‘Taxes are poison for companies hit by the crisis,’ Xavier Bettel told a Luxembourg for Finance online panel on Thursday. He added that when seeking to restore balance to state finances ‘we want to avoid any tax rise.’ Instead ‘maybe we’ll have to cut or delay some projects.’
That said he had no regrets about the government’s aggressive support measures for the Luxembourg economy. ‘This money has been some of best investment we could do,’ he said.
There was agreement with this latter point from Yves Nosbusch (pictured), chief economist at Luxembourg’s largest universal bank BGL BNP Paribas. ‘Governments around the world know today that in the face of a major crisis, you have to respond, and they did this very well,’ he said. Thanks to this fiscal and monetary policy support he is ‘actually quite sanguine about the outlook for 2021 and beyond.’ Once the vaccines are rolled out this will let loose ‘a lot of pent up demand from substantial forced savings,’ he added.
Tough choices for investors
While the macro figures might be encouraging, Rajaa Mekouar, Head of Private Equity, Converginvest Management said this masked considerable variation for individual companies. ‘There’s a great divide with the current situation, which forces you to really pick and choose areas and assets where you have a conviction that they will perform, regardless of the situation at large,’ she said. The hunt was for companies that are resilient and that aren’t dependent on state support which is set to be removed, she said.
‘There’s tremendous diversity that sits under these macroeconomic numbers,’ agreed Keith O’Donnell, managing partner with ATOZ Tax Advisers. He see some of his private equity clients making tough choices. ‘They are putting their investments into different buckets: those that will survive and those that won’t. They are cutting off funding to the latter while investing heavily in those they believe in.’
Brexit risk contained
When asked about the UK leaving the EU, Bettel said that this wouldn’t be settled at this week’s European Council meeting. ‘I tell you that Brexit is not over, and I don’t know how we will have a deal,’ he said. ‘It is important to have a mechanism to control the deal, as we need to be able to check that what comes afterwards is respectable,’ he added. He went on to list other challenges for the EU: US relations, tension between Turkey and Cyprus, the EU budget, and the questions about the rule of law amongst member states. ‘If you’re not able to take decisions today, we are going to leave a disaster for the next generation,” he said.
O’Donnell agreed: ‘the rule of law question is to me far more important over the long term than Brexit. Nicholas Mackel CEO of LFF, who was moderating the discussion ,added that thanks to preparations made this side of the channel: ‘Brexit may have been all-consuming in the United Kingdom, but certainly wasn’t in the European Union.’
Sustainability central
As for the future of sustainable finance and business policy, the panel were clear. ‘I think it’s going to move centre stage, and be absolutely strategic,” Nosbusch said. ‘Companies and investors which ignore this will run into difficulties over the next few years,’ he added. O’Donnell agrees: ‘There are two sides to this: the profitability of doing the right thing and the risks of not doing the right thing. It’s going to have the biggest impact in our business, and we wouldn’t have said that three years ago.’
A straw poll of viewers of the webinar agreed with these priorities, saying recovery from the pandemic, sustainable finance and digitalisation will be the dominant trends in 2021. With just 4% saying Brexit would be central.