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The budgetary targets in overview

The Swedish Fiscal Policy Framework Presentation to the delegation from the Republic of Albania 5 th of February 2013 André Lundvall - Budget Department. The budgetary targets in overview. General Government sector. Surplus 1% of GDP. Central government. Pension system. Expenditure ceiling.

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The budgetary targets in overview

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  1. The Swedish Fiscal Policy FrameworkPresentation to the delegation from the Republic of Albania5th of February 2013André Lundvall - Budget Department

  2. The budgetary targets in overview General Government sector Surplus 1% of GDP Central government Pension system Expenditure ceiling Local government Balanced budget

  3. A surplus target for general government • Net lending 1 per cent of GDP over the cycle • Mandatory by law • Several objectives • Long term sustainability of public finances • Room for manoeuvre in severe economic downturns • Distributional fairness • Efficiency

  4. The surplus target • Gives medium term perspective and avoids pro-cyclicality • Follow up by two indicators • Input in assessment of scope for reform or need to consolidate • Average saving ratio 2002-2011 is 0,7 per cent of GDP

  5. An expenditure ceiling forcentral government • Covers primary expenditure of central government and old-age pension system • Parliament sets nominal expenditure ceilings for year t+3 (t+4) in the Budget Bill • Set to be in line with the surplus target • Once a ceiling has been set it has not been changed, unless for technical reasons • An overarching restriction for total expenditure in the budget process • Mandatory by law

  6. Expenditure ceiling and ceiling restricted expendituresBillion SEK Ceiling restricted expenditures Expenditure ceiling

  7. A balanced budget requirementfor local government • Gives central government control of local gov. • Some 290 local governments responsible for roughly 45 per cent of public sector expenditure • A local government cannot budget with a deficit • A deficit reported ex post has to be corrected within three years • Mandatory by law

  8. The Swedish framework - history • Debt crisis in the early 90s • Triggered institutional changes in both fiscal and monetary policy 1992/1993: Independent central bank - inflation target 1994-1998: Consolidation program (7.5 % of GDP) 1994-1996: Strict top-down budget process 1996: Central government expenditure ceiling 1996: Presentation of tax expenditures

  9. The Swedish framework - history 1997-2000: Net lending target for general government 2000: Budget balance requirement on local governments 2000: Long term sustainability 2007: Fiscal Policy Council 2010: Expenditure ceiling and net lending target legally binding 2011: Code of Conduct for Fiscal Policy

  10. Government net lending(% of GDP)

  11. Development of central government debt1990-2016 Central government debt in billions of SEK Central government debt as share of GDP Billion SEK Share of GDP (%)

  12. Political commitment important !! • Almost consensus in the Swedish parliament on the importance of the fiscal policy framework • Stems from the experiences of the fiscal crisis in the 1990s • No major deviations from the budgetary rules • Has created a “positive path dependence” • Deviations from the are therefore politically costly

  13. Gov. benchmark 10 year yield spread SWE-DEU (%-points)

  14. The budgetary targets in overview General Government sector Surplus 1% of GDP Central government Pension system Expenditure ceiling Local government Balanced budget

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