2019 OECD ECONOMIC SURVEY OF LUXEMBOURG Preserving and sharing prosperity 10 July 2019, Luxembourg http://www.oecd.org/economy/luxembourg-economic-snapshot//
@OECDeconomy @OECD
Main messages 1.
Increasing housing supply, including social rental dwellings, is key to improving housing affordability.
2. Reviving productivity growth will require supporting viable weaker firms to catch up and helping the best firms to innovate more. 3. Fiscal reforms are needed to tilt revenues towards environmental and property taxation and address rising pension expenditure.
2
Well-being is high Better Life Index country rankings from 1 (best) to 35 (worst), 2017
Source: OECD Better Life Index.
3
The gender wage gap is small Wage gap Percentage, 2017 40
35
35
30
30
25
25
20
20
15
15
10
10
5
5
0
0
LUX BEL GRC SVN ITA DNK TUR NOR NZL HUN POL FRA ISL IRL MEX ESP LTU SWE OECD NLD AUS PRT CHE SVK DEU CZE AUT FIN GBR CAN USA CHL LVA ISR JPN EST KOR
40
Note: The gender wage gap is defined as the difference between median earnings of men and women relative to median earnings of men, for full-time employees. Source: OECD Labour Force Statistics.
4
Economic growth has been strong GDP growth, year-on-year % change 12 10 8 6 4 2 0 -2 -4 -6 -8 -10
Luxembourg 2007
2009
2011
2013
2015
Euro area 2017
2019
Source: OECD, Economic Outlook (database). 5
Making growth sustainable and inclusive
6
The fiscal balance is sound Percentage of GDP 7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
-2
Source: OECD, Economic Outlook (database).
7
There is ample fiscal space r-g (interest rate minus GDP growth) percentage points 3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
More fiscal space
-5
-5
SVN
ITA
GRC
FRA
USA
PRT
LTU
BEL
ESP
JPN
SVK
GBR
AUT
DEU
NLD
CHE
CAN
LVA
IRL
-8
KOR
-8
FIN
-7 LUX
-7 SWE
-6
EST
-6
Note: r-g is the average difference between the effective interest rate paid on net debt (r) and nominal GDP growth (g) for 2016-18. r is the weighted difference between the implied interest rate paid on government financial liabilities and the implied interest rate earned on government financial assets, where the weights are the share of financial liabilities and assets in net debt, respectively. Source: OECD, Economic Outlook (database).
8
Ageing-related costs will rise substantially Percentage of GDP 30 25
Public pensions expenditure, gross
Public pensions contributions
Long-term care expenditure
Health care expenditure
30 25
Net ageing related spending 20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
2016
2020
2025
2030
2035
2040
2045
2050
2055
2060
2065
2070
-15
Note: Net ageing-related costs amount to public expenditure on pensions, long-term care and health care minus pension contributions. Source: European Commission (2018), "The 2018 Ageing Report - Economic and budgetary projections for the 28 EU Member States (2016-2070)" Directorate-General for Economic and Financial Affairs.
9
Environmental taxes are low Percentage of GDP, 2016 or latest
Source: OECD Green Growth Indicators. 10
Fiscal policy recommendations to make growth sustainable and inclusive 1.
Allow automatic stabilisers to work in case of a downturn and, if it intensifies, implement a countercyclical fiscal expansion.
2. Increase the retirement age with life expectancy and/or reduce the generosity of pensions. 3. Continue to engage in international efforts to address tax challenges of cross-border activities and to strengthen tax transparency. 4. Continue to raise taxes and excise duties on transport fuel, especially on diesel, and develop flanking measures over the short term for most affected poor households.
11
Reducing financial risks for households and banks
12
Investment funds have continued to grow
EUR billion 5000
EUR billion Credit institutions, total assets
4500
Investment funds, assets under managementยน
5000 4500
4000
4000
3500
3500
3000
3000
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
2001
2003
2005
2007
2009
2011
2013
2015
2017
0
1. Undertakings for collective investment (UCI), net assets. Source: Banque centrale du Luxembourg, Statistical tables. 13
The share of over-indebted households is high, in particular for those with low wealth Share of households with debt-to-income ratio exceeding 300%, 2014 100 90
Households in the bottom wealth quintile
All households
100 90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
SVK POL SVN EST
FIN
LVA HUN DEU BEL FRA ITA GRC IRL NLD ESP PRT AUT LUX
0
Note: The debt-to-income ratio calculates outstanding debt on main residence divided by annual household gross income. Source: HFCS database, LWS database, OECD Affordable Housing Database. 14
Recommendations for reducing financial risks 1. Introduce borrower-based macroprudential instruments, such as caps to loan-to-value or debt-service-to-income ratios, as foreseen in draft legislation. 2. Strengthen disclosure of climate-related risks by financial intermediaries, in line with the recommendations by the Task Force on Climate-related Financial Disclosures. 3. Further reinforce financial supervision, namely by continuing to monitor credit risks on intra-group bank exposures and continuing to enhance on-site inspections and data collection on investment funds.
