Economic Survey of Sweden 2008: Fiscal policy: what should the targets be?

 

Contents | Executive summary  | How to obtain this publication | Additional information

The following OECD assessment and recommendations summarise chapter 2 of the Economic survey of Sweden published on 3rd December 2008.

 

Contents                                                                                                                             

Sweden’s strong fiscal performance has been achieved via a policy framework that has helped contain spending and reduce debt, involving net lending targets, expenditure ceilings and balanced-budget requirements for local governments. The general government net financial position has improved from net debt of over 25% of GDP in the mid-1990s to net assets of 20% of GDP by 2007. Moreover, thanks to the pension reform of the late 1990s, Sweden is better prepared for ageing than most OECD countries.


Government net financial assets is improving in Sweden


To ensure that sound public finances are sustained over the longer term, the surplus target should be refined and set on the basis of foreseeable long-term fiscal developments as well as the need to retain scope for fiscal action in the event of serious cyclical downturns. Ensuring sustainability should be emphasised as the central goal, meaning that policies can remain unchanged without the need for higher taxes and without leading to rising debt that could ultimately push up interest rates and cause macroeconomic as well as financial market instability. Sustainable public finances are also a precondition for an equitable distribution of resources between generations. A careful analysis of the government’s balance sheet, detailed long-run projections of spending, plus fiscal sustainability and intergenerational equity assessments should be used to underpin the fiscal targets. The targets could be set based on assumptions and methodologies audited by the Fiscal Policy Council. The Government has begun work on a review of the fiscal framework in order to strengthen it and safeguard the sustainability of the public finances.


Dealing with long-run fiscal pressures will require a multi-faceted approach. Current policies rely on pre-funding and increased labour supply to boost tax revenues and reduce spending on income benefits. A measure of pre-funding is appropriate, particularly in the income pension system where surpluses reflect an excess of contributors over beneficiaries – a situation that will reverse in the not-too-distant future. But other approaches will also be needed, in particular to meet demands for higher service standards, for which pre-funding would not be appropriate. Moderating spending growth should therefore be a consistent policy focus, including measures to raise efficiency via user choice and contestability. Also, some of today’s publicly-funded services could be paid for privately.

 

How to obtain this publication                                                                                   

The Policy Brief (pdf format) can be downloaded in English. It contains the OECD assessment and recommendations. A Summary in Swedish (pdf format) is also available.

The complete edition of the Economic survey of Sweden 2008 is available from:

 

Additional information                                                                                                  

 

For further information please contact the Sweden Desk at the OECD Economics Department at eco.survey@oecd.org.  The OECD Secretariat's report was prepared by Jens Lunsgaard and David Turvey under the supervision of Vincent Koen. Research assistance was provided by Roselyne Jamin.

 

 

 

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