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Swedish Fiscal Policy Framework: Key Targets and Impacts

Explore the Swedish fiscal policy framework, including surplus targets, expenditure ceilings, and the history of the system. Discover how this system promotes sustainability, fairness, and efficiency to maintain fiscal stability.

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Swedish Fiscal Policy Framework: Key Targets and Impacts

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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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