Luxembourg

   

Economic Policies

#7
Key Findings
Despite setbacks in its dominant financial sector, Luxembourg receives a high overall ranking (rank 7) for its economic policies. Its score on this measure has improved by 0.1 point since 2014.

International agreements have forced new transparency on Luxembourg’s famously secretive banks, while undermining the country’s ability to offer preferential tax-incentive deals and e-commerce VAT rates. New business areas are being sought to make up for lost financial-sector revenue.

Growth has been steady and strong. Unemployment rates are moderate and declining, with cross-border commuters accounting for more than 40% of the workforce, enabling a high degree of flexibility. Employment rates among workers 55 and older are very low by EU standards.

Tax rates are low. A major 2014 reform increased tax-system coherency. Deficits are mild and sustainable. A new €1 billion “Future Fund” will fund long-term projects. Considerable resources are being spent to develop the R&D sector.

Economy

#13

How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?

10
 9

Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 8
 7
 6


Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
 5
 4
 3


Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
 2
 1

Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
Economic Policy
7
Luxembourg has been ranked highly on international competitiveness indices. In the Global Competitiveness Report 2015 – 2016, Luxembourg decreased one place to position 20 out of 140 countries. However, the countries receives less stellar evaluations on other indicators. The World Economic Forum awarded Luxembourg a poor rating in both the “inadequately educated workforce” and “restrictive labor regulations” categories.

Following a deterioration in competitiveness in 2013 as ranked by the International Institute for Management Development’s index, Luxembourg made a very strong move to the top from 11th place in 2014 to sixth place in 2015. The country scored positively with regard to policy stability and predictability, a competitive tax regime, a skilled labor force, a predictable legal framework and a business-friendly environment. The “impact of business efficiency” indicator recorded one of the largest gains, from 14th to fourth place.

However, the Foreign Account Tax Compliance Act (FATCA), the recently implemented automatic exchange of information on capital income, has had a serious impact on the country’s financial sector, which provides a third of Luxembourg’s GDP. The European Union has also modified its VAT regime for electronic commerce to the detriment of Luxembourg, which has been home to many e-commerce companies due to its favorable tax rates. This led to a loss of about €650 million in tax revenue in 2015 (although following negotiations with the EU Commission, this policy will be implemented incrementally through 2018), obliging the government to increase its general VAT rates. Thus, Luxembourg is facing massive challenges: New hubs and business clusters have been created in an effort to generate new revenue sources. The Luxembourg Cluster Initiative, for example, is focused on several high-priority economic sectors. Luxembourg has 19 data new centers; however, they still need to be closely connected with cluster initiatives to ensure that the investments yield results and that ICT companies actually use the data hubs. Moreover, the available amounts of venture capital, private financing and start-up investment financing are rather low in international comparison, and need to be reinforced. Therefore, the state lending agency (SNCI) is intensifying its activities. E-government applications have streamlined some operational processes, such as the introduction of new online tax returns for companies in October 2015.

To grow, Luxembourg must expand its labor force with highly skilled workers. According to employers’ organizations, the government must continue to focus on accelerating the pace of administrative work and procedures, as well on reforming the automatic salary index mechanism, which raises wages automatically in parallel with inflation rates.

The country’s generous welfare model has to be reformed to adapt to a reality of more modest public resources and budgets. In the long-term view, Luxembourg appears to face a medium level of fiscal sustainability risks. The European Commission agreed with this macroeconomic scenario in its evaluation of Luxembourg’s Stability Program 2012 – 2015, highlighting concerns over the country’s overly optimistic economic-growth outlook and its inability to address age-related expenditures.

