horizon. According to the programme, the general government debt-to-
GDP ratio is expected to increase from 27.5% at the end of 2024 to 29.0% by the end 
of 2027. 

(28)  The impact of demographic trends on government spending will become more acute in 
the  coming  decades,  as  the  number  of  pensioners  per  worker  is  expected  to  rise 
steadily due to  the ageing population  and the slowdown in  net  migration flows.  In  a 
scenario  where  there  is  no  policy  change,  Luxembourg  will  face  one  of  the  EU’s 
sharpest increases in pension spending as a share of GDP, which is projected to double 
to around 18% of GDP by 2070, the highest in the EU. This will lead to a significant 
increase in government debt, putting the sustainability of government finances at risk. 
The recovery and resilience plan does not address the long-term sustainability of the 
pension  system.  Specifically,  the  plan  does  not  address  the  negative  effects  of  early 
retirement  schemes  and  financial  incentives  to  leave  the  labour  market  early,  which 
contributes to the low rate of employment among older workers. Raising the effective 
retirement  age  would  have  a  beneficial  macroeconomic  impact  and  the  potential  to 
reduce  spending  on  pensions,  since  a  higher  rate  of  older  workers  in  employment 
would support economic growth. The fight against aggressive tax planning in the EU 
is  essential  to:  i)  prevent  distortion  of  competition  between  firms;  ii)  ensure  fair 
treatment  of  taxpayers;  and  iii)  safeguard  government  finances.  Luxembourg  is  a 
small, open economy, with a large international financial sector, which to a significant 
extent  explains  the  large  financial  flows.  However,  these  flows  also  reflect  the 
presence  of  many  foreign-owned  companies  in  the  country,  which  are  involved  in 
intra-group  treasury  activities.  A  particular  point  of  concern  is  the  absence  of 
withholding  taxes,  or  equivalent  measures  on  interest  and  royalty  payments  made  to 
low  or  zero-tax  jurisdictions  beyond  those  countries  included  in  the  EU  list  of  non-
cooperative  jurisdictions27.  Outbound  payments  of  interest  and  royalties  from 
Luxembourg-based companies to  third-country jurisdictions  could  be subject  to  little 
or no taxation if these payments are not taxed or taxed at a low level in the recipient 
jurisdiction.  Luxembourg  has  taken  some  steps  to  fight  aggressive  tax  planning. 
However, so far these measures have been insufficient to address those features of the 
tax system, which can be used by multinationals to engage in aggressive tax planning.  

(29) 

In accordance with Article 19(3), point (b) and Annex V, criterion 2.2 of Regulation 
(EU) 2021/241, the recovery and resilience plan includes an extensive set of mutually 

27 

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

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reinforcing reforms  and investment to be implemented by 2026. The implementation 
of Luxembourg’s recovery and resilience plan is underway. Luxembourg submitted its 
first  payment  request  on  28  December  2022,  corresponding  to  26  milestones  and 
targets in the Council implementing Decision, for the disbursement of EUR 20 million 
under  the  recovery  and  resilience  facility.  The  Commission  published  its  positive 
preliminary assessment on 28 April 2023. The payment request is now discussed in the 
Council.  The  milestones  and  targets  concerned  include  the  entry  into  force  of  the 
“Housing Pact 2.0” reform, aimed at increasing the supply of affordable rental housing 
offered by municipalities, investments for the digitalisation of the public sector and for 
the development of ultra-secure communication, the upskilling of the workforce with 
the launch of the “FutureSkills” programme, as well as a reform on the procurement of 
clean  vehicles.  Luxembourg  submitted  an  amendment  of  its  plan  on  11  November 
2022,  which  was  approved  by  the  Council  on  17  January  2023.  Luxembourg  is 
expected  to  submit  a  REPowerEU  chapter  and  has  already  decided  to  transfer  128.5 
million  EUR  from  the  Brexit  Adjustment  Reserve  (BAR)  to  the  RRF  to  finance  its 
implementation. The swift inclusion of the new REPowerEU chapter into the recovery 
and resilience plan will allow the financing of additional reforms and investments in 
support  of  Luxembourg's  strategic  objectives  in  the  field  of  energy  and  the  green 
transition. The systematic and effective involvement of local and regional authorities, 
social  partners  and  other  relevant  stakeholders  remains  important  for  the  successful 
implementation  of  the  recovery  and  resilience  plan,  as  well  as  other  economic  and 
employment policies going beyond the plan, to ensure broad ownership of the overall 
policy agenda. 

