Over the last few months, economies around the world as well as in Denmark have lost momentum. And financial markets have been in turmoil. The Danish government is of the view that the risk of a more pronounced setback has increased.
The outlook for growth is thus weaker than assumed in May. This is mainly due to lower expected growth in private consumption and weaker international growth prospects. Expected growth in GDP for 2011 has been reduced to 1.3 per cent, down from 1.9 per cent in the May projection, while GDP is expected to increase by 1¾ per cent in 2012. This is a very moderate increase in the current phase of the business cycle.
Therefore, together with the budget proposal for 2012 the Government proposes a fully-funded fiscal package, Sustained Growth. The package aims to support the Danish economy in the near term by stimulating turnover in the housing market and underpinning private consumption as well as private investment and housing investment. Further, public investment projects are brought forward, and additional efforts are made to increase the number of young people and unskilled workers who take education or find work. The effects of the fiscal package are not included in the central government budget proposal for 2012.
Sustainable growth is not included in the central government budget proposal for 2012. The central government budget proposal reflects the agreements in the Reform Agenda 2020, May 2011 ensuring fiscal balance in 2020 and the Fiscal Consolidation agreement from May 2010.
The budget proposal reflects increased expenditures of DKK 1½bn to qualifying education compared to the budget for 2011. As a result of a record high number of new students there is also an expected increase of expenditures for student grants by DKK 1½bn.
I addition the central government budget proposal reflects higher health care expenditures of DKK 1½bn in 2012 in line with the agreement with the regions, DKK 1bn for initiatives for marginalized groups, and a digitalization-strategy to renew the public sector and make it more efficient.
Read Budget Outlook, August 2011 here