Council opinion

of 20 January 2004

on the Updated Convergence Programme of Sweden 2003 to 2006

(2004/C 29/03)

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 Sweden's updated convergence programme, which covers the period 2003 to 2006. The updated programme largely complies with the data requirements of the revised "code of conduct" on the content and format of stability and convergence programmes.

The budgetary strategy underlying the update is based on a continuation of the medium term objective of a budget surplus of 2 % of GDP on average over the cycle, aimed at preparing for the expected budgetary impact of the ageing of the population and the sustainability of public finances in the long-term. The planned return to a general government surplus of 2 % of GDP beyond 2006 relies in particular on a decline in the expenditure-to-GDP ratio from 2004 onwards (it is expected to rise in 2003), but also on a decline in the revenue-to-GDP ratio from 2005 onwards (it is expected to rise in 2003 and remain unchanged in 2004).

The update projects real GDP growth to accelerate from an estimated 1,4 % in 2003 to 2,0 % in 2004. In 2005 and 2006, growth is estimated to be 2,6 % and 2,5 %, respectively. Employment growth is expected to pick up from 0,1 % in 2004 to 0,7 % in 2005 and 2006. CPI inflation is forecast to gradually increase from 1,3 % in 2004 to slightly above 2 % by 2006. On the basis of currently available information, the macroeconomic scenario underlying the update seems realistic and is in line with the Commission evaluation, including the autumn forecast.

The update targets a general government surplus of 0,6 % of GDP in 2004, compared with an expected surplus of 0,4 % in 2003. In cyclically-adjusted terms, based on Commission calculations according to the commonly agreed methodology, there is an improvement in the surplus from 0,5 % to 1 % of GDP. For 2005 and 2006, the projections are for headline surpluses of 1,4 % and 1,9 % of GDP respectively. In cyclically-adjusted terms, the corresponding surpluses would amount to 1,8 % and 2,3 % of GDP respectively. The debt ratio is projected to decline gradually, from 51,7 % in 2003 to 48,3 % in 2006. Under plausible macroeconomic and budgetary assumptions, the Stability and Growth Pact's medium-term objective of a budgetary position of close to balance or in surplus should be maintained throughout the programme period.

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

However, on the basis of the Commission's analysis and the estimates in the 2003 update, the cyclically adjusted budgetary position is expected to be in surplus although up to 2005 it is below the medium term objective of 2 % of GDP. This results from the fact that the considerable fiscal stimulus in 2002 is only partially reversed in the following years. Strict expenditure control therefore remains important in this respect, not least by ensuring continued adherence to the expenditure ceiling in 2004, 2005 and 2006.

On the basis of current policies, Sweden should be able to meet the projected budgetary costs of an ageing population. However, the increase of health care expenditure, including expenditure related to ill health, foreseen in the projections needs to be addressed as the update notes that further measures are necessary in order to achieve the target of half the number of sick days. Moreover, according to the Commission's analysis the medium term target has to be reached; failure to do so can determine some budgetary imbalances in the very long term.

The economic policies as reflected in the updated programme are broadly consistent with the recommendations in the Broad Economic Policy Guidelines, specifically those with budgetary implications. Completing the tax reform, and efforts to reach the key policy objectives of raising employment, reducing the number of social security recipients and days of sick-leave should be given priority within the framework of sound public finances.

(1) OJ L 209, 2.8.1997.