Almost as large a deficit in 2022 as in 2021

18 November 2021 | News

The growth in the economy is currently high, although production is dampened somewhat due to supply disruptions. GPD is increasing with 4.0 percent this year. The growth continues to be strong next year, although it is successively dampened during the year once the economy reaches full resource utilization. The deficit in the general government net lending will be almost SEK 100 billion lower than last year and amounts to close to SEK 50 billion. The deficit is almost the same next year. It is mainly due to the extensive increases in public expenditures and tax decreases in the budget for 2022. The structural net lending is calculated to show a deficit of around 1 percent of the GDP three years in a row. A deviation from the target level 2020 and 2021 has been motivated in the economic crisis due to the pandemic. On the contrary, a deviation from the target level in 2022 when the economy is expected to be in balance, is not in line with the fiscal policy framework. However, the consolidated gross debt (Maastricht) is lower than the target level for the debt anchor in 2022 and the public finances are strong, which should be taken in to account.

The demand in the economy has increased rapidly in association with decreased restrictions as more people are being vaccinated. Global growth is also strong. Production is however dampened to some extent due to delivery problems of certain goods, among other things due to lack of containers. GDP is expected to increase by 4.0 percent this year. The growth rate will remain strong next year but will successively dampen during the year once the economy reaches full resource utilization. The recovery in the economy has contributed to the fact that the demand in labor is high. Employment is increasing and unemployment is decreasing. The inflation has risen sharply at the same time, which is mainly due to temporarily high energy prices. The underlying inflation, however is also rising.

There are still uncertainties about the development of the spread of infection. Furthermore, it is also uncertain how large the effects of the pandemic will be on the economy this year and in the coming years. The rapid recovery in global trade has led to some supply disruptions and bottlenecks. To which extent the current supply disruptions will affect the economy in the longer term is also uncertain. If nothing else, any reintroduced restrictions in some countries could exacerbate shipping problems and shortages of inputs. The supply problem could therefore be more extensive and have greater consequences than we expect. If the lime mining in Slite shuts down, it will also lead to a weaker growth.

Tax revenues will increase sharply this year, despite tax cuts of just over SEK 8 billion. The recovery in the economy means that revenues from all forms of tax will be greater than the previous year. Tax revenues from households’ capital gains realizations amounts to some of the highest levels, as share of GDP, registered. Next year, the increase in revenues will slow down. Tax bases for labor and consumption are increasing more moderately and tax on capital is only increasing marginally, mainly due to a decrease on household capital gains, from a record high level this year. The tax ratio increases marginally 2021, mainly as a result of the very high level of household capital gains, but decreases 2022 and will be lower than before due to permanent tax cuts.

Ceiling-limited expenditure increases further this year, from the already high level last year, but decreases next year, despite increased expenditure in the budget bill. However, they will remain at a relatively high level. Expenditures decreases when the temporary crisis measures introduced due to the pandemic ceases. Total expenditure on the central government budget is already decreasing this year. This is because loans taken out on behalf of the Riksbank (the central bank) are repaid, which leads to a sharp reduction in net lending by the National Debt Office.

A strong increase in income this year means that the deficit in the general government net lending will be almost SEK 100 billion lower this year than last year and amounts to 0.9 percent of GDP, despite the fact that expenditure continues to increase sharply. The deficit will decrease marginally next year and will amount to 0.8 percent of GDP. The largest deficit will occur in the central government sector next year, although it will be significantly smaller than this year. The local government sector also shows a deficit next year, after two years with a surplus. The old-age pension system shows a surplus throughout the forecast period, following a temporary deficit last year.

The consolidated gross debt (Maastricht) decreases this year to just over 36 percent of GDP. The decrease is mainly due to a positive non-recurring effect in the form of the repayment of the Riksbank's loans. The debt will decrease quicker next year, due to continued recovery in the economy, withdrawn crisis measures and that the Riksbank continues to repay its foreign currency loans. The consolidated gross debt (Maastricht) is then at 32.8 percent. The consolidated central government debt shows the same pattern and will be 22 percent of GDP this year. It then continues to decline throughout the forecast period. In an international perspective, Sweden's public debt is low.

