Government wants to review net lending target
The Government has decided to task the National Institute of Economic Research with analysing the effects of changing the general government net lending target from a surplus of one per cent to balanced net lending. This was announced by the Minister for Finance at a press conference today.
“The fiscal policy framework has served Sweden well and will continue to serve us well in the future,” says Minister for Finance Magdalena Andersson.
When the Social Democratic Government introduced the net lending target in 1997, it gave three main reasons:
- to restore confidence in the public finances and reduce the need for foreign borrowing,
- to provide scope for stabilisation policy, and
- to help the public sector meet the demographic challenges ahead.
“Today, almost two decades later, we see that the demographic pressure we foresaw when the framework was adopted is now a reality. We can see that the proportion of older people in the population is increasing. Demographic pressure affects both public sector revenues – when a smaller proportion of the population is in paid work – and expenditure – when a larger proportion of the population will require certain welfare services. One consequence of an ageing population is the decline in savings in the old-age pension system. Maintaining the general government net lending target would require the state to increase its savings significantly to compensate for this. As the old-age pension system is designed to be a stable system, a compensatory tightening up of this kind does not seem warranted. In light of the central government’s low gross debt and considerable net assets, the argument for a one per cent surplus target for general government net lending is weaker today than when introduced. For this reason it is reasonable to review the target,” says Ms Andersson.
“In the short term, the budgetary effects of changing the target would be minor. As the public finances today show a substantial deficit, even a lower target will require reforms to be funded krona for krona. However, in the longer run, some space would be freed up for public investments,” says Ms Andersson.
The National Institute of Economic Research will soon be tasked with analysing the effects that changing the general government net lending target to zero per cent would have on the public finances, growth and employment. The results of the study are to be presented by mid-August 2015 at the latest.