The Government’s application of the fiscal policy framework in 2025

The Government’s proposed fiscal policy means that the surplus target is clearly not reached in 2025 and 2026. The Government justifies this by the cross-party agreement to finance new defence expenditure and support for Ukraine through loans, and by the weak economic situation. At the same time, the Swedish National Audit Office notes that the Government’s plan for a return to the target for net lending means that lending will not meet the current surplus target nor the balance target that is being proposed to apply as from 2027. The plan merely reduces the deficit.

The Swedish National Audit Office notes that the Government’s account is not sufficiently transparent to assess whether fiscal policy is well-balanced in view of the economic situation. Although the Government states that a comprehensive fiscal policy is required to counteract a prolonged recession, it does not present any assessment of how economic activity (the GDP gap) would have developed without the proposed fiscal policy. Such an account is necessary to understand whether fiscal policy is well-balanced from a stabilisation policy point of view. Furthermore, the audit shows that no such analysis has been performed internally when fiscal policy was designed.

The Government proposes that the surplus target be replaced with a balance target as from 2027. At the same time, the agreement to finance new defence expenditure and support for Ukraine through loans means the proposed balance target will not be met throughout its period of validity. The Swedish National Audit Office considers that an arrangement in which specific expenditure items are handled outside the usual budget review risks undermining budgetary discipline and may, in the long term, lead to an unsustainable level of central government debt. Recurring departure from the framework risks undermining the principle that the budget should be considered as a whole in which all measures are included in a comprehensive review, which has formed the basis for the good order in Sweden’s public finances. Therefore, the Swedish National Audit Office considers that the Government should take initiatives to examine the possibility that the fiscal framework will continue to disallow deviations from the general government net lending target, with respect to specific expenditure items.

The Swedish National Audit Office considers that transparency concerning the factors that affect the direction of fiscal policy can be improved. The amendment to the structural balance in the forecasts could be broken down and quantified to a greater degree. For example, the effect of automatic budget consolidation on the structural balance could be reported separately. The Government could also increase transparency by reporting the expected effect of the current budget decision on the direction of fiscal policy.

The Government is proposing to raise the already agreed levels of the expenditure ceiling for 2026 and 2027, by reason of the above agreement. It is the assessment of the Swedish National Audit Office that these increases are generous in relation to fiscal policy framework guidelines for the minimum size of budgetary margins. The Government’s proposal also entails a significant budgeting margin for the financial year 2028. At the same time, transparency related to the Government’s estimation of an appropriate level of the expenditure ceiling for 2028 is inadequate, making it difficult to understand the Government’s view of public commitment and the long-term tax level. When the budgeting margins are large, the expenditure ceiling ceases to function as an effective policy instrument because it no longer necessitates expenditure priorities, which is an important objective of the expenditure ceiling.

The Swedish National Audit Office assesses that the Government’s reporting of the debt anchor and the municipal balance requirement are transparent. The Government states that the debt ratio lies within the tolerance interval allowed by the framework. While the local government sector as a whole is described as presenting a negative balance requirement outcome for 2024, a surplus is forecast going forward due to falling inflation and a growing tax base.