Fiscal Rules and Budgeting Process in Sweden
Discover the stringent budget process and fiscal rules implemented in Sweden, highlighting the role of the Ministry of Finance and the significant reforms undertaken during times of economic crisis. Learn about the established budget principles, numerical fiscal rules, and the overall budgeting timeline followed by the Swedish government.
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Fiscal rules and medium term budgeting in Sweden Thomas Wilhelmsson, Budget Department, Ministry of Finance Ministry of Finance Sweden Government Offices of Sweden
The Swedish budget process Riksdag decision on the Budget Bill Spring Fiscal Policy Bill Dec Appropriation directions Jan Nov Feb Oct March Spring Fiscal Policy Bill submitted to the Riksdag Budget Bill submitted to the Riksdag April Sept May Aug Preparation of framework June July Budget Bill Riksdag decision on Spring Fiscal Policy Bill Ministry of Finance Sweden Government Offices of Sweden
A stringent budget process Collective decision making process by the Swedish government The Ministry of Finance has a central role The Minister for Finance decides what room there is for reform Clear, well-known budget principles An established, transparent time-line of activities Top down process at all stages of the process Ministry of Finance Sweden Government Offices of Sweden
The Ministry of Finance is the ultimate guardian of fiscal policy The Ministry of Finance has a central role: Co-ordinates and enforces the budget process Responsible for meeting budget targets Shall always be consulted on all matters with economic consequences Monitors and controls spending flows during the fiscal year Ministry of Finance Sweden Government Offices of Sweden
Dont waste a good crisis Deep economic crisis in 1993-1995 A period of radical reformation Commitment from decision makers Fiscal framework: gradual build up of complexity and firmness Ministry of Finance Sweden
Numerical fiscal rules General Government sector Surplus 1% of GDP over cycle Central government Pension system Expenditure ceiling Local Balanced budget government Rules of SGP: - MTO (structural balance -1%) - Expenditure benchmark Ministry of Finance Sweden
Surplus target Net lending 1 % of GDP over cycle Forward-looking anchor for fiscal policy (structural balance, 7-year average of net lending) Also backward-looking assessment (10-year average of net lending) Ministry of Finance Sweden Government Offices of Sweden
Expenditure ceiling An overarching restriction for total expenditure in the budget process. Mandatory by law to propose to Parliament ceiling for at least three years. Government is obliged to make sure ceiling is not exceeded. Covers all expenditure in central government and pension system excl. interest payments on national debt Restriction for actual nominal expenditure (in SEK) Set on a rolling basis ceiling for 2018 is fixed (proposed to parliament). Once decided, the ceiling is not changed. However, formally no problem to do so (f.ex. change of government). Finansdepartementet
A surplus biased budget Most taxes are proportional and grow in the long run with GDP Degree of indexation of expenditures vary, but hardly any items grow with GDP. => Automatic increase of revenues faster than expenditures. Political choice between: - compensating automatic hollow out of existing spending - spending it on new policy - letting budget balance improve without cuts or tax hikes Ministry of Finance Sweden
Some observations Parliament took the lead, the Government followed The reforms were based on changed attitudes towards public finances The thorough restoration of the Swedish public finances in 1995 and 1996 was carried out without the support of a new budget process The new top-down process has contributed to keep the public finances in good order Ministry of Finance Sweden Government Offices of Sweden
Swedish Fiscal Policy Council Tasks: 1. Evaluate whether fiscal policy meets its objectives (long-run sustainability, surplus target, expenditure ceiling, stabilisation issues). 2. Evaluate whether developments are in line with healthy sustainable growth and sustainable high employment. 3. Monitor the transparency of the government budget proposals and the motivations for various policy measures (e.g. infra investments, tax cuts). 4. Analyse the effects of fiscal policy on the distribution of welfare. 5. Contribute to a better economic policy discussion in general. Impact: Extensive media coverage, formal response in SFPB. Ministry of Finance Sweden Government Offices of Sweden
Thank you! thomas.wilhelmsson@gov.se More information: Government communication concerning the Swedish Fiscal Policy Framework: http://www.government.se/contentassets/fa45b4f60d424c149a8ce26cf6 835de8/the-swedish-fiscal-policy-framework or just Google Swedish fiscal policy framework Ministry of Finance Sweden Government Offices of Sweden
