In this episode, Vincent Hein, director at Fondation IDEA, joins Adrien to discuss Luxembourg's public spending habits and question whether Luxembourg can afford it over the long run. They explore the rapid growth of public expenses in Luxembourg, driven by population growth, construction costs, and social spending. While Luxembourg's short-term fiscal indicators are strong, Vincent raises concerns about long-term sustainability due to an aging population and potential revenue volatility in the financial sector. He emphasises the need for investment in energy transition, digital transformation, and defense while strategically managing spending.
Among the key points discussed:
- Personal vs. state finances: fundamental differences between managing individual finances and a state budget.
- Luxembourg's spending spree: factors contributing to the rapid growth of public expenses in Luxembourg (6% nominally).
- Short-term vs. long-term: Luxembourg's good short-term fiscal indicators are not a predicament for long-term performance.
- Pension time bomb: why Luxembourg's pension system needs to be reformed.
- Strategic state: Shift towards a more strategic state that invests more and spends less, targeting social expenses effectively.
They discuss some of the recommendations from IDEA’s June 2024 paper that would create a sustainable path when it comes to public spending:
- Raise awareness: increase awareness among the population and political class about the need for fiscal responsibility.
- Anticipate difficulties: act now to address future challenges like pension deficits to avoid harsher cuts later.
- Public policy evaluation: implement a culture of evaluating public policies to ensure efficiency and effectiveness.
- KPIs and zero-based budgeting: implement Key Performance Indicators (KPIs) and zero-based budgeting to improve financial accountability and control spending.
- Empower civil servants: Give them more control and accountability in managing public finances for a sustainable future.
Link to the report (in French): https://www.fondation-idea.lu/2024/06/12/document-de-travail-n25-les-depenses-publiques-au-luxembourg-everest-ou-kneiff/
This episode is kindly supported by the Luxembourg Chamber of Commerce.
