Danish economy is still affected by the international economic recession in 2010, but an economic recovery seems to be on its way, cf. Economic Survey, May 2010.
To support growth and employment during the economic downturn expansionary fiscal policy measures have been initiated in 2009 and 2010. The fiscal stimulation policy includes a historically high growth in public investments and significant income tax reductions in 2010 in the tax reform in the Spring Package 2.0.
Due to the economic downturn in 2009 and 2010 and the expansionary fiscal policy the deficit on the budget balance has increased to DKK 88,2bn (5.1 per cent of GDP) in 2010. From 2008 to 2010 the budget balance has decreased by DKK 150bn. Thus, the budget balance deficit in 2010 is expected to exceed the reference value of 3 per cent of GDP in the Stability and Growth Pact of the European Union.
As a result of the assumed fiscal consolidation strategy in Denmark’s Convergence Programme 2009, the budget balance improves from 2010 to 2011. Public investments are presupposed 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 contained in the Spring Package 2.0 strengthen public finances in 2011.
A surplus on the structural budget balance in 2008 is estimated at 2.1 per cent of GDP. In 2010 a deficit on the structural budget balance is estimated at 1.7 per cent of GDP. The change from 2008 to 2010 primarily reflects discretionary fiscal policy. As a result of the fiscal consolidation strategy the deficit on the structural budget balance is assumed to be reduced from -1.7 per cent of GDP in 2010 to -1.0 per cent of GDP 2011.