Luxembourg's Finance Minister, Pierre Gramegna, stated on Wednesday that Luxembourg's projected VAT revenue is expected to come in 20% below budget at year end; he was speaking at an event organised by AMCHAM Luxembourg held at the Sofitel in Luxembourg-Kirchberg.

Minister Gramegna introduced his address by stating that if there is one country where bankers are still liked, then it is Luxembourg. Solving things in Luxembourg is not easy and one needs a sense of humour. "I'm delighted to be here for the second time, the other being Thanksgiving" he stated before talking about the topic: public finances in Luxembourg.

He said that the government is now rolling out the series of measures defined early last year in the programme of government and is working towards achieving a balanced budget in 2018. Regarding the the 2016 budget, he said that there is no bad news for companies. He explained that having a balanced budget is so important to be able to attract foreign investment. He said that having AAA rating is key for investment, growth and jobs.

VAT

On the 2015 budget, he acknowledged that the anticipated revenues have not been totally as planned, but expenditure has been as forecast. "Our VAT rates are still the lowest in the EU. Over next year, this discrepancy will be reduced". With the VAT increase of 2015 intended to generate €280m, but this will not be achieved, probably 20% lower than expectations, he admitted. He did, however, explain the issue of "elasticity" which is where such issues may not have the desired effect immediately, but will do so over time as consumers' trends stabilise.

He explained that the European Commission makes recommendation, but each Member State has a lot of latitute in policies on running the country. Germany, The Netherlands, Estonia and Slovakia are the 4 EU MEmber States, including Luxembourg, that have the most balanced budgets in Europe.

The major issues facing Luxembourg at present are security and refugees, both which have a massive impact on finances and life in Lxuembourg.

Refugees

He said that he has included a new line in the state budget, in a transparent way, addressing refugees. Luxembourg is one of the few countries, he stated, that welcomes refugees even before they ask; taking this resoonsibility very seriously. He said that much investment has been done in infrastructure, with a focus now on learning languages and finding jobs. He said that he hopes the roots of the problems will be resolved. He also stated that Luxembourg is not advertising their policy on frefugees, rather to do things quietly and get things done.

He also said that Luxembourg is now spending double on NATO as before, with 1% of GDP still going towards development aid (only 3 countries in the world achieve this).

Luxembourg is a small player in defence and security issues; however, he does not want to make the laws more stringent.

Taxation

On taxation, he referred to the recent meeting of the G20 Finance Ministers who have worked to revamp international taxation as we know it. The main message, expressed most clearly by George Osborne (British Chancellor of the Exchequer) he revealed, wants each company to pay its fair share of tax. "We need a level playing field" he stated, in order to achieve the goals.

"I am ready to listen and to act, if necessary", he addressed directly the AMCHAM members attending. He said that solutions must be BEPS-compliant which needs long-term thinking, and that lots of experts have been working on this in order to close loopholes.

He also stated that Luxembourg will remove nominal taxation for companies, meaning companies will have to pay more tax. "That's a given, and will be implemented by a step-by-step approach".

He stated that we must be attractive for companies to be convinced that "Luxembourg is the best place in Europe to do business".

Paul Schonenberg, Chairman of AMCHAM Luxembourg, had introduced Pierre Gramegna to the former Director of Luxembourg's Chambre de Commerce and former Luxembourg Ambassador to Japan, who is currently the Minister of Finance in the Grand Duchy. He described Minister Gramegna as a great friend of the business community in Luxembourg and stated "He's the best friend we have in the government".

During the Questions from the Floor section of the event, Paul Schonenberg explained that what helps businesses most is predicitibility, referencing the issue of tax rulings which had developed a bad reputation recently. Minister Gramegna answered by explaining that tax rulings have not been exclusive to Luxembourg, with most countries providing such guidance to companies in their jurisdictions. He stressed "Luxembourg is not part of the problem, it is part of the solution". He said that one of his first priorities after hosting the EU Presidency is to accelerate the administration of taxation of companies in Luxembourg, ensuring taxes are paid quicker, qioting "Anticipation leads to efficiency".

Photos by Geoff Thompson (above, L-R):  Paul Schonenberg, AMCHAM; Pierre Gramegna, Finance Minister