Budget Outlook, August 2009

23-08-2009

In light of the international financial crisis Danish economy has through the last year shifted from a situation characterised by historically low unemployment rates and labour market pressure to decreasing demand and increasing unemployment – although the unemployment is still relatively low, cf. Economic Survey, August 2009.

At the same time the large surpluses on the general government budget balance in the period 2004-2008 are expected to turn to large deficits in 2009 and 2010.

To alleviate the effects of the weak cyclical conditions and support the employment a number of political initiatives have been initiated. With the agreements on infrastructure investments and increases in municipal investments total public investments are expected to increase substantially in the coming years. Furthermore, tax cuts are planned with the agreement on the tax reform in the Spring package 2.0. The release of savings in the special pension scheme (SP) will also stimulate private consumption. In total the discretionary measures in 2009 and 2010 are estimated to increase the level of GDP by approx. 2 per cent in 2010.

The real growth rate in public investment is expected to reach approx. 15 per cent per year in 2009 and 2010. Thus, for the first time since the 1960’s two-digit growth rates are expected for two consecutive years. At the same time, public investment is expected to reach approx. 2½ per cent of GDP in 2010, which is the highest level since 1981.

The central government budget proposal for 2010 includes major initiatives amounting to approx. DKK 16¾bn in 2010. These initiatives include the allocation of approx. DDK 6bn from the Quality fund for public investments to investments in modern hospitals, public schools, day-care facilities and the elderly-care sector. Furthermore, the proposal reflects focus on research and education including technological investments in university laboratories for approx. DKK 2¼bn from the Globalization fund. In addition, protection of nature, environment and climate is prominent in the budget proposal by means of approx. DKK ¾bn in 2010. Also approx. DKK ¾bn is set aside to the Danish defence. Vulnerable groups, and healthy meals to children in day-care institutions are also among the major focus areas. 

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