(30)  The  Commission  approved  all  of  Luxembourg’s  cohesion  policy  programming 
documents in 2022. Proceeding with the swift implementation of the cohesion policy 
programmes  in  complementarity  and  synergy  with  the  recovery  and  resilience  plan, 
including the REPowerEU chapter, is key to achieving the green and digital transition, 
increasing  economic  and  social  resilience  as  well  as  achieving  balanced  territorial 
development in Luxembourg.  

(31)  Beyond the economic and social challenges addressed by the recovery and resilience 
plan, Luxembourg faces a number of additional challenges, in particular the long-term 
sustainability  of  public  finances  mainly  stemming  from  the  pension  system,  legal 
loopholes  that  could  be  used  by  multinationals  engaging  in  aggressive  tax  planning, 
vulnerabilities  related  to  high  house  prices  and  household  debt,  weaknesses  in  the 
education  system  that  add  to  inequality  and  issues  related  to  energy  policy  and  the 
green  transition,  including  potential  obstacles  to  the  transition  from  fossil  fuels  and  
issues with the transport network.  

(32)  Pupils’  basic  skills  and  overall  performance  depend  largely  on  their  socio-economic 
and  linguistic  background.  Average  levels  in  key  knowledge  and  skills  at  age  15,  as 
measured by the OECD Programme for International Student Assessment (PISA), are 
significantly lower in Luxembourg than the EU average. The gap between advantaged 
students  and  their  disadvantaged  peers  is  bigger  in  Luxembourg  than  any  other  EU 
country. The education system does not equip all pupils with the necessary basic skills 
to meet the country’s labour market needs. The language spoken in the national school 
system  at  primary  level  is  Luxembourgish,  while  pupils  learn  to  read  and  write  in 
German. All subjects (except for French) are taught in German. This constitutes a very 
high  demand  for  language  skills  in  a  country  where  only  one  in  three  pupils  speaks 
Luxembourgish  as  their  first  language.  The  share  of  young  people  18-24  who  left 
education and training without completing upper secondary education increased from 

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6.3%  in  2018  to  8.2%  in  2022.  In  September  2022,  Luxembourg  launched  a  pilot 
project in four primary schools, where pupils start learning first in French and then in 
German.  If  extended  to  more  schools,  this  approach  could  help  improve  the 
performance of pupils whose first language is not French. Luxembourg also increased 
its  supply  of  public  international  schools:  as  of  2022/2023,  4%  of  the  pupils  at  pre-
primary  and  primary  levels  are  enrolled  in  such  schools,  where  they  can  choose 
between  English,  French  or  German  as  the  language  of  instruction.  If  this  option  of 
teaching through one main language were extended to cover a larger part of the school 
population, it could substantially improve pupils’ chances of attaining better learning 
outcomes. 

(33)  Luxembourg’s energy system is characterised by high import dependence and reliance 
on  fossil  fuels.  The  country  is  a  large  net  importer  of  energy.  It  is  almost  entirely 
dependent  on  primary  energy  imports,  with  a  dependency  rate  of  92%  in  2021.  Oil 
provided  69%  of  Luxembourg’s  energy  mix,  and  natural  gas  18%,  while  12%  came 
from renewable energy sources, reaching a capacity of 572 MW in 2022. Luxembourg 
imports no oil from Russia. As regards gas, dependency on Russia is limited, as nearly 
100% of the gas Luxembourg consumed was imported by pipelines from Belgium and 
Germany, flowing from Norway and the Netherlands. Luxembourg’s consumption of 
natural  gas  has  dropped  by  26%  in  the  period  August  2022-March  2023,  compared 
with  the  average  gas  consumption  over  the  same  period  in  the  preceding  five  years, 
beyond  the  15%  reduction  target.  Luxembourg  could  keep  pursuing  efforts  to 
temporarily reduce gas demand until 31 March 202428.  

