The Medium-Term Objective (MTO) is one of the cornerstones of the national and European fiscal governance framework. More specifically, the level of the MTO is supposed to be reviewed for a new 3-year period (2017-2019) in the context of the upcoming update of the Stability and Growth Programme of the Government by the end of April. The CNFP recently shared its views on the subject in a note to the Government, the Parliament as well as the ‘Conseil économique et social’. (N.B. The note is only available in its original French version).
According to the relevant European procedures, the MTO for Luxembourg could – in theory – be reduced to a level that is lower than is currently the case, i.e. lower than +0.5 of GDP. The CNFP would like to caution nonetheless against a mechanistic reduction of the MTO which would be the mere result of an upward revision of demographic projections (1.1 million residents are assumed by 2060 in the baseline scenario). A more prudent demographic assumption as well as a long-term target of 30% of GDP for public debt would require more ambitious budgetary targets in order to maintain a margin of maneuver allowing authorities to address the wider and more complex challenges over the long-term.