Major fiscal policy measures due to the pandemic mean that the surplus target will not be reached this year. Extensive increase in expenditure and further tax cuts in the budget bill for 2022 mean that the deficit in the structural net lending will be larger next year and is thus still under the target level for the surplus target. The structural net lending is calculated to show a deficit of around 1 percent of GDP three years in a row. A deviation from the target level 2020 and 2021 has been motivated in the economic crisis due to the pandemic, but for 2022, when the economy is expected to be in balance, the deficit is not in line with the fiscal policy framework. The consolidated gross debt (Maastricht) is lower than the target level for the debt anchor in 2022 and the public finances are strong, which should be taken into account in context.

The calculations in the forecast are based on that the Riksdag (the Swedish parliament) decides the budget bill for 2022 submitted by the government. ESV does roughly the same assessment as the government on how the tax proposals in the budget bill affect net lending. However, expenditure is not expected to increase as much as in the budget bill.

Effects of proposals and announcements in the budget bill for 2022 and difference from the government's forecast

  ESV Diff
  2022 2023 2024 2022 2023 2024
Tax on labor -9 -10 -10 3 1 1
Tax on capital 1 1 1 0 0 0
Tax on consumption and input goods -1 -1 0 0 0 0
Total Tax Revenues -10 -11 -9 3 0 0
UO 4 The judiciary 2 4 5 -2 0 0
UO 9 Health care, medical care and social care 16 13 8 -2 -2 0
UO 10 Financial security in the event of illness and disability 5 6 6 -1 0 0
UO 14 Labor market and working life 3 3 8 0 0 0
UO 20 General environmental and nature conservation 4 4 5 -2 -1 -2
UO 22 Communications 5 4 6 0 0 0
UO 23 Agricultural industries, countryside and food 1 3 4 0 -1 -1
UO 25 General grants to municipalities 4 4 8 0 0 0
Other expenditure areas 12 12 14 -1 1 1
Total Expenditure 55 54 65 -8 -3 -2

Note: The amounts are rounded and therefore do not always correspond to the sum.

Source: Swedish Financial Management Authority

ESV expects slightly lower GPD growth than the government  in their forecast in the budget bill. We do however expect higher total earnings, which is one of the reasons to why we have higher tax revenues than the government this year. Next year, the forecast for tax revenues is similar. However, we expect lower tax revenues the years after. It is mainly VAT revenues and household capital gains that is expected to be lower, while tax on labor income is higher the entire forecast period. The expenditures on the central government budget is however estimated to be lower than in the government’s forecast for all years except 2024.

The recovery in the economy is expected to take place at approximately the same rate as the assessment made in ESV's September forecast. However, GDP and employment have been lowered somewhat this year, while the forecast for the coming years is broadly the same. Total earnings have been raised for all years because the outcomes have been stronger than expected. This is one explanation to why the tax revenues has been raised sharply this year. Higher capital gains realizations also contributes to the upward revision. The expenditures on the central government sector budget has been increased from next year as a result of the proposals in the budget bill. General government net lending have been revised upwards this year, but down the remaining years as expenditures have risen more than tax revenues.

The forecast in numbers

  2020 2021 2022
GDP, fixed prices, calendar adjusted, % change -3,0 4,0 3,6
General government net lending, SEK Billions 8,3 8,8 7,3
General government net lending, % of GDP -141 -47 -45
Structural savings in the public sector, % of GDP -2,8 -0,9 -0,8
Consolidated gross debt (Maastricht), % of GDP -1,2 -0,7 -1,0

Source: Swedish Financial Management Authority and SCB (Statistics Sweden).

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