Budget Outlook 2, August 2007

28-08-2007

Budget Outlook 2, August 2007

”Public finances are strong and we have large surpluses on both the central government and the general government finances. The central governments new fiscal policy plan towards 2015 constitutes the framework for a sustainable fiscal policy that enables maintaining and improving the public sector services without raising taxes” , says Thor Pedersen, Minister of Finance.

The central government budget proposal includes new initiatives of DKK 10.8bn in 2008. These include new quality reform initiatives, public services provided by local governments, investments in research and education and other initiatives.

The central government budget proposal for 2008 implies a surplus on the current, investment and lending account, i.e. the CIL-account, of approx. DKK 61¼bn, cf. Budget Outlook, August 2007. The 2007 surplus is estimated at approx. DKK 74¾bn.

The large surpluses in 2007 and 2008 are among other things due to the strong business cycle and high revenues from the North Sea oil and gas activities.

The expected CIL-surplus in 2007 has been downward adjusted by DKK 7½bn compared to the estimate in Budget Outlook, May 2007. The downward adjustment in 2007 is mainly due to lover expected revenues from the pension yield tax. The revenues from the pension yield tax are especially sensitive to interest rate and stock market fluctuations.

The general government surplus is estimated to be DKK 66¼bn (approx. 4 per cent of GDP) in 2007 and 55¼bn (approx. 3 per cent of GDP) in 2008. General government finances include central government, local governments and labour market funds (unemployment funds and the wage earners guarantee fund).

The structural budget balance is the general government budget balance adjusted for the estimated positive or negative impact on the budget from the cyclical position of the economy and some special factors. The structural budget balance is estimated at 1¾ per cent of GDP in 2007 and 1½ per cent of GDP in 2008. The structural budget surplus is estimated to be lower than the actual surplus primarily due to the strong cyclical position of the economy.

Based on the central government budget proposal and the agreement with regional and local governments on the economy in 2008 the fiscal policy is estimated to have an impact on economic activity corresponding to 0.3 per cent of GDP in 2008. This is among other things due to the estimated growth in public consumption and investments. Fiscal policy is estimated to have a neutral impact on economic activity in 2007.

The estimates for the general government and central government finances are based on the short term projections for the Danish economy, cf. Economic Survey, August 2007.

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