Budget Outlook 3, December 2010

Today the Ministry of Finance will present Budget Outlook 3, December 2010. The agreement on the central government budget for 2011 is presented along with new estimates for central government finances in 2010-2011 and for general government finances in 2010-2012.

Primarily as a consequence of the Fiscal Consolidation Agreement a reduction of the deficit on the structural budget balance of 1 per cent of GDP is estimated from 2010 to 2012.  

The actual budget deficit is estimated at 3.6 percent of GDP in 2010, 4.7 percent in 2011 and 3.4 percent in 2012. This profile reflects extraordinary high revenue from the pension yield tax in 2010. The deficit is declining until 2012 when  correcting for temporary movements in the pension yield tax. In 2013 the deficit is expected to be well below 3 percent of GDP.

I 2010 real growth in public consumption is expected at 1 percent. This estimate has been revised upwards, primarily due to higher expected expenditures in local governments and on activation schemes for unemployed.

Consumption expenditures in the budgets for 2011 are in line with the Fiscal Consolidation Agreement. As a consequence of the upward adjustment in 2010 real growth in public consumption is estimated at -0.3 per cent in 2011.

The Minister of Finance, Claus Hjort Frederiksen, says:

“2010 is a transition year after a period with high growth in public consumption. However, both the central and local governments are presently adjusting their economies in order to keep the budgets in 2011. We have imposed new and stronger sanctions which will help to prevent budget overruns as from 2011.”

On central government finances the budget deficit is estimated at DKK 95¼bn in 2010 and DKK 33½bn in 2011. The reduction in the deficit from 2010 to 2011 is related to a technical change in the timing of payments of pension yield tax. The extraordinary high revenue from the pension yield tax in 2010 is not paid until 2011 hence there are no payments in 2010. On the central government account revenues are registered when paid.

In 2011 the general government deficit is estimated at DKK 84bn. The difference between the central and general government deficits mainly reflects the different timing of registration of the pension yield taxation.

The substantial ease of fiscal policy in 2009 and 2010 stimulates activity in 2011. Thus, fiscal policy in 2009-2011 is expected to have an almost neutral impact on growth in 2011 although the projected fiscal policy in 2011 is estimated to have an activity effect of -0.3 per cent of GDP in 2011. Due to the consolidation of public finances fiscal policy
will dampen growth in the coming years.

The estimates for the general and central government finances in 2010 and 2011 are based on the short term projections for the Danish economy, cf. Economic Survey, December 2010.

Read more about Budget Outlook, december 2010 here