Budget Outlook, May 2010

19-05-2010

The final account for the central government in 2009 reflects a deficit on the CIL-account of DKK 29¾bn (1.8 per cent of GDP) in 2009, and in 2010 a deficit of DKK 99½bn (5.8 per cent of GDP) is expected. In 2009 and 2010 deficits on the net balance are estimated at DKK 110bn and DKK 102¾bn respectively.

Compared to the projection in Budget Outlook 3, December 2009, the deficits on the CIL-account and the net balance are lower than previously estimated in 2009, while higher deficits are estimated in 2010. Approximately DKK 19bn of the adjustments in both years are due to the technical treatment of deferred payments of personal taxes and labour market contribution in the accounts for 2009.

To support growth and employment expansionary fiscal policy measures have been undertaken in 2009 and 2010. The weak cyclical conditions and expansionary fiscal policy result in large deficits on the budget balance, which are weakened by nearly DKK 150bn from 2008 to 2010. The budget balance deficit amounts to DKK 46¾bn in 2009 (2.8 per cent of GDP) and is estimated at approx. DKK 88bn in 2010 (5.1 per cent of GDP).

In line with the fiscal consolidation strategy in Denmark’s Convergence Programme 2009 and Denmark 2020, February 2010, the budget balance is assumed to improve from 2010 to 2011. Public investments are to decline from a historically high level in 2010, and public consumption is assumed to be unchanged in real terms from 2010 to 2011. Moreover, the financing elements in the tax reform in Spring Package 2.0 strengthen public finances in 2011. The budget balance deficit in 2011 is estimated at nearly DKK 79bn corresponding to 4.4 per cent of GDP.

Based on first year effects fiscal policy is estimated to stimulate economic activity by 1.1 per cent of GDP in 2009 and 0.8 per cent of GDP in 2010. Expansionary fiscal policy in 2009 and 2010 primarily reflects a significant real growth in public investments and substantial tax reductions due to the tax reform in Spring Package 2.0. Fiscal policy in 2009 and 2010 also affects activity in 2011. The total effect of fiscal policy etc. in 2009-2011 and lower interest rates since 2008 is expected to stimulate growth by 0.4 per cent of GDP in 2011.

The estimates for the central and general government finances in 2010 and 2011 are based on the short term projections for the Danish economy, cf. Economic Survey, May 2010.

Read more about Budget Outlook, May 2010 here