15
Reviving productivity growth
16
Productivity is high but flat GDP per hour worked, USD 2010 PPPs Luxembourg
90
France
Germany
Belgium
OECD
90
80
80
70
70
60
60
50
50
40
40
30
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
30
Source: OECD Productivity Indicators Database. 17
Productivity in services: weaker firms are falling further behind Value added per worker in services, 2005=100 120
Laggard firms
Median firms
120
Frontier firms
110
110
100
100
90
90
80
80
70
70
60
60
50
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
50
Note: Frontier firms are defined as the top 20% of firms with the highest labour productivity levels by industry; median firms are in the 40th-60th percentiles; and laggard firms correspond to the bottom 20%. Source: OECD calculations based on data from STATEC, structural business statistics. 18
ICT skills shortages remain high Percentage of firms reporting hard-to-fill vacancies for ICT specialists 10
2018
9
10
2012
9
NLD
LUX
DNK
BEL
HUN
FIN
DEU
CZE
AUT
EU
0
GBR
0
SWE
1 SVN
1 IRL
2
FRA
2
EST
3
SVK
3
LTU
4
ESP
4
NOR
5
LVA
5
ITA
6
GRC
6
TUR
7
PRT
7
POL
8
ISL
8
Note: Enterprises with 10 or more employees, excluding the financial sector. Source: Eurostat, Information Society database. 19
The insolvency regime is weak, calling for reforms Deviation from the OECD average measured in standard deviations, OECD=0 2018 or latest Strength of insolvency framework index (0-16)
Fear of failure rate (%)
Cost of resolving insolvency (% of estate)
Time to resolve insolvency (years)
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
Note: Data bars to the right of zero show better performance than the OECD average and data bars to the left show worse performance than the OECD average. Source: World Bank, Trade and Competitiveness data.
2
2.5
20
Product market regulations remain restrictive Indicator ranges from 0 (least stringent) to 6 (most stringent) 6
6
Luxembourg OECD
5
Average of 5 best countries Average of 5 worst countries
4
5 4
3
3
2
2
1
1
0
Lawyers
Notaries
Accountants
Architects
Civil engineers
Estate agents
0
Source: OECD Product Market Regulation Indicators of Professional Services, 2019. 21
R&D spending remains low Percentage of GDP 4.5
2016 or latest year
EU Horizon 2020 target
4.5 4.0
3.5
3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
CHL LVA MEX SVK TUR POL GRC IRL ESP HUN LUX NZL PRT EST ITA CAN CZE GBR AUS EU28 SVN NOR NLD ISL FRA OECD BEL USA FIN DNK DEU AUT JPN SWE CHE KOR ISR
4.0
Source: Eurostat and OECD Research and Development Statistics. 22
Recommendations for reviving productivity growth 1. Undertake regular skill foresight exercises and ensure their outcomes feed into enhanced training offers. 2. Modernise bankruptcy law to ease early restructuring and second chance opportunities, as well as the exit of non-viable firms. 3. In professional services with anti-competitive regulation, eliminate restrictions on advertising and marketing. 4. Promote the adoption of cutting-edge technologies, inter alia through the demonstration effect of public sector use.
23
Policies for a better housing market
24
Population growth has outpaced new construction Percentage change, 2015 2.5
2.5 Population
Dwellings
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
FRA
DEU
CHE
LUX
0.0
Note: Population data for Germany refers to 2016. Source: OECD (2018), International Migration Outlook; and OECD Affordable Housing Database.
25
Real house prices are growing strongly Index 2007 =100 160 150
Luxembourg
Belgium
Luxembourg City
France
160
Germany
150
140
140
130
130
120
120
110
110
100
100
90
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
90
Source: OECD, Analytical house prices indicators database; and Observatoire de l'Habitat.
26
Households’ housing cost burden is high Median of the mortgage burden as a share of disposable income, in percent, 2016 or latest
Source: Preliminary data from the OECD Affordable Housing Database. 27
Urban sprawl is high Percentage of urban population living in areas with a low population density (150-1 500 people per km²), 2014
Source: OECD (2018), Rethinking Urban Sprawl. 28
Property taxes are low Recurrent immovable property taxes, percentage of GDP, 2016 3.5
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5
0.0
0.0
LUX CHE MEX AUT CZE TUR EST LTU SVK DEU NOR SVN HUN IRL CHL SWE FIN KOR PRT LVA NLD OECD ESP POL ITA BEL DNK ISL AUS JPN NZL ISR GRC USA FRA GBR CAN
3.5
Source: OECD Global Revenue Statistics Database. 29
Social rental housing is scarce Number of social rental dwellings as a share of the total number of dwellings, 2015 or latest
Source: OECD Affordable Housing Database. 30
There are many high earners among subsidised rental housing tenants Percentage of households in social rental housing who are in two top income quintiles, 2014
Note: Subsidised rental housing covers all housing rented at below-market-rate, including social rental housing, employer-provided housing and housing where rent levels are fixed by law. Source: OECD calculations based on OECD Affordable Housing Database.
31
Recommendations for a more efficient and inclusive housing market Boosting housing supply and reducing housing demand pressures: •
Increase the opportunity cost of unused land by reforming recurrent taxes on immovable property. Turn these taxes into a more important fiscal resource.
•
Ensure that municipalities penalise landowners and developers for non-use of building permits.
•
Phase out or reduce mortgage interest deductibility.
•
Increase residential density.
Improving inclusiveness: •
Directly finance new land acquisition by public providers of social housing. Use recurrent means testing to better target the provision of social housing.
•
Link housing allowances and social housing rents to local rents.
32
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