Citations:
http://ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/telecom/index_en.htm#new_rules
http://en.luxinnovation.lu/Services/Luxembourg-Cluster-Initiative
http://lpi.worldbank.org/international/global/2014
http://www.odc.public.lu/indicateurs/tableau_de_bord/index.html
http://www.odc.public.lu/publications/perspectives/PPE_029.pdf
http://register.consilium.europa.eu/pdf/fr/12/st11/st11263.fr12.pdf
http://www.statistiques.public.lu/catalogue-publications/luxembourg-en-chiffres/Luxembourg-zahlen.pdf
http://ebiz.pwc.com/2013/01/eu-2015-vat-changes-to-eservices-the-keep-it-simple-edition/
http://www.stiftung-marktwirtschaft.de/uploads/tx_ttproducts/datasheet/Argument_125_Int_Schuldenbilanz_2014_05.pdf
http://www.weforum.org/reports/global-competitiveness-report-2015-2016
http://www.imd.org/news/IMD-releases-its-2015-World-Competitiveness-Ranking.cfm
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2015/16_lu_scp_en.pdf
http://www.lessentiel.lu/de/news/Luxembourg/story/29099642

Labor Markets

#7

How effectively does labor market policy address unemployment?

10
 9

Successful strategies ensure unemployment is not a serious threat.
 8
 7
 6


Labor market policies have been more or less successful.
 5
 4
 3


Strategies against unemployment have shown little or no significant success.
 2
 1

Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Labor Market Policy
8
The financial crisis affected Luxembourg later than it did other European countries. Since 2009, certain groups have suffered some job losses, but these numbers did not immediately affect national employment statistics. However, over 384,000 people were employed in September 2015. Compared to the same period in 2014, about 10,000 new permanent employees were paying compulsory social-security contributions in September 2015. Thus, thanks to its continuous growth, Luxembourg has seen a steady increase in jobs.
Luxembourg’s labor market shows considerable labor mobility. Due to flexible contracting, 120,000 new employment agreements were made in 2014. In the second quarter of 2015 only 27.8% (compared to 28.4% in the previous year) of the workforce were Luxembourg nationals, while 44.7% were so-called transborder commuters (frontaliers), a circumstance that guarantees high flexibility and short-term fluctuations in the labor market.

The labor market is particularly volatile, especially with regard to the number of foreign workers. Within the cross-border labor market, commuters from within so-called Greater Region – which includes the adjacent regions of Belgium, Germany and France along with Luxembourg itself – are crucial. Since 2013, these non-national groups have been recorded separately in unemployment statistics. As part of EU regulation 883/2004, which covers the coordination of social-security systems within the European Union, Luxembourg has to reimburse the member state in which a formerly commuting worker is resident for the first three months’ payments of unemployment benefits (which are handled by and paid according to the laws of the country in which the newly unemployed individual is resident).

A restructuring of the employment agency has shown positive effects. Reintegration grants have been cut, and staff members are focused more heavily on advisory services and tailored activation measures.
Because of the steady growth of the resident population thanks to a high inflow of economic migrants, along with corresponding national job growth, the unemployment rate decreased to 6.7% in September 2015. In this month, about 18,000 people (5.2% less than last year) were reported as seeking employment. Among the unemployed, 45.5% had been out of work longer than 12 months and 43% of all unemployed were deemed to hold low levels of education. The employment rate among workers 55 years old or older is 42.5% (compared to 40.5% in 2013), far below both the EU average (51.8%) and the country’s own national goals. This situation is exacerbated by the many incentives for older workers to leave the labor market. About 5,400 people annually have taken part in reintegration and training programs (an increase of 7.3% over the last 12 months). However, these important measures are only initial steps, as unemployment cannot be reduced substantially in the absence of long-term opportunities. Training must thus lead to permanent jobs. While 90% of the activation budget goes into employment incentives, only 10% are used for training and education. For this reason, the administration has indicated it intends to strengthen training measures for the unemployed. Furthermore, the Chamber of Craft and Commerce, working jointly with the Employment Office, plans to create 5,000 new jobs and strengthen job-placement services.
The government has enacted a plan to help boost youth employment (Plan d’action en faveur de l’emploi des jeunes), with a particular focus on young graduates having trouble finding work. The state Employment Agency has also responded with new measures for young university graduates. Other initiatives include a youth-employment center (established in 2012), strategic plans to support and promote lifelong-learning programs and the establishment of regional employment services. On the other hand Luxembourg cannot solve the high rate (22.6% in 2014) of youth unemployment, but it is still lower than many other EU countries. The government has already implemented the European youth guarantee, which seeks to make a long-term impact on disadvantaged young people’s access to the labor market.

