Objectives of fiscal policy
The overall objective of fiscal policy is to create as high a level of welfare as possible.
The Government is therefore giving priority to measures that contribute to the following:
Sustainable economic growth and high employment level - structural policy
In order to have good quality welfare that is sufficient for everyone when our numbers are increasing and when more of us live longer, the economy must grow. This growth must also be sustainable, i.e. it must also contribute to a good environment and good health. In addition, it must not create economic imbalances.
The Government is therefore giving priority to measures that:
- increase employment by making it worthwhile to work
- increase investments by creating a good business climate so that companies and individuals are prepared to move forward
- increase productivity by creating favourable conditions for competition, research, innovation and learning
Welfare for all - distribution policy
The Government's goal is for everyone to be able to benefit from economic growth and welfare. Government policy can contribute to this if education, health and social care are financed through public funds.
Another way to ensure that everyone benefits from welfare is to redistribute economic resources by means of public transfer payments, i.e. social benefits, between individuals and over time.
The Government's efforts to get more people into work are not just a measure aimed at increasing economic growth. It is also the best distribution policy in the long term. When more people work and less people support themselves by means of social benefits, the income disparities in society are reduced.
Stable economic development - stabilisation policy
Major economic fluctuations can lead to lower welfare. This is because there is a risk that the higher unemployment rate and the lower productivity that occur in a recession may become permanent.
The Riksbank has the primary responsibility for stabilising the economy by means of its monetary policy. Normally, fiscal policy only helps mitigate fluctuations indirectly and automatically. This is because tax revenues decrease and costs for transfers increase when the economy declines, and vice versa.
But there may be occasions when fiscal policy should be used more actively. One such example was during the crisis that began in 2008, when the economy fell so dramatically that lowering interest rates was insufficient.
In connection with the Budget Bill for 2011, the Government considers that the recovery will benefit from continuation of an expansionary monetary policy, fully functioning automatic stabilisers and a number of fiscal policy measures.
The policy will now target:
- continuing to maintain high preparedness for poorer economic growth
- preventing bottlenecks and tendencies towards overheating when the economy rebounds
- ensuring that financial markets continue to function
The various objectives of fiscal policy cannot be dealt with individually. Stabilising the economy or distributing resources cannot be decoupled from measures to increase economic growth and employment. Political decisions involve the necessity to balance and prioritise, and cannot be taken automatically.
One important basis for achieving these objectives is that public finances are sustainable in the long term.
Economic policy consists of fiscal and monetary policies. Fiscal policy is when the Government influences the level of activity in the economy by changing taxes or expenditures in central government finances. Monetary policy is when the Riksbank influences the level of activity in the economy by changing the interest rate.