Council opinion

of 20 January 2004

on the Updated Convergence Programme of Denmark 2003 to 2010

(2004/C 29/04)

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EC) No 1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary positions and the surveillance and coordination of economic policies(1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 20 January 2004, the Council examined Denmark's updated Convergence Programme, which covers the period 2003 to 2010. The programme is rich in information, especially with regard to the amount of data provided for the analysis of medium- and long-term challenges of the Danish public finances, and complies with the Code of Conduct on the content and format of Stability and Convergence Programmes.

The strategy for public finances presented is largely unchanged and continues to focus on ensuring sustainable public finances in the medium and long term. The foundation for the strategy continues to be both the maintenance of general government surpluses of the order of 1,5-2,5 % of GDP on average towards 2010, and the tax freeze, which also is intended to help ensure public expenditure control. Tax reductions on labour income are to be implemented in 2004, aiming at enhancing labour supply. Moreover, a series of labour market initiatives have been implemented. However, additional measures to raise labour supply are necessary, as acknowledged in the programme.

The update projects GDP growth to accelerate from an estimated 1,4 % to above 2 % in 2004 and 2005. The growth picture of the programme forecast for 2004 and 2005 is realistic and it is close to the Commission's. For 2003, the Commission services (and recently the Danish authorities) forecast a markedly lower growth.

Public finances in Denmark continue to remain sound. For 2003 to 2005 the programme update forecasts budget surpluses of 1,25 % of GDP to 1,75 % of GDP, which is broadly in line with the Commission's estimates. For the rest of the period the programme projects surpluses just below 2 % of GDP. Also in underlying terms public finances should remain sound over the projection period. The debt is expected to decrease from 45,5 % of GDP in 2002 to 27,5 % of GDP in 2010. Under plausible macro-economic and budgetary assumptions, the Stability and Growth Pact medium-term objective of a budgetary position of close to balance or in surplus is maintained over the programme period.

The budgetary stance provides a safety margin against breaching the 3 % of GDP deficit threshold with normal macroeconomic fluctuations.

The achievement of the medium term public finance targets hinges on expenditure control and the realisation of a set of ambitious labour market goals, which include increasing the labour force participation rates from their already high level. The updated programme acknowledges that further labour market reforms are required in order to obtain these goals. A non-realisation of the labour market objectives may have important implications for the projected developments of public finances, notably the available room for expenditure growth. The programme would therefore have benefited from more information about future direction of reform.

The Danish authorities intend to reduce the tax ratio in the programme period, while ensuring the sustainability of public finances. However, as stated in the Council Opinion on the 2002 update of Denmark's Convergence Programme, "the tax ratio in Denmark will remain high compared to other industrialised countries, and consideration could be given to further reductions, in a framework of sound public finances".

On the basis of current policies and the medium term projections in the updated programme, the low public debt and the large public pension funds projected would put Denmark's public finances in a good position to handle the impact of the ageing population.

The 2003 Broad Economic Policy Guidelines included recommendations to the Danish authorities to continue to make work pay by increasing incentives to join the labour force; and to ensure expenditure control at all levels of government. The economic policies as reflected in the updated convergence programme are broadly consistent with the 2003 Broad Economic Policy Guidelines, specifically those with budgetary implications.

(1) OJ L 209, 2.8.1997.