Because of a significant expansion in social-care services for children and the elderly, as well as the implementation of the European Employment Strategy, more women entered the workforce during the period under review. The female employment rate has increased to 65.5% (up nine percentage points since 2004). Nevertheless, Luxembourg is only just a middling performer in this regard, ranking 15th among the EU-28.

Citations:
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=tesem140&language=en
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdde100
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&plugin=1&language=de&pcode=tsdde410
http://ec.europa.eu/europe2020/europe-2020-in-your-country/luxembourg/national-reform-programme/index_en.htm
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&language=de&pcode=tps00060&plugin=1
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:166:0001:0123:en:PDF
http://data.oecd.org/natincome/net-national-income.htm
http://www.odc.public.lu/publications/pnr/2013_PNR_Luxembourg_2020_avril_2013.pdf
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=teilm011&plugin=1
http://www.mte.public.lu/retel/Tableau-de-bord-juin-2015.pdf
http://www.odc.public.lu/publications/perspectives/PPE_029.pdf
http://www.statistiques.public.lu/stat/TableViewer/tableView.aspx?ReportId=5237&IF_Language=fra&MainTheme=2&FldrName=3&RFPath=91
http://www.statistiques.public.lu/stat/TableViewer/tableView.aspx?ReportId=7252&IF_Language=fra&MainTheme=2&FldrName=3&RFPath=92
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=t2020_10&plugin=1
http://www.adem.public.lu/actualites/2015/10/news_09_15/Bulletin_ADEM_septembre_2015.pdf

Taxes

#13

To what extent does taxation policy realize goals of equity, competitiveness and the generation of sufficient public revenues?

10
 9

Taxation policy fully achieves the objectives.
 8
 7
 6


Taxation policy largely achieves the objectives.
 5
 4
 3


Taxation policy partially achieves the objectives.
 2
 1

Taxation policy does not achieve the objectives at all.
Tax Policy
6
During the last two years, Luxembourg has struggled with new EU and OECD tax regulations that have made it difficult to maintain its former, largely secret advantageous tax deals for companies. However, after a series of delaying tactics, the country accepted the new international transparency rules, seeking to avoid greater damage to Luxembourg’s role as a financial center, and to the state budget as a whole.

In 2013, the OECD delivered a set of recommendations for reforming favorable tax policies and against fiscal misapplication by tackling so-called base erosion and profit shifting (BEPS) activities, which enable companies to avoid taxation by seeking low- or no-tax environment. The leak of documents detailing hundreds of Luxembourg’s secret tax rulings (LuxLeaks) in late 2014 threw Luxembourg into the international news. Through these documents, it became clear that multinational companies had negotiated vastly lower tax rates in Luxembourg (less than 2% instead of an international average of 29.22%) than they would receive elsewhere. In October 2015, the European Commission issued a precedent-setting ruling that Luxembourg had granted selective tax advantages to Fiat Finance Europe. In fact most global players in the country had negotiated positions that exempted them from corporate-income taxes (21%), municipal business taxes (6.75%), a 7% special contribution, and net wealth taxes (0.5%).

Luxembourg is hardly Europe’s only state offering offshore tax advantages, but it has been a leader in exploiting this form of tax-driven incentives. The scandal came at an inopportune time, as Luxembourg took over the presidency of the EU Council during the Commission’s investigation into the issue. European Commission President Jean-Claude Juncker, Luxembourg’s former prime minister, came under tremendous pressure as a result.

