Limited Budgeting Margin and large Deficits
The expenditures subject to the ceiling are higher than previously calculated in both 2005 and 2006. This is primarily explained by the weak labour market which leads to higher expenditure for unemployment benefit. The budgeting margin is estimated to SEK 3 billion this year, which is SEK 2 billion lower than in the previous forecast. Next year the budgeting margin is estimated to SEK 6 billion. Strong corporate profit growth leads to higher total revenue than previously assessed, especially regarding 2005. This reduces the central government budget deficits.
The budgeting margins are still positive but not large enough to cover the uncertainty that is associated with expenditure predictions or to sustain a less favourable economic growth. If the open unemployment rate during the period August to December 2005 would turn out to be half a percentage point higher than calculated, expenditures increase by SEK 1 billion. If the number of long-term sick leave days only would decrease by half the calculated amount, this year´s expenditure would increase by SEK 1.3 billion. - Considering these uncertainties, we deem that this year´s budgeting margin of 0.3 per cent is a bit on the narrow side. Thus, there is no room for discretionary spending that is not met by corresponding cuts in other expenditure areas, says the Director General of ESV, Yvonne Gustafsson.
The central government budget balance improves by SEK 28 billion 2005-2008, as compared to the previous forecast. Despite this improvement, the deficits remain considerable through out all years. The underlying budget balance, which excludes effects of onetime exercises and therefore is a more accurate measure of how government finances develop, reveals a slightly darker picture. The effects of onetime exercises are positive throughout the forecast period. When these are excluded the budget balance deteriorates by SEK 27 billion.
A strong economic growth characterises the forecast period, though large budget deficits persist. Considering that the economy eventually will turn downward the current fiscal position could be stronger. Also, today´s advantageous demographic situation peaks in 2008. In the decades to come a smaller working force will have to support a growing number of elderly. Thus, there are several good reasons why Sweden should take advantage of today´s favourable situation and prepare the public finances for the years to come.
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