Luxembourg’s central government posted a budget surplus of €59 million at the end of the first quarter of 2026, down €278 million from the same period a year earlier, Finance Minister Gilles Roth told parliamentary committees on Tuesday.
Total central administration revenues rose to €7.92 billion in the first three months of the year, an increase of €341 million or 4.5% year-on-year. But spending rose more sharply, up 8.6% to €7.86 billion, squeezing the quarterly surplus.
The revenue picture was mixed across tax categories. Income tax receipts rose 8.1%, but corporate tax revenues fell by 11.8%, leaving total direct tax revenues broadly flat at €4.3 billion.
Receipts from VAT and other indirect taxes grew more dynamically, up 15.6% to €2.2 billion, driven by a 17% rise in VAT. Customs duties and excise revenues fell by 7.5%, mainly reflecting lower tobacco tax intake.
Luxembourg deficit balloons to €1bn as spending outpaces revenue growth
Roth signalled in a press release that further aid measures could follow if the current international crisis deepens. “We must remain vigilant in an increasingly uncertain global environment and given the still not fully foreseeable medium-term consequences of the conflict in the Middle East,” he said. “Our public finances remain sound, and we must do everything we can to maintain social cohesion, support the economy, and preserve the purchasing power of citizens.”
Spending pressure follows 2025 reversal
The Q1 narrowing extends a broader deterioration that set in last year. Luxembourg ended 2025 in a deficit of €1.044 billion, reversing a €317 million surplus in 2024. Central government revenue rose just 2.5% to €29.1 billion in 2025, while expenditure climbed 7.4% to €30.1 billion. Spending on employee compensation rose 9% last year, other current transfers rose 4.6%, public investment was up 14.5% and defence spending more than tripled.
In a report published last week, economic think tank Idea Foundation warned that the government’s budgetary room for manoeuvre is being squeezed by a combination of external shocks and the government’s expansionary tax policy, much of which has already been enacted.
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Idea flagged the recurring revenue cost of measures already decided, including the new housing packages, adjustment to the personal income tax schedule, and the draft law introducing a single tax class.
The think tank said the expansionary fiscal policy is being run at the same time as major long-term spending commitments on pensions, defence, the digital and green transitions and large infrastructure projects.
“The country’s budget balance is therefore threatened by the substantial cost of the policy being pursued, which could eventually require the implementation of potentially unpopular measures,” Idea said, warning that future governments may be forced either to raise taxes or to curb public spending growth.
Luxembourg budget deficit could more than double to under €3bn, watchdog warns
The November 2025 warning from the National Public Finance Council (CNFP), an impartial budget watchdog, that the deficit could widen to €2.6-€3 billion by 2029 — absent offsetting measures — was based on similar concerns. CNFP president Romain Bausch told MPs at the time that income tax bracket adjustments alone could cost around €850 million per year, with further strain from Nato-linked defence commitments.
(This article was originally published by the Luxemburger Wort. Translated using AI and edited by Kabir Agarwal.)