Marking a turning point, the European Commission has requested that national tax authorities harmonize their taxation systems, and has mounted further investigations into advantageous tax rulings that might be deemed illegal state aid. The investigation has now expanded to include many EU countries, with worldwide calls for the creation of common rules and the closure of tax loopholes intensifying. However, Luxembourg has played a leading role in offering tax advantages. Its tax deals so far include more than 50,000 companies (though only 340 were named in the leaked PricewaterhouseCoopers “Luxleaks” documents) that have sought to reduce global tax bills by channeling profits through Luxembourg. Oddly, Fiat Finance Europe’s landmark conviction is in some degree beneficial to Luxembourg, as the penalty payment (€20 million ¬– €30 million) goes to the state treasury. The effects of these proceedings and ongoing audits under the new rules will have a major impact on state revenues over the long term. The European Union and the OECD are working to address harmful tax competition by harmonizing taxation systems in Europe. After being listed as a tax haven in 2013, the Global Forum removed Luxembourg from its blacklist in October 2015.

Previously, the EU Commission imposed new e-commerce rules that undermined Luxembourg’s previously business-friendly e-commerce VAT regime. This led to a decline in revenues of approximately €650 million in 2015. To improve public finances, Luxembourg has implemented new tax rates. The reduced tax rate was increased from 6% to 8%, the parking-tax rate (applied principally to fuel products) increased from 12% to 14%, and the general VAT rose from 15% to 17%. Nevertheless, Luxembourg continues to have the lowest VAT rate in Europe. Taking into account the impact of the higher VAT and low interest rates, the inflation rate will increase only slightly.

Important milestones included the announcement of a major tax reform in 2014, seeking to improve coherency in the individual- and corporate-tax systems. The government has also implemented restructuring measures seeking to increase the country’s economic attractiveness to foreign investors. Furthermore, in 2015, VAT declarations were simplified by the introduction of an electronic information system (eVAT). Additionally, Luxembourg introduced a VAT-free-zone regime (Freeport, at Luxembourg airport) in September 2014. The number of employees in the financial sector has remained unchanged in recent years, at roughly 40,000.

As the company has sought niches, Luxembourg’s financial center has already become the most important locus of the so-called Renminbi trade (RMB). Luxembourg’s global fund-management industry is the second most important location for investment funds worldwide after the United States. In August 2015, the Luxembourg investment-fund industry was home to €3,423 trillion in net assets, with 3,891 funds (and 14,063 fund units). That represents a strong overall growth of 15.23% compared to the same month of the previous year. Specialized investment funds (SIF) represented about 11% of total assets, or €348 billion, in December 2014. Responsible investment funds account for €130 billion; with a market share of 30%, Luxembourg occupies a leading position in Europe in terms of responsible investment fund management.

A PriceWaterhouseCoopers (PWC) 2015 business report ranked Luxembourg favorably. The total tax rate (TTC) after deductions and exemptions, at 20.2% (2014: 20.7%), is the second-lowest (behind Croatia) among European and European Free Trade Association countries. Luxembourg’s taxation system is still attractive for businesses, with only some 20% of companies actually paying business tax. In general, property taxes accounted for 1.3 % of GDP in 2012 and represent 3.3 % of tax revenue. At 0.1% of GDP, recurrent property taxes form the lowest GDP share in the EU-28 aside from Malta and Croatia.

Luxembourg has the highest capital-tax-to-GDP ratio in the EU-28. A total of 27.5% of total taxation in 2012 was related to taxes on capital. This shows the size and systemic importance of the financial sector in Luxembourg.
To maintain the competitiveness of the financial sector, the government has decided not to introduce a tax on financial transactions (the Tobin tax). Luxembourg is known for easy access to government bodies and competitive tax burdens, as it has sought to maintain an attractive tax environment.

From 2008 to 2014, Luxembourg’s consolidated public debt rose from 14.4% to 23.6% of GDP. The government’s provision of guarantees for Luxembourg banks, amounting to a total of more than €2.5 billion, strongly affected public finances. The consolidated public deficit amounted to 1.7% of GDP in 2013, decreasing less than expected given that GDP growth in Luxembourg was stronger than in most other European countries. The small country’s main concern is the challenge of predicting how the economic crisis will play out in other EU countries.

