A brief comment on the government's announced proposal for unfunded measures 2013.
It is not yet clear what measures the Government intends to propose in the Budget Bill for 2013. Negotiations between the Government parties are in progress, and it will be necessary thereafter to seek the support of the Swedish Parliament. In the NIER's assessment, however, it is considered probable that the unfunded measures will amount to SEK 23 billion in 2013.
A MORE EXPANSIONARY FISCAL POLICY IN 2013 WILL REQUIRE A MORE CONTRACTIONARY FISCAL POLICY IN 2014-2016
According to the NIER's assessment, there will be a margin for unfunded measures totalling SEK 21 billion in 2013-2016. (5) As the Government is already planning to implement unfunded measures totalling SEK 23 billion in 2013, there will be no margin left, in the NIER's assessment, for additional unfunded measures in 2014-2016. In the overall calculations presented below, it is assumed that the level of cyclically adjusted net lending in 2016 will be the same as in the forecast, a necessity, if the surplus target is to be met. This means that there will be SEK 9 billion less in unfunded measures for 2014--2015 compared with the forecast. The situation may be viewed as one where the margin for permanent unfinanced measures is used earlier than in the forecast. With this policy, cyclically adjusted net lending decreases to 0.5 percent of potential GDP in 2013. Thereafter it will gradually rise, in these calculations, to 1.5 percent of potential GDP in 2016, the same level as in the forecast (see Diagram 17).
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The Government, however, is much more optimistic than the NIER about the future development of GDP and unemployment. In the Government's forecast, unemployment drops to 5.2 percent in 2016, almost 1.5 percentage points lower than in the NIER's forecast (see Diagram 18). Employment is higher, and GDP is growing faster. In the Government's forecast the level of GDP is 2.9 percent higher in 2016 than in the NIER's forecast (see Diagram 19). This means that their assessment of future tax revenue and expenditure for unemployment is more optimistic, thus creating a margin for unfunded measures.
EARLIER IMPLEMENTATION OF MEASURES WILL HELP SPEED UP ECONOMIC RECOVERY SOMEWHAT
The NIER has prepared a general calculation of how the overall macroeconomic development would be affected by 9 billion more in unfunded measures in 2013 and SEK 9 billion less in unfunded measures in 2014-2015. It is assumed in the calculations that the emphasis in these additional measures will be on reducing taxes for firms and on infrastructure investment and maintenance.
The overall effect of the more expansionary fiscal policy is that GDP growth will be a few tenths of a percentage point higher in 2013 and slightly lower in 2014-2015. Unemployment will decrease somewhat sooner, but the levels of GDP and employment in 2016 are largely identical with the forecast. (6) As there will not be time to influence inflation significantly, the Riksbank will not change interest rates more than marginally.
In this assessment, no consideration has been given to possible effects that would permanently increase employment or capital formation. This is due partly to the lack of sufficiently well-developed proposals to consider, and partly to the likelihood that the effects would probably be minor in 2013-2016.
From a cyclical standpoint it would be desirable to implement unfunded measures in 2013, when the economy is slack. This would help to speed up recovery and counteract the rise in long-term unemployment. However, since the margin for permanent unfunded measures is limited, in the NIER's opinion, it also means that fiscal policy must be given a contractionary stance in 2014-2016 in order to achieve the surplus target for general government finances.
(4) The Finance Minister also announced that the margin for unfunded measures in 2014 would be SEK 27 billion, or an addional SEK 4 billion this year. This figure could be both higher and lower in the Budget for 2014 to be presented next autumn.
(5) See the chapter "Macroeconomic Development and Economic Policy 2012-2016".
(6) The Government's higher forecast for the level of GDP in 2016 is explainable primarily by a more optimistic assessment of structural unemployment. This assessment does not seemed to have been affected appreciably by the new measures.