Monday, April 19, 2010

Strong government finances in Sweden

From Statistics explained: Government finances statistics

Data from June 2009, most recent data: Further Eurostat information, Main tables and Database.

Graph 1: Public balance (1), 2004-2008 (net borrowing-lending of consolidated general government sector, % of GDP)
This article examines how key indicators of government finances evolved in the euro area and the European Union (EU) as a whole: deficit, debt, and revenue and expenditure.
These statistics are crucial indicators in determining the health of a Member State's economy and under the terms of the EU's Stability and growth pact (SGP), Member States have pledged to keep deficit and debt below certain limits.
A Member State's government deficit may not exceed 3 % of gross domestic product (GDP) while debt may not exceed 60 % of GDP. If a Member State exceeds the deficit ceiling, the Excessive deficit procedure (EDP) is triggered at EU level. This entails several steps – including the possibility of sanctions – to encourage the Member State concerned to take measures to rectify the situation.
Keeping deficit and debt below certain limits is also one of the criteria for Economic and monetary union and hence for joining the euro.
Specifically, this article considers public (general government) deficit, general government gross debt, total revenue and expenditure of general government, as well as total taxes and social contributions, which are the main sources of government revenue.

Main statistical findings

Table 1: Public balance and general government debt (1), 1998-2008

Graph 2: Image:General government debt (1), 2004-2008 (general government consolidated gross debt, % of GDP)

Graph 3: General government expenditure by COFOG function, 2007 (1) (% of GDP)

Graph 4: Government revenue and expenditure, 2008 (1) (% of GDP)

Graph 5: Taxes and social contributions, 2008 (% of GDP)

Graph 6: Public procurement (value of public procurement which is openly advertised, as % of GDP)

Graph 7: State aid, 2006 (1) (% of GDP)
In 2008, the government deficit and government debt of both the euro area (EA-16) and the wider EU increased compared with 2007.

Government deficit

In the euro area, the government deficit to GDP ratio increased from 0.6 % in 2007 to 1.9 % in 2008, while in the EU as a whole, it increased from 0.8 % to 2.3 %. The government debt to GDP ratio increased from 66.0 % at the end of 2007 to 69.3 % at the end of 2008 in the euro area. In the EU, it rose from 58.7 % to 61.5 %.
In all, five Member States recorded an improved government balance relative to GDP in 2008 compared with 2007, 21 saw a worsening situation and one Member State's balance remained unchanged.
The deficit ratios were above the target reference value of the Stability and growth pact in 2008 in 11 Member States, compared with the situation in 2007, when only two Member States exceeded the 3 % of GDP limit. In 2008, the largest government deficits in percentage of GDP were recorded by Ireland (-7.1 %), the United Kingdom (-5.5 %), Romania (-5.4 %), Greece (-5.0 %), Malta (-4.7 %), Latvia (-4.0 %), Poland (-3.9%), Spain (-3.8 %), France (-3.4 %), Hungary (-3.4 %), Lithuania (-3.2 %), and Estonia (-3.0 %).
Seven Member States registered a surplus in 2008: Finland (4.2 %), Denmark (3.6 %), Sweden (2.5 %), Luxembourg (2.6 %), Bulgaria (1.5 %), the Netherlands (1.0 %) and Cyprus (0.9 %). A substantial improvement of deficit/surplus ratios in 2008 as compared with 2007 was reported by two countries, Hungary and Bulgaria (by about 1.5 points each).
However, the deficit noticeably worsened in four Member States: Ireland (by 7.3 points), Spain (by 6.0 points), Estonia (by 5.7 points) and Latvia (by 3.6 points). Three Member States reported deficits for 2008 after a surplus for 2007: Estonia (from +2.7 % of GDP for 2007 to -3.0 % of GDP for 2008), Spain (from +2.2 % for 2007 to -3.8 % for 2008) and Slovenia (from +0.5 % for 2007 to -0.9 % for 2008).

Government revenue and expenditure

The importance of the general government sector in the economy may be measured in terms of total general government revenue and expenditure as a percentage of GDP. In the EU, total government revenue in 2008 amounted to 44.5 % of GDP, and expenditure to 46.8 % of GDP; in the euro area, the equivalent figures were 44.7 % and 46.7 % respectively. The level of general government expenditure and revenue varies considerably between the Members States. Those with the highest levels of combined government expenditure and revenue as a proportion of GDP in 2008 were Sweden, Denmark, France and Finland, for which the ratio to GDP was more than 100 %. Eight Member States reported relatively low combined revenue and expenditure to GDP ratios of below 80 %. Out of these, the government sector was smallest for Slovakia, Lithuania and Romania, where revenue plus expenditure to GDP was less than 72 % in 2008.
The main types of government revenue are taxes on income and wealth, taxes on production and imports, and social contributions. These three sources of revenue accounted for around 90 % of EU revenue in 2008 (see Graph 5). The structure of taxes within the EU in 2008 shows that receipts from social contributions, at the level of 13.7 % of GDP, were slightly higher than from taxes on production and imports and current taxes on income and wealth (both equal to 13.1 % of GDP). However, there was considerable variation in the structure of taxes across the Member States. In general, those countries that reported relatively high levels of expenditure tended to be those that also raised more taxes (as a proportion of GDP). For example, the highest return from taxes was 48.8 % of GDP recorded in Denmark, with Sweden recording the next highest share. The proportion of GDP accounted for by taxes was below 30 % in Ireland, Latvia, Romania and Slovakia, with the relative importance of current taxes on income and wealth particularly low in the latter two countries.
General government expenditure may be identified by using the Classification of the functions of government (COFOG) (see Graph 3). In all of the Member States, social protection measures accounted for the highest proportion of government expenditure in 2007, although it ranged from close to or more than 22 % of GDP in France, Denmark and Sweden to 10 % of GDP or below in Ireland, Cyprus, Romania, Estonia and Latvia (with the lowest level of 8.4 % of GDP). On average (weighted by GDP), EU government expenditure devoted to social protection amounted to 18 % of GDP. The next COFOG functions in ranking were health (6.6 % of GDP), general public services (6.1 %) and education (5.1 %). Spending on economic affairs in the EU was close to 4 % of GDP, whereas less than 2 % was spent on average on each of the following COFOG functions: defence, public order and safety, environmental protection, housing and community affairs, recreation, religion and culture.

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