Citations:
http://www.land.lu/2012/11/09/die-fronde
http://blogs.wsj.com/briefly/2014/11/06/luxembourgs-tax-deals-at-a-glance/?KEYWORDS=Luxembourg
http://www.alfi.lu/statistics-figures/luxembourg
http://www.alfi.lu//sites/alfi.lu/files/files/Statistics/Luxembourg/L1%20Funds%20units%20net%20assets%20EN%20FIG%2001.pdf
http://www.tageblatt.lu/nachrichten/Luxembourg/story/23363440
http://www.internationaltaxreview.com/Article/3499307/Luxembourg-Budget-brings-changes-to-corporate-income-tax-rules.html
http://www.ey.com/Publication/vwLUAssets/Tax_Memento_Interactif_2015/$FILE/TaxMemento_Interactif.pdf
http://www.cssf.lu/en/supervision/pfs/inv-firm/statistics/annual-statistics/total-employment/
http://www.luxembourg.public.lu/fr/investir/propriete-intellectuelle/index.htmlhttp://ebiz.pwc.com/2013/01/eu-2015-vat-changes-to-eservices-the-keep-it-simple-edition
http://ec.europa.eu/europe2020/pdf/nd/nrp2013_luxembourg_en.pdf
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2014/report.pdf
http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf
http://www.economist.com/news/briefing/21590353-ever-more-wealth-being-parked-fancy-storage-facilities-some-customers-they-are
http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tec00115
http://www.europaforum.public.lu/fr/actualites/2014/11/luxleaks-gouv/index.html
http://www.ey.com/Publication/vwLUAssets/EY-PDF-Indirect-tax-2014/$FILE/EY-Indirect_Tax_2014.pdf
http://www.forum.lu/luxembourg-leaks/archiv-zum-thema-tax-ruling-und-steueroptimierung
http://www.mf.public.lu/publications/programme/16th_update_stability_growth_programme.pdf
http://www.pwc.com/gx/en/paying-taxes/assets/pwc-paying-taxes-2014.pdf
http://www.statistiques.public.lu/catalogue-publications/note-conjoncture-en/2013/PDF-1-2013.pdf
http://www.wort.lu/de/business/Luxembourg-im-wall-street-journal-wsj-Luxembourg-und-seine-steuertricks-544a2294b9b398870807e5fd
http://www.wsj.de/nachrichten/SB10109801331102324877704580230283594434738
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&plugin=1&pcode=teina225&language=en
http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=de&pcode=tec00115&plugin=1
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/country_tables/lu.pdf
http://www.keepeek.com/Digital-Asset-Management/oecd/taxation/addressing-base-erosion-and-profit-shifting_9789264192744-en#page1
http://www.oecd.org/eco/surveys/Luxembourg-2015-overview.pdf
http://www.reuters.com/article/art-luxembourg-idUSL6N0RI3CI20140917

Budgets

#5

To what extent does budgetary policy realize the goal of fiscal sustainability?

