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Fiscal policy partly in conflict with framework and legislation

The Government mainly follows the fiscal policy framework. But, according to the Swedish National Audit Office, substantially raising the ceiling for central government expenditure in coming years is in conflict with the fiscal policy framework. In addition, by not presenting how the surplus target is to be reached, the Government is not in compliance with the Budget Act.

Rosenbad in the evening sun, in the background is Stockholm City Hall.

Photo: Tommy Alven

The fiscal policy framework aims to ensure long-term sustainable public finances. The Swedish National Audit Office is publishing two audits today. One relates to the Government’s application of the fiscal policy framework in 2020. The other relates to how the expenditure ceiling has been managed by different governments in the period 1997–2020.

Application of the fiscal policy framework in 2020

The Swedish NAO has audited the fiscal policy bills in 2020. The audit shows that fiscal policy has been mainly designed and reported in accordance with the fiscal policy framework.

However, the Swedish NAO considers that there are a number of deficiencies, including the following:

  • The Government proposes sharply increased expenditure ceilings for 2021 and 2022 in a way that, in the opinion of the Swedish NAO, lacks support in the framework.
  • The Government is in breach of the Budget Act by not reporting how it intends to return to the surplus target.
  • The Government does not report the overall budget effects of temporary and permanent measures in the Budget Bill.

“The levels proposed by the Government for expenditure ceilings in 2021 and 2022 are so high that the function of the ceiling as an instrument to support the surplus target is disabled. Thus the Government is not following one of the basic ideas of the fiscal policy framework," says Auditor General Helena Lindberg.

When the expenditure ceiling loses its limiting function, this may lead to a failure to make important fiscal priorities. The Swedish NAO’s assessment is that the Government is thereby taking an unnecessary risk.

“The situation is uncertain, and it is natural that the Government wants plenty of room to manoeuvre. But the proposed expenditure ceilings do not correspond with the Government’s own forecasts but reflect a weaker economic development. The ceiling should be based on the Government’s main scenario, and if conditions change dramatically, the Government can always return to the Riksdag and propose a new level," says Bengt Lewin, project leader for the audit.

Expenditure ceiling 1997–2020

Today the Swedish NAO is also publishing a retrospective audit of how different governments have handled the expenditure ceiling in the period 1997-2020.

The audit shows that the expenditure ceiling has been largely applied as intended by the Riksdag and that the ceiling had a disciplining effect on the expenditure growth. Furthermore, the audit shows that the role of the expenditure ceiling has varied over time, which can be explained by different economic starting points and the political preferences of different governments. The audit also included the Government’s follow-up of ceiling-restricted expenditure, which is deemed to be well-functioning.

The Swedish NAO notes, however, that the Government has not always reported the reasons behind the proposed ceiling levels. This risks reducing confidence in the sustainability of fiscal policy.

“The Government should clearly state what considerations are behind the proposed expenditure ceiling and how it views the development of public expenditure. In addition, it should be clear about the tax take deemed necessary in the longer term," says Helena Knutsson, project leader for the audit.

Recommendations

See the respective performance audit reports for the full recommendations.

Press contact: Olle Castelius, phone: +46 8-5171 40 04.

Presskontakt: , telefon: 08-5171 42 06.

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Updated: 21 January 2021

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