(34)  While  Luxembourg  is  highly  interconnected  in  terms  of  both  power  and  gas,  further 
investment will be needed in anticipation of growing renewable generation and power 
demand.  Luxembourg  has  to  address  the  challenge  of  insufficient  housing  supply 
while  achieving  its  energy  and  climate  targets.  There  is  also  a  need  to  renovate  the 
existing building stock.  With 20.8% of the total  energy saving  potential (in  terms  of 
GWh),  the  residential  building  and  renovation  sector  represents  the  second-largest 
source  of  cumulative  energy  saving  potential  by  2030.  Around  89%  of  residential 
building stock uses heating systems based on fossil fuels (heating oil and natural gas). 
Municipalities will have a key role in this respect. Road traffic congestion weighs on 
the  economy  and  on  environmental  sustainability,  while  transport  accounts  for  a 
significant  share  of  oil  consumption  and  for  59%  of  total  greenhouse  gas  emissions, 
which compares to an EU average of 24% in 2019. While Luxembourg adopted some 
relevant  measures  to  improve  sustainable  transport,  additional,  more  targeted 
interventions  would  substantially  help  to  reduce  oil  dependence  and  greenhouse 
emissions.  This  is  reflected  in  Luxembourg’s  NECP,  which  sets  a  target  of  40%  of 
electric and plug-in for its vehicle fleet by 2030. Luxembourg has set itself the target 
of  becoming  climate  neutral  by  2050.  It  has  made  considerable  progress  in  recent 
years  on  renewable  energies  but  remains  one  of  the  Member  States  with  the  lowest 
share.  Further  increases  in  ambition  for  reducing  greenhouse  gas  emissions  and 
increasing renewable energy and energy efficiency will be needed for Luxembourg to 
reach its 2030 energy targets – obtaining 25% of energy from renewables and reducing 
final energy consumption by 40% to 44%compared to 2007. 

(35)  Labour  and  skills  shortages  in  sectors  and  occupations  key  for  the  green  transition, 
including  manufacturing,  deployment  and  maintenance  of  net-zero  technologies,  are 

28 

Council Regulation (EU) 2022/1369 and Council Regulation (EU) 2023/706 

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(36) 

(37) 

creating  bottlenecks  in  the  transition  to  a  net-zero  economy.  High  quality  education 
and  training  systems  that  respond  to  changing  labour  market  needs  and  targeted 
upskilling and reskilling measures are key to reducing skills shortages and promoting 
labour inclusion and reallocation.  To unlock untapped labour supply,  these measures 
need to be accessible, in particular for individuals and in sectors most affected by the 
green transition. Luxembourg has increased its efforts to upskill and reskill workers in 
declining and transforming sectors. Yet labour shortages persist in some occupations, 
including  policy  and  planning  managers.  This  is  a  possible  bottleneck  in  the  green 
transition and in the implementation of REPowerEU.  

In light of the Commission’s assessment, the Council has examined the 2023 Stability 
Programme and its opinion29 is reflected in recommendation (1) below.  