10
 9

Budgetary policy is fiscally sustainable.
 8
 7
 6


Budgetary policy achieves most standards of fiscal sustainability.
 5
 4
 3


Budgetary policy achieves some standards of fiscal sustainability.
 2
 1

Budgetary policy is fiscally unsustainable.
Budgetary Policy
9
Luxembourg weathered the financial crisis well, and continues to post growth. From 2007 to 2014, the consolidated public debt rose slightly from 7.2% to 23.6% of GDP. Luxembourg exhibited stable GDP growth (stronger than in most other European countries) of 4.3% in 2013 and about 4.1% in 2014, compared to -0.8% in 2012. According to Eurostat data, Luxembourg’s fiscal situation is expected to stabilize further in 2015, and the government has indicated it would make efforts to reduce the deficit in the coming years.
Despite the loss of e-commerce tax revenue in 2015, Luxembourg’s government revenues increased significantly in the first half of 2015. The annual subscription tax (taxe d’abonnement) received from investment funds and specialized investment funds (common funds and investment companies since 2007 for wealth and asset management) increased by 22.7% (€128.6 million) during the first three quarters of 2015, compared to the same period in the previous year. This indicates the importance of Luxembourg’s financial services segment. However, the country’s substantial fiscal imbalances also imply potential risks to long-term macroeconomic solidity. In 2014, Luxembourg was able to show a structural surplus and a certain safety margin. According to new calculations, the general account reported a deficit of €142 million, against €172 million provided in the draft budget.
Luxembourg’s economy is still based on economic niches supported through short-term regulatory policy. The state budget, as well as the budget for the country’s generous welfare state, has been dependent on a pattern of continuous economic growth, producing consistent revenues from the financial sector, and in recent years from e-commerce. However, these funds can no longer be guaranteed on a long-term basis, as the future of these niches is uncertain. For example, Luxembourg received comparatively substantial VAT revenues from the e-commerce sector. However, due to EU harmonization, the country’s special taxation regulations for e-commerce are effectively ending in 2015. While new levels of transparency regarding capital income will also be required from 2015 onward (as part of the Foreign Account Tax Compliance Act, or FATCA) and the new OECD policy supporting tax harmonization and transparency with the aim of preventing tax-loophole shopping. Both changes will make Luxembourg less economically attractive as a base for the activity involved. The automatic information exchange being implemented in 2017 will (among other effects) reduce opportunities for tax minimization and will likely have a dampening effect on the country’s financial sector.
Individual tax rates and low indirect labor costs (third lowest in the EU-27 in 2013, following Malta and Denmark) keep Luxembourg attractive for international companies. Most enterprises pay low taxes, with only 20% of companies paying business tax. However, changes are planned following the current review period. Rules governing stock options (given as employee bonuses) will change, and a minimum tax on holding companies (Sociétés de Participations Financières) is slated to be introduced.
In 2014, the government launched a comprehensive spending review for the purposes of reforming budgetary procedure and improving the impact of public expenditure (especially infrastructure projects). Moreover, in 2015 the government introduced a “Future Fund,” a package that included 258 economic measures and a minimum annual contribution of €50 million. This special fund is slated to run for more than 20 years, until it accumulates at least €1 billon, and will be used to fund intergenerational projects.
Structural issues represent ongoing challenges. Luxembourg is strongly affected by European policies (for instance competition law, tax regulation and taxation of e-commerce). E-commerce revenues fell sharply during the first six months of 2015 after the implementation of the new EU e-commerce taxation rules. The LuxLeaks affair demonstrated how vulnerable Luxembourg’s economy is as a result of its focus on the financial sector.

Citations:
http://www.budget.public.lu/
http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analysis/tax_structures/2014/report.pdf
http://www.luxembourg.public.lu/fr/investir/propriete-intellectuelle/index.html
http://ec.europa.eu/europe2020/europe-2020-in-your-country/luxembourg/national-reform-programme/index_en.htm
http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-outlook-volume-2015-issue-1/luxembourg_eco_outlook-v2015-1-29-en#page2
http://ec.europa.eu/europe2020/pdf/nd/nrp2012_luxembourg_en.pdf
http://epp.eurostat.ec.europa.eu/statistics_explained/images/2/2c/Labor_costs_per_hour_in_€%2C_2008-2013_whole_economy_excluding_agriculture_and_public_administration.png
http://www.forum.lu/pdf/artikel/6751_294_Winkin.pdf
http://www.kpmg.com/LU/en/Documents/ExternalCom/Factsheet-Budget2015-01-FINANCES-PUBLIQUES1.pdf
http://de.statista.com/statistik/daten/studie/198377/umfrage/staatsverschuldung-in-der-europaeischen-union/
www.wort.lu/en/politics/finance-and-budget-commission-taking-a-critical-look-at-the-2015-budget-543f5981b9b39887080793a0
http://ec.europa.eu/economy_finance/economic_governance/sgp/pdf/20_scps/2015/16_lu_scp_en.pdf
http://www.gouvernement.lu/5225643/14-finances-gramegna?context=3423005
http://www.keepeek.com/Digital-Asset-Management/oecd/economics/oecd-economic-surveys-luxembourg-2015_eco_surveys-lux-2015-en#page1

Research and Innovation

#13

To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?

