Expenditure Restrictions Save Expenditure Ceiling

The expenditure ceiling is expected to be met at a margin of three billion SEK 2005. Restrictive measures taken by the Government are estimated to lower expenditure by 7 billion SEK this year compared to the last forecast in December 2004. However, the budget will remain in deficit throughout the years 2005-2008.

These restrictions affect a majority of the appropriations. Defence expenditure as well as agricultural and forestry subsidies are effected the most and these expenditures, amounting to 4 billion SEK, will be postponed until next year. Furthermore, foreign aid will be higher 2006 than previously estimated.

According to Director General Yvonne Gustafsson: “Though the expenditure ceiling is forecasted not to be exceeded this year or the next, margins are small - only 0.4 per cent of the ceiling. Experience tells us that at the beginning of a fiscal year the margin to the expenditure ceiling ought to be 1.5 per cent. Particularly regarding 2006, there is no room for unexpected events or less favourable economic growth. Thus, an increase in expenditure in one area has to be met by cuts in others."

The large deficits 2005-2008 amount to 120 billion kronor and will give rise to a 4 billion SEK higher interest payment at the end of the period, in comparison to having a balanced budget. The underlying budget deficit (excluding effects of onetime exercises such as the sale of shares in Nordea Bank) will be higher both this year and next year, our projection being 30 billion and 50 billion respectively. However, government debt in relation to GDP is projected to fall to 44 per cent in 2008 due to the strong economic growth.

Growth in tax bases such as private consumption and wages will lead to increasing revenues from primarily social security fees and sales tax 2005-2008. Large dividends from state owned companies and other capital revenues strengthen the budget this year.

Please direct queries to:

Karl Bergstrand

Johan Davidson

Thomas Hagberg

Anneli Wicksell