Photo: Guy Jallay

Luxembourg will increase spending on the environment and on climate protection by nearly a quarter over the coming four years, finance minister Pierre Gramegna said on Monday, when presenting the government's 2020 budget.

The increase includes investments into public transport infrastructure, renewable energies, and sustainable finance, with the headline number budgeted to go up to €661 million in 2023 from €502 million next year.

"To make progress we need a shift in mentality," Gramegna said in parliament. "Each decision we take, each product we buy has consequences for the climate."

Climate spending for next year includes €251 million on rail infrastructure, €54 million for the construction of the tram, and €11 million on energy spending, for example with the aim to upgrade public buildings and make them more energy efficient.

The government also wants to further support Luxembourg's role as a centre for sustainable finance, for example by providing funding for the Luxembourg-EIB Climate Finance Platform. A new Sustainable Finance Initiative is set to be launched over the coming months.

Luxembourg will also issue a €1 billion sustainable sovereign bond, listed at the Luxembourg Stock Exchange's green offshoot, with the funds to be used exclusively for climate, environment and social spending.

Overall investments will climb to more than €3 billion by 2023, the equivalent of 4.3% of GDP, well above the Euro area average of 2.7%.

A government chart showing the expected rise in investment spending, in billions of euro.

Photo: Ministry of Finance

In addition to climate, Gramegna said that social spending was one of the budget’s priorities. This includes a 10% increase for the Family Ministry’s childcare voucher service scheme (chèques services).

The Equal Opportunities Ministry will also see some additional windfall, to set up a new observatory dedicated to collecting and analysing domestic violence data.

Spending on housing will also go up, with €135 million earmarked for social housing construction subsidies. Another €16.5 million in subsidies will be made available for energy renovations.

Gramegna warned of some "dark clouds" on the world economy horizon that could also have negative repercussions for Luxembourg, including the US-China trade war, Brexit, and international fiscal reform.

To prepare for future turbulence, the government will establish a fund dedicated to balancing the budget, the Fonds de rééquilibrage budgétaire. This will be fed by budget surpluses in good years so that the government can have access to them in times of crisis.

However, Gramegna said that Luxembourg's economy was doing well with GDP growth of between 2.4% and 3.5% predicted for the years until 2023. The labour market is expected to add more than 50,000 jobs in this time, with unemployment stable at just over 5%.

"Despite a difficult international environment we have every reason to look forward with optimism," Gramegna said.

The budget was filed with parliament as a bill and will now be discussed in the finance and budget commission. From there, it will go to debate in parliament before a vote scheduled before the end of this year.

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