30.05.2011

Budget Outlook, may 2011


Budget Outlook 1, may 2011 include an overview of central government finances in 2010 and 2011 and general government finances in 2011 and 2012.

The final account of the central government in 2010 reflects a deficit on the CIL-account of DKK 88¾bn, while the CIL-deficit is estimated at DKK 46¼bn in 2011. The improvement of the CIL-account from 2010 to 2011 is primarily due to pension yield tax payments. The revenues were extraordinary high in 2010, but the tax-revenue is not paid, and hence included in the CIL-account, until 2011. Compared to the estimate in December, the CIL-deficit has been adjusted downwards by approx. DKK 6½bn in 2010 reflecting higher revenues from personal taxes and lower central government expenditures. The CIL-deficit is some DKK 12¾bn higher than the previous estimate in 2011 due to municipality loans and central government losses related to capital injections and guarantees to the financial sector.

The net financing requirement is estimated at DKK 93¾bn in 2010 and DKK 45bn in 2011 reflecting the expected CIL-account deficit. In light of this, central government debt is expected to increase from DKK 301½bn in 2009 to DKK 433bn in 2011.

In 2011 the general government budget deficit is estimated at approx. DKK 74¼bn (4.1 per cent of GDP), while the deficit in 2012 is estimated at DKK 80bn (4.3 per cent of GDP). Compared to the estimate in December the general government budget deficit is reduced by DKK 9¾bn in 2011 primarily due to higher revenues from the North Sea activities, personal income taxes and VAT. In 2012 the general government budget deficit is upward adjusted by approx. DKK 17½ bn. primarily due to a release of early retirement contributions in line with the Agreement on Later Retirement.   

In light of the Fiscal Consolidation Agreement and normalization from a high level of public investment the deficit on the structural budget balance is improved by ½ percentage points from 2010 to 2012. The deficit on the structural budget balance is estimated at 1.6 per cent of GDP in 2010, 1.1 per cent of GDP in 2011 and 1.0 per cent of GDP in 2012.

The substantial ease of fiscal policy in 2009 and 2010 and the sharp drop in interest rates since 2008 are expected to stimulate activity also in 2011. An increase in activity by approx. 1¼ per cent of GDP from fiscal policy in 2009-2011 and lower interest rates is estimated in 2011, although the projected fiscal policy in 2011 is estimated to have a first year activity effect of -0.4 per cent of GDP (and -0.3 per cent of GDP in 2011, assuming that public expenditures increase as stipulated in the agreements with local authorities). The fiscal effect is estimated at -0.3 per cent of GDP in 2012, while an increase in activity by approx. ¼ percent of GDP is estimated from the release of early retirement contributions. Thus, the first year effect of fiscal policy and the release of early retirement contributions are expected to have an almost neutral impact on growth in 2012.

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

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