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Swedish state coffers constricted by recession - now state finances to stand at minus Skr100 billion

Wednesday, 13 June 2012
When economic activities remain stagnant or even start reversing and unemployment either remain stagnant or start increasing,  in economic terms, that could be described as recession and such a move affect government coffers. In a new forecast, the Swedish Debt Office is talking of making a borrowing requirement for Skr47 billion for the period 2012 - 2013.

This is because the Swedish economy is growing worse than the Debt Office had previously expected. This year GDP is expected to grow by 1.0 percent and 2.3 percent next year according to their forecast. For the state, it means slower growth in revenues and higher costs.

"The weak economy affects primarily the state finances through reduced tax revenues, " said the Debt Office, which is responsible for government borrowing.

The new forecast places the budget balance to be minus Skr32 billion this year and minus Skr15 billion next year. There is a decline of Skr21 and Skr18 billion compared to the previous forecasts.

This compares to last year, when state revenues were Skr68 billion greater than its expenses of Skr100 billion.
"It depends largely on transitory factors, but is also a result of the bad economy, "the Debt Office said.

Tax revenues are expected to decrease by Skr17 billion this year and Skr21 billion next year.
"The biggest changes in both years are related to business taxes and payment of excess tax,” said the Debt Office, which also warns of tougher times for the companies.

"Receipts from the company will decrease, while the wage bill will develop at a normal pace. This is an indication that the profit share in the economy is falling and that productivity is impaired. "

Higher interest costs on government debt is also providing skr7 billion to the larger budget deficit. However, that is said to be only a temporary effect. Rather, there will be a declining interest and lower cost of debt.

"The (increase) depends on us buying back bonds with high coupons. In practice, such repurchase any increased costs, but it is a reallocation of interest expense over time, "the Debt Office.
When the economy is not good, this is when the country needs skilful economist and decision makers. None is emerging now in Swedish government circles. All one hears is austerity and more cuts.
By Team

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