In view of the close interlinkages between the economies of euro area Member States 
and  their  collective  contribution  to  the  functioning  of  the  Economic  and  Monetary 
Union, the Council recommended that euro area Member States take action, including 
through  their  recovery  and  resilience  plans,  to  (i)  preserve  debt  sustainability  and 
refrain  from  broad-based  support  to  aggregate  demand  in  2023,  better  target  fiscal 
measures taken to mitigate the impact of high energy prices and reflect on appropriate 
ways to wind down support as energy price pressures diminish; (ii) sustain high public 
investment and promote private investment to support the green and digital transition; 
(iii)  support  wage  developments  that  mitigate  the  loss  in  purchasing  power  while 
limiting  second-round  effects  on  inflation,  further  improve  active  labour  market 
policies  and  address  skills  shortages;  (iv)  improve  the  business  environment  and 
ensure that energy support to companies is cost-effective, temporary, targeted to viable 
firms  and  that  it  maintains  incentives  for  the  green  transition;  and  (v)  preserve 
macro-financial  stability  and  monitor  risks  while  continuing  to  work  on  completing 
the Banking Union. For Luxembourg, recommendations (1), (2) and (4) contribute to 
third,  fourth  and  fifth  euro  area 
the 
recommendations.  

implementation  of 

the  first,  second, 

HEREBY RECOMMENDS that Luxembourg take action in 2023 and 2024 to:  

1. 

Wind  down  the  energy  support  measures  in  force  by  the  end  of  2023,  using  the 
related  savings  to  reduce  the  government  deficit.  Should  renewed  energy  price 
increases  necessitate  support  measures,  ensure  that  these  are  targeted  at  protecting 
vulnerable  households  and  firms,  fiscally  affordable,  and  preserve  incentives  for 
energy savings.  

Ensure  prudent  fiscal  policy,  in  particular  by  limiting  the  nominal  increase  in 
nationally financed net primary expenditure in 2024 to not more than 4.8%. 

Preserve nationally financed public investment and ensure the effective absorption of 
RRF grants and other EU funds, in particular to foster the green and digital transitions.  

For  the  period  beyond  2024,  continue  to  pursue  a  medium-term  fiscal  strategy  of 
gradual  and  sustainable  consolidation,  combined  with  investments  and  reforms 
conducive  to  higher  sustainable  growth,  to  achieve  a  prudent  medium-term  fiscal 
position. 

Reduce risks related to the housing market, in particular by reducing mortgage interest 
deductibility, and by taking measures to increase the supply of buildable land. Address 

29 

Under Articles 5(2) and 9(2) of Council Regulation (EC) No 1466/97. 

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2. 

3. 

4. 

the  long-term  sustainability  of  the  pension  system,  in  particular  by  limiting  early 
retirement  options  and  increasing  the  employment  rate  for  older  workers.  Increase 
action to effectively tackle aggressive tax planning, in particular by ensuring sufficient 
taxation of outbound payments of interest and royalties to zero/low-tax jurisdictions. 

Proceed  with  the  steady  implementation  of  its  revised  recovery  and  resilience  plan 
and  swiftly  finalise  the  REPowerEU  chapter  with  a  view  to  rapidly  starting  its 
implementation.  Proceed  with  the  swift  implementation  of  cohesion  policy 
programmes, in close complementarity and synergy with the recovery and resilience 
plan.    

Improve  the  performance  of  the  school  education  system  and  promote  equal 
opportunities  for  all  students,  notably  by  adapting  teaching  to  the  needs  of 
disadvantaged students and those from various linguistic backgrounds.   

Reduce  reliance  on  fossil  fuels  by  accelerating  the  deployment  of  renewables, 
electricity  transmission  capacity,  easing  permitting  procedures  and  investing  in 
energy  efficiency  in  both  the  residential  and  non-residential  sectors.  Support 
municipalities  in  developing  detailed  local  plans  for  deploying  renewable  energy, 
including  wind  power  and  photovoltaics,  and  for  district  heating  and  cooling 
systems.  Further  promote  electrification  of  transport  and  invest  in  public  transport 
networks  and  infrastructure.  Step  up  policy  efforts  aimed  at  the  provision  and 
acquisition of the skills needed for the green transition. 

Done at Brussels, 

For the Council 
The President 

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