“A welcome break that needs to be put into practice.” The slide says it all, with satisfaction and caution. If everything goes according to plan, in 2025, the government of  (CSV) will put an end to the 6.7% annual average increase in central government spending since 1995. If all goes according to plan over the following three years, this increase will be contained to an average of 4.4%. Naturally, the Chamber of Commerce was delighted with these figures, having called for a “return to budgetary room for manoeuvre” at the start of the year.

On Tuesday, when it presented its opinion on the 2025 budget and the outlook for the remainder of the government’s term of office, the Chamber of Commerce was quite positive. “The government has succeeded in reversing the scissors effect that appeared in 2022, and central government expenditure is growing less rapidly than revenue, at 4.5% compared with 5.2% in 2025. As a direct consequence, the central government balance will improve, with a deficit limited to 1.5% of GDP compared with 1.7% in 2024.” This deficit should fall below the one billion euro mark from 2027 (-€685m). The balance will improve by almost €2bn over four financial years.

Stopping the debt spiral

“The Chamber of Commerce welcomes this new budget trajectory, which will enable us to halt the spiral of debt,” says the institution. Even with a less favourable situation than forecast, “public debt would not cross the threshold of 30% of GDP over the period,” it notes, without explaining that this is also because GDP is expected to increase, which was Frieden’s political gamble when he came to power so as not to have to raise taxes.

“It is Luxembourg's political and financial stability that is its strength and attracts investors,” points out . “It is therefore imperative to maintain the AAA rating, which is now reserved for an increasingly closed group of countries,” a strategy that was also expressed by the prime minister and that has so far been well implemented, if the country’s two most recent ratings are anything to go by--triple A and .

The Chamber of Commerce in turn welcomed the one-point cut in the nominal rate of corporation tax, the exemption from subscription tax for actively managed exchange-traded funds (ETFs), the measures to revive the housing construction market and the property market, the record investment in environmental transition and the increase in resources allocated to mobility infrastructure, including €455m between 2024 and 2028 to fund the extension of the tram.

Ageing a problem

But in this exercise of contextualisation, which weighs up the good and the bad, the negative is not slow to arrive. First, warns the Chamber of Commerce, revenues such as taxes and excise duties on tobacco and fuel sales are not permanent... but they do account for 7.6% of central government revenues.

Second, with only 57.3% of the population of working age in 2070, compared with 69.3% today, age-related expenditure will rise from 17.2% of GDP in 2022 to 27.9% in 2070. Spending on pensions will double, while spending on healthcare and long-term care will continue to rise. This trend is already apparent in the short term, since the balances of the social security authorities will go from a surplus of €1.173bn in 2023 to a deficit of €15m in 2028. If employment stumbles, the deficit could even reach €355m by that date. With an unchanged policy, notes the Chamber of Commerce, the reserve of the general pension scheme would be exhausted in 2047 despite €27.4bn at the end of 2023. “The unsustainability of the system is therefore clear,” the document states in bold, to underline the dire prediction.

The diagnosis is similar for maternity health insurance, where the deficit is expected to reach €190m in 2028, compared with €46m this year.

In both cases, the government needs to take strong and swift action, says the director-general of the Chamber of Commerce. But prime minister Frieden--who did not want to get too involved in the debate on the future of pensions during the election campaign to avoid overly passionate discussions--knows well, from experience, that these transformations could make voters “nervous” too close to the next election.

This article was originally published in .