10
 9

Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
 8
 7
 6


Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
 5
 4
 3


Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
 2
 1

Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
R&I Policy
7
In its Europe 2020 Strategy, the Luxembourgish government set a goal of raising public expenditure on research and innovation to between 2.3% and 2.6% of GDP, with 0.7 to 0.8 percentage points of this earmarked for public use (starting from 0.62% in 2013) and 1.5 to 1.9 percentage points earmarked for private research. The overall European goal is 3% of GDP. In 2014, the Société Nationale de Crédit et d’Investissement (SNCI) set up a new research fund. Small and medium-sized companies (SME) are provided with financial incentives designed to support R&D business projects in Luxembourg. To encourage SME investments in research and innovation, the fund provides grants of €150 million over five years. Furthermore, the Chair on Social Business and Social Management of the University of Luxembourg will promote social enterprises and help stimulate start-ups, seeking to enhance economic sustainability and build links to public research and innovation projects. Broadband infrastructure has been expanded to reach 93% of households in 2014.
With 59.6% of the workforce deemed high-skilled, Luxembourg has the highest such share in the WEF’s 2015 rankings. More than 40% of the working-age population holds tertiary education degrees and/or is employed in the science and technology sector. This potential should help to create synergies between public research and industry. Luxembourg is ranked 9th among143 countries in the Global Innovation Index.
Improvements in research policy over the past 20 years have included the launch of a national funding program (Fonds National de la Recherche) in 1999, the foundation of the University of Luxembourg in 2003 and the creation of a general public scholarship scheme that replaced the child-benefits program in 2010. Luxembourg’s university has steadily expanded, with a move into the new Campus City of Science in Esch-Belval promising an enhanced research focus.
The new Belval campus, designed for 7,000 students, 3,000 researchers and 6,000 inhabitants, is one of the largest urban-conversion projects in Europe. In 2015, more than 830 employees and 2,000 students moved to the new location. At the House of Innovation alone more than 500 scientists, researchers and international specialists from CRP-Henri Tudor, Luxinnovation and the Dr. Widong Center carry out applied research. Furthermore two interdisciplinary hubs (in the areas of biomedicine and IT security) work on fundamental research and strategic business partnerships.
The University of Luxembourg was ranked 193rd in a recent global university ranking (World University Rankings 2015 – 2016), and 98th among Europe’s top 100.
Prime Minister Xavier Bettel introduced the “Digital Lëtzebuerg” initiative in October 2014, with the aim of strengthening ICT capacities over the long term, both for citizens and in the economy as a whole. Public spending on research and development must increase strongly to sustainable achieve these goals. In addition, public research funding must be evaluated more carefully on the basis of impact and efficiency. According to a recent OECD follow-up innovation report, the research and innovation landscape in Luxembourg has shown promising development, with the National Research Institutes already acting as important research support instruments. The report recommends better impact control and further investments in Belval campus. R&D and cluster policies must be further evaluated on the basis of economic impact and effectiveness.
In May 2013, the former government commissioned a team of researchers to clarify the role of the Luxembourgish public administration during the Second World War. In a study published in February 2015, the historians came to the conclusion that the occupation government was partly responsible for the deportation of Jewish citizens. After the release of the report, the government publicly apologized as a symbolic act to the Jewish community.

Citations:
http://www.cedies.public.lu/fr/publications/guides-pratiques/faq-uni-lu/luxembourg/guidance-booklet-for-faq-and-concerns.pdf
http://www.gouvernement.lu/4103901/20-digital-letzebuerg
http://www.gouvernement.lu/5380237/27-wef
http://www.heritage.org/index/country/luxembourg
http://www.innovation.public.lu/fr/brochures-rapports/o/ocde-luxembourg-innovation-2015/ocde-luxembourg-innovation-2015.pdf
http://chd.lu/wps/portal/public/RoleEtendu?action=doDocpaDetails&backto=/wps/portal/public&id=6283#
https://www.timeshighereducation.com/world-university-rankings/2016/world-ranking#!/page/0/length/25http://
http://erawatch.jrc.ec.europa.eu/erawatch/opencms/information/country_pages/lu/
http://www.uel.lu/images/stories/Documents_public/Annuaire_de_la_competitivite_2015_-_UEL.PDF
http://www.odc.public.lu/publications/pnr/2015_PNR_Luxembourg_2020_avril_2015.pdf
http://www.odc.public.lu/indicateurs/tableau_de_bord/index.html
http://www.snci.lu/files/62261.pdf
http://www3.weforum.org/docs/gcr/2015-2016/Global_Competitiveness_Report_2015-2016.pdf
http://www.innovation.public.lu/fr/brochures-rapports/o/ocde-luxembourg-innovation-2015/ocde-luxembourg-innovation-2015.pdf
http://www.wort.lu/de/politik/streitgespraech-die-debatte-um-den-artuso-bericht-566e9cd90da165c55dc4f8a4

