Fiscal policy not entirely in line with fiscal policy framework
In 2024, the Government’s fiscal policy has not been fully designed in accordance with the fiscal policy framework. The Swedish National Audit Office highlights the importance of not making exceptions to the framework, as it risks weakening it in the long term.
The Swedish National Audit Office has audited the Government’s application of the fiscal policy framework in the fiscal policy bills for 2024. The overall conclusion is that fiscal policy is not fully designed in accordance with the framework.
The largest shortcoming is that the Government has made exceptions from the surplus target for Sweden’s support to Ukraine, which is not permitted under the framework. Over time, there is a risk that such exceptions lead to a framework does not have the governing function as decided by the Riksdag. However, this must not be construed as a calling into question of the support to Ukraine.
“The Swedish National Audit Office has no opinion on the support to Ukraine or the underlying political priorities. Nonetheless, the framework requires that large expenditure items be financed – whether through loans, raised taxes or savings,” says Auditor General Christina Gellerbrant Hagberg.
Partly due to the support to Ukraine, the structural balance for 2025 falls below the surplus target. Under the Budget Act, the Government must account for how a return to the target will be made. The Swedish National Audit Office considers that the Government’s plan for this is too brief. For example, it is not evident that the plan requires that no further unfunded reforms be carried out until after 2027.
In addition, the Swedish National Audit Office questions the need for the Government’s proposed increase to already high levels of the expenditure ceilings for 2025 and 2026. One of the most important objectives of the expenditure ceiling is to promote budgetary discipline, which becomes difficult to achieve if the budget margins are unjustifiably large. The proposed level of expenditure ceiling for 2027 also needs to be justified more clearly.
In recent years, a recurring shortcoming in the budget bills has been the unexplained differences between the Government’s forecasts compared to forecasts made by the expert authorities the National Institute of Economic Research and the Swedish National Financial Management Authority. This problem still remains in this year’s budget bills.
“Differences between the forecasts of different analysts are natural, but if the forecasts deviate significantly from each other without any clear explanation by the Government, there is a risk that confidence in fiscal policy will be damaged,” says Frida Widmalm, Project Leader for the audit.
Recommendations in brief
The Swedish National Audit Office’s recommendations to the Government include the following:
- clarify the plan for a return to the surplus target
- develop the presentation concerning of the Government’s considerations with regard to the proposed level of the expenditure ceiling for the third year ahead
- clarify the reasons for amending budgets and their financing
- improve the comparison of the forecast for the structural balance with regard to the forecasts of the National Institute of Economic Research and the Swedish National Financial Management Authority.
The fiscal policy framework
The fiscal policy framework was introduced in the late 1990s in response to the deep fiscal crisis earlier in the decade. The framework was introduced with broad political support in the Riksdag, with the aim of ensuring a long-term sustainable and transparent fiscal policy.
A key element of the framework is the stringency of the central government budget process. A predetermined fiscal space is allocated to different areas of use, in which different purposes are weighed against each other.
The framework contains principles of transparency and clarity in fiscal policy, which are to help increase transparency and ensure that the fiscal policy pursued has the intended effect.