Ministry of Finance Sweden Government Offices of Sweden Fiscal rules and medium term budgeting in Sweden Thomas Wilhelmsson, Budget Department, Ministry of Finance

Ministry of Finance Sweden Government Offices of Sweden Jan Feb March April May June July Aug Sept Oct Nov Dec Spring Fiscal Policy Bill submitted to the Riksdag Budget Bill Riksdag decision on Spring Fiscal Policy Bill Appropriation directions Riksdag decision on the Budget Bill Spring Fiscal Policy Bill Budget Bill submitted to the Riksdag Preparation of framework The Swedish budget process

Ministry of Finance Sweden Government Offices of Sweden A stringent budget process Collective decision making process by the Swedish government The Ministry of Finance has a central role The Minister for Finance decides what room there is for reform Clear, well-known budget principles An established, transparent time-line of activities Top down process – at all stages of the process

Ministry of Finance Sweden Government Offices of Sweden The Ministry of Finance is the ultimate guardian of fiscal policy The Ministry of Finance has a central role: –Co-ordinates and enforces the budget process –Responsible for meeting budget targets –Shall always be consulted on all matters with economic consequences –Monitors and controls spending flows during the fiscal year

Ministry of Finance Sweden “Don’t waste a good crisis” Deep economic crisis in A period of radical reformation Commitment from decision makers Fiscal framework: gradual build up of complexity and firmness

Ministry of Finance Sweden Numerical fiscal rules General Government sector Pensio n system Central government Local government Surplus 1% of GDP over cycle Expenditure ceiling Balanced budget Rules of SGP: - MTO (structural balance -1%) - Expenditure benchmark

Ministry of Finance Sweden Government Offices of Sweden Surplus target Net lending 1 % of GDP over cycle Forward-looking anchor for fiscal policy (structural balance, 7-year average of net lending) Also backward-looking assessment (10-year average of net lending)

Finansdepartementet Expenditure ceiling An overarching restriction for total expenditure in the budget process. Mandatory by law to propose to Parliament ceiling for at least three years. Government is obliged to make sure ceiling is not exceeded. Covers all expenditure in central government and pension system excl. interest payments on national debt Restriction for actual nominal expenditure (in SEK) Set on a rolling basis  ceiling for 2018 is fixed (proposed to parliament). Once decided, the ceiling is not changed. However, formally no problem to do so (f.ex. change of government).

Ministry of Finance Sweden A surplus biased budget Most taxes are proportional and grow in the long run with GDP Degree of indexation of expenditures vary, but hardly any items grow with GDP. => Automatic increase of revenues faster than expenditures. Political choice between: - compensating automatic hollow out of existing spending - spending it on new policy - letting budget balance improve without cuts or tax hikes

Ministry of Finance Sweden Government Offices of Sweden Some observations Parliament took the lead, the Government followed The reforms were based on changed attitudes towards public finances The thorough restoration of the Swedish public finances in 1995 and 1996 was carried out without the support of a new budget process The new top-down process has contributed to keep the public finances in good order

Ministry of Finance Sweden Government Offices of Sweden Swedish Fiscal Policy Council Tasks: 1. Evaluate whether fiscal policy meets its objectives (long-run sustainability, surplus target, expenditure ceiling, stabilisation issues). 2. Evaluate whether developments are in line with healthy sustainable growth and sustainable high employment. 3. Monitor the transparency of the government budget proposals and the motivations for various policy measures (e.g. infra investments, tax cuts). 4. Analyse the effects of fiscal policy on the distribution of welfare. 5. Contribute to a better economic policy discussion in general. Impact: Extensive media coverage, formal response in SFPB.

Ministry of Finance Sweden Government Offices of Sweden Thank you! More information: Government communication concerning the Swedish Fiscal Policy Framework: 835de8/the-swedish-fiscal-policy-framework or just Google “Swedish fiscal policy framework”