Global Financial System

#11

To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?

10
 9

The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
 8
 7
 6


The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
 5
 4
 3


The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
 2
 1

The government does not contribute to improving the regulation and supervision of financial markets.
Stabilizing Global Financial Markets
6
Since the opening and creation of the single European market in the 1970s, Luxembourg has been the most important actor in the European debt-capital market, playing a major role in stimulating the international financial architecture.
Luxembourg performed relatively well in the global financial crisis. After saving two domestic systemically relevant banks (Dexia and Fortis), Luxembourg again showed rising tax revenues in 2015. But as a small country, Luxembourg’s economy remains strongly influenced by the general economic climate and international trends.
Luxembourg is a major financial center, with the banking and financial-services industry contributing an estimated 30% of GDP or more. Consequently, the country was exposed to the effects of the economic crisis within the European Union. Luxembourg’s treatment of offshore accounts and capital deposited by non-resident customers came under international scrutiny during the period. Yet issues with banking secrecy will essentially come to a close in 2015, when all EU member states are expected to move to a system of automatic information exchange. Since its commitment to the international standards on this issue, established by a G-20 meeting in March 2009, Luxembourg has created a large number of bilateral information-exchange mechanisms for tax purposes. In early 2013, however, Luxembourg refused to endorse a financial-transactions tax that was agreed upon by a majority of EU member states. Under the pressure of the U.S. Foreign Account Tax Compliance Act (FATCA) and the new EU rules, Luxembourg promised in October 2014 to implement full and permanent tax transparency and the Common Reporting Standard (CRS). The government and the banking industry say they are confident that the change will not have a large negative impact on the activities of the country’s financial sector, as some regulations have been long anticipated, and many have already been enacted since 2009 as part of OECD standards.
In the new EU Competitiveness Scoreboard 2014, Luxembourg was ranked sixth overall among the EU-28 (previous year: 13th place). The country’s economic-freedom score was unchanged from the previous year, at rank 16. In the World Bank Doing Business 2016 report, Luxembourg was ranked at only position 61, behind Greece at 60th place and far behind neighbor countries Belgium (43), France (27), Germany (15). Reflected in these rankings is the perception that Luxembourg is not an innovation leader, and has difficulties in encouraging start-ups and creating jobs. This has had substantial impact on the targeted diversification of the economy. In the 2015 Global Financial Centers Index rankings, Luxembourg lost two places in global ranking, taking fifth place among Europe’s financial centers. In the assessment of “business environment” and “infrastructure,” Luxembourg fell into the top eight globally, performing very well within its niches.

Citations:
http://www.land.lu/2011/10/14/geplant-geplant-geplant/
http://www.land.lu/2011/12/02/kristallkugel/
http://www.longfinance.net/images/GFCI18_23Sep2015.pdf
http://ec.europa.eu/DocsRoom/documents/6706/attachments/1/translations/en/renditions/native
Storck, E. (1995), Globalisierung und EWU: Der Euromarkt als Finanz-Drehschreibe der Welt
http://www.longfinance.net/images/GFCI16_22September2014.pdf
http://www.doingbusiness.org/data/exploreeconomies/~/media/giawb/doing%20business/documents/profiles/country/LUX.pdf?ver=3
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/taxnewsflash/Documents/luxembourg-oct17-2014.pdf
http://www.oecd.org/eco/surveys/Luxembourg-2015-overview.pdf
http://www.oecd.org/sti/inno/46665252.pdf
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