As per the Luxembourg budget 2012, which was submitted recently by the Finance Minister Luc Frieden, the central government will be focusing on the social security system and attaining a certain level of fiscal responsibility.
Highlights of Luxembourg Budget 2012:
Luc Frieden has stated that the Luxembourg budget 2012 has been created keeping in mind the present economic condition around the world, and the sovereign debt crisis of Europe.
The major challenge for the 2012 budget, as stated by the Finance Minister, is to achieve the perfect balance between continued economic growth and expenses in social causes.
It is estimated that in 2012 the Gross Domestic Product (GDP) of Luxembourg will increase by 2 percent.
This is marginally better than the Eurozone, which is supposed to see a GDP growth ranging between 1 and 1.5 percent at the same time frame. But the 2012 predictions are lesser than 2011 when the GDP is estimated to grow at 3 percent.
In 2012, Luxembourg is supposed to see its inflation rate vary between 2 and 2.5 percent.
The national government expects to earn tax revenues worth 12.5 billion euros, which represents a 5 percent increase from 2011 fiscal. Corporate taxes are supposed to contribute 1.6 billion and income taxes will generate 2.6 billion. Indirect taxes such as value added taxes, are expected to contribute 2.4 billion euros and 630 million euros are supposed to come through subscription taxes.
The 2012 budget will allot 13.7 billion euros for various expenses. This represents an increase of 6 percent from the 2011 fiscal. Social services and transfers will comprise the maximum amount of this expense 35 percent. Payments for public sector workers will make up 20 percent and investments will amount to 13 percent.
In 2012 the national economy will grow at a better rate than in 2011 fiscal. The banking sector s performance might not be at par with expectations but the recovery of the overall financial sector has been quicker than what was anticipated.
Factors like weak global equity markets and the Eurozone sovereign debt crisis could affect the financial sector though.
The regulatory alterations in 2012 fiscal will help with the recent revival of the publicly managed funds and revenues earned through asset management. Luxembourg has also modified their rules regarding investments in alternative funds and this has been done according to the European Union directives.
Luxembourg will also provide more options for registering hedge funds from 2012 onwards. It is expected that the country will now receive more hedge funds compared to countries like USA that have tightened their rules for these investments.
In 2012 Luxembourg will see a continuation of its export growth and majority of this will take place in the retail sector. This will help in increasing the current account surplus and also improve government revenues.
It is expected that these earnings will help in reduction of Luxembourg s fiscal deficit and the government might not need to increase its taxes.
Expectations from Luxembourg Budget 2012:
Frieden has stated that Luxembourg, along with Estonia and Finland, has been among the Eurozone members who have not disregarded the provisions mentioned in the Stability and Growth Pact.
As of now, its public debt will stand at 18 percent of the Gross Domestic Product and this is far less than the limit has been prescribed by the European Union � 60 percent. Frieden has said that every effort should be made to make sure that public debt stays within a manageable level and it does not have major long term impact. Crisis tax will be an important area of focus for the State Council in 2012 fiscal and experts are worrying that costs could surpass revenues.
Luxembourg Economy Future:
At present there is a high degree of economic insecurity around the country and the ways, in which the sovereign debt crisis can affect the country, are yet to be mapped. Experts predict that a practical fiscal policy will be required to deal with the situation.
The Chamber of Trade has stated that the public finances will be improved by 2020 fiscal. It is expected that Luxembourg�s economy will be competitive again by that time and the housing policy will be followed as well. By 2020 financial aid will be more oriented towards social causes.