Insufficient Information Summary
According to both the 2008 Policy Brief by the Organisation for Economic Co-operation and Development (OECD) and the 2009 Article IV Consultations report by the International Monetary Fund (IMF), Luxembourg lacks a medium-term focus for its fiscal policy, a shortcoming that has implications for policy effectiveness as well as transparency. In 2006, the IMF reported that Luxembourg saw no need to adopt a formal medium-term fiscal framework, because it felt that its participation in the European Union's Stability and Growth Pact provided enough of a medium-term framework to serve its budget management needs. The 2008 OECD report further suggested that Luxembourg needed to move away from its input-based, line-by-line approach to the budget process and to adopt a more outcome-oriented approach. Further, the OECD argued in an earlier (2006) report that Luxembourg needed to reduce its over-reliance on "special funds" for public investment projects, observing that such an approach could not respond to changing priorities over time. The 2008 OECD report states that, in the area of health insurance, there were plans to merge several of these funds, and suggests that this will lead to improvements in accountability and economies of scale. Nonetheless, there is insufficient information as to Luxembourg's overall compliance with IMF's Code of Good Practices on Transparency in Fiscal Policy.
General Overview
Luxembourg has not yet participated in a fiscal policy transparency mission with the International Monetary Fund (IMF) and, therefore, there is no fiscal transparency module of the IMF's Reports on the Observance of Standards and Codes published for this country. The most recent report published by an authoritative source that touches on the topic is the 2008 Policy Brief issued by the Organisation for Economic Co-operation and Development (OECD). According to this report, Luxembourg has recently made improvements to its fiscal policy framework. Some of these improvements have to do with timing: discussion of the budget in parliament now occurs closer to the advent of the budget year, and the lag-time between presentation of the budget and the publication of the stability program has been cut. A further improvement has been the inclusion in the budget documents of a version that follows national account rules, the report notes. This latter innovation first occurred with the 2008 budget presentation. Still, as the report describes, the budget remains "driven by a process of line-item discussion and input-based principles, with a strong focus on the allocation of resources among spending ministries" (p. 5). The OECD argues that the framework reform should include setting multi-year ceilings on expenditures, in which short-term fiscal goals are clearly linked to the longer-term objective of fiscal sustainability. The delivery of public services could be made more efficient by adopting output-based budgeting in place of the input focus that currently dominates. To improve the transparency of the budget process, Luxembourg should more clearly separate the three related tasks of data compilation, macroeconomic projection, and the actual preparation of the budget. To this end, the OECD recommends that the responsibility for generating macroeconomic projections and analyses of trends in revenues and expenditures be allocated to an independent agency. An earlier OECD Policy Brief, published in 2006, raised many of the same concerns discussed in the 2008 report, indicating that these problems are of long standing. An additional problem raised in the earlier report was the heavy reliance on "special funds" used to finance public investment projects, noting that this approach compromised the flexibility of the system, since the funds could not be reallocated in response to changing priorities. The 2008 report notes that, at least in the area of health insurance funds, of which there were nine, there are plans to merge five, which the OECD suggests will result in greater accountability and economies of scale.
According to the 2006 Article IV Consultations report between the IMF and Luxembourg authorities, the IMF recommended that Luxembourg adopt a formal medium-term fiscal policy framework. However, the government of Luxembourg asserted that its participation in the European Union's Stability and Growth Pact (SGP) was sufficient to provide a medium-term framework in order to facilitate adjustment. The IMF further advised the Luxembourg authorities that, in order to improve transparency and prevent policy drift, opportune fiscal data, regular analysis, and clearer budget prioritization were required. The IMF's 2009 Article IV Consultations report is largely silent on the issue of fiscal policy transparency. It does mention that the current fiscal policy appears to be "well-conceived," (p. 1), but adds that, "over the medium- and long-term, adjustment is necessary to foster fiscal sustainability, which is currently threatened on a number of fronts" (p. 18).
The Principles
IIClarity of roles and responsibilities.
There is insufficient information as to Luxembourg's compliance with this principle. However, according to the Ministry of Finance’s (MoF) website, the ministry is responsible for planning, executing, and monitoring the budget. The Constitution requires that the budget be approved by the Chamber under legislation that remains valid for one year which could, however, be renewed for additional years. In addition, a court of auditors is established, according to the Constitution, with the objective to monitor the implementation of the budget on behalf of the Chamber.
IIOpen budget processes
There is insufficient information as to Luxembourg's compliance with this principle. However, according to the Ministry of Finance's 9th Update of the Luxembourg Stability and Growth Program, transparency of public finances was increased as a result of measures taken while drafting the government bill on state revenue and expenditure for fiscal year 2008. There has been a substantial reduction in delay between the presentation of the draft budget and the presentation of the stability program which has allowed the "Parliament to include the assessment of the draft budget for the year ahead within the broader context of medium-term and long-term budgetary planning" (p. 31), the MoF’s update notes.
In 2006, the OECD's Policy Brief on Luxembourg raised several issues concerning Luxembourg's budget management practices. The report pointed out that the annual budget submission to Parliament concerned itself only with the revenues and expenditures of the coming year, and did not offer an estimate of medium-term developments. It also noted that the budget took a line-by-line, input-based approach, rather than relying on more transparent, output-based principles. Finally, the report noted that Luxembourg's reliance on "special funds" to cover the costs of public investment projects lacked flexibility, given that the funds could not be reallocated in response to changing priorities. The 2008 OECD’s Policy Brief reiterated these problems, although it did note that, in the area of health insurance special funds, some mergers were planned. This is expected to result in improved accountability and economies of scale.
IIPublic availability of information.
As a subscriber to the IMF's Special Data Dissemination Standards (SDDS), Luxembourg now has its statistical government data available on the IMF's website. There is public access to past and current fiscal policy and budget-related documents on the MoF website, some of which may be retrieved in English. The SDDS website discloses that Luxembourg meets coverage, timeliness, and flexibility requirements for its fiscal data, publishes advance-release calendars for such data, and makes its fiscal statistics simultaneously available to all users. However, there is insufficient information as to Luxembourg's compliance with this principle.
IIIndependent assurances of integrity.
The IMF's 2006 Article IV Consultation recommended that Luxembourg provide more timely fiscal data, regular analysis, and clearer budget prioritization in order to "enhance transparency, foster public support of policy requirements, and prevent policy drift" (p. 24). According to the IMF's SDDS website, Luxembourg subscribed to the SDDS on May 12, 2006. There is no reference manual available on the methodology used for central government debt data and, for general government or public sector operations data, there is no information available as to the dissemination of component detail, reconciliations with related data, and statistical frameworks that support cross-checks and provide assurance of reasonableness. Ultimately, there is insufficient information to directly address Luxembourg's compliance with this principle.
