Budget Outlook, December 2009

Due to the weakened cyclical conditions and discretionary fiscal policy initiated to support growth and employment a significant deterioration of the public finances is expected. The large general government surpluses in the latter years are thus expected to be followed by deficits.

The central government budget for 2010 reflects a substantial deficit on the so called CIL-account, of DKK 77¼bn in 2010, cf. Budget Outlook 3, December 2009. The deficit in 2009 is estimated at DKK 52½bn. The deficit on the central government net balance, which is essential for the central government debt, is estimated at DKK 141½bn in 2009 and 74½bn in 2010. Thus, larger deficits on the CIL-account and the net balance are estimated in 2009, while lower deficits are expected in 2010 compared to the estimates in Budget Outlook 2, August 2009.

The larger deficit in 2009 and lower deficit in 2010 primarily reflect the possibility for private businesses to defer payments of income tax and labour marked contribution. The deferred payment implies that revenues of approx. DKK 19bn are transferred from 2009 to 2010. The net balance is further affected by a reduced amount of relending especially due to Finansiel Stabilitet A/S in 2010.

A surplus on the general government budget balance of DKK 59¾bn or 3.4 per cent of GDP in 2008 is followed by an estimated deficit of DKK 50¼bn in 2009 and DKK 94½bn corresponding to -3.0 per cent and -5.5 per cent of GDP, respectively. Primarily based on technical assumptions a deficit on the budget balance in 2011 is estimated at DKK 79bn corresponding to -4.4 per cent of GDP.

The general government budget balance is estimated to decrease by DKK 154bn from 2008 to 2010. This corresponds to a reduction of 8.9 per cent of GDP of which one third reflects the loosening of fiscal policy. The deterioration reflects that public finances in Denmark are very sensitive to cyclical changes and trends in financial markets.

Measured by the fiscal effect fiscal policy is estimated to stimulate economic activity by 1.0 per cent of GDP in 2009. Furthermore, the release of the Special Pension (SP) funds is estimated to stimulate activity by 0.3 per cent of GDP in 2009. In 2010 the fiscal effect is estimated at 0.8 per cent of GDP. Activity is also expected to be stimulated by 0.1 per cent of GDP due to withdrawals of certain individual pension-saving accounts in 2010. The expansionary fiscal policy in 2009 and 2010 primarily reflects the estimated growth in public investments and tax cuts due to the tax agreement from 2007 and the tax reform included in the Spring Package 2.0.

The estimates for the general government and central government finances in 2009 and 2010 are based on the short term projections for the Danish economy, cf. Economic Survey, December 2009. 

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