Council opinion of 20 January 2004 on the Updated Convergence Programme of Sweden 2003 to 2006
Date: 2004-01-20
Institutions: Council of the European Union
Subjects: Sweden, economic convergence, economic policy, public finance, stability programme

3.2.2004

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Official Journal of the European Union

C 29/3

if

macroeconomic risks seem to balance with the better-than-
targeted budgetary outcome in 2003 with knock-on effects
on subsequent years, risks regarding expected savings and
surpluses from lower government
levels are non-negligible.
the announced expenditure savings were only
Moreover,
partly implemented or did not materialize as intended, the
planned temporary departure from the medium-term target
might turn out to be persistent. The budgetary stance in the
updated programme provides a sufficient safety margin against
breaching the 3 % of GDP deficit ceiling with normal macro-
economic fluctuations.

The government gross debt is expected to decrease steadily
from 66,7 % of GDP in 2002 to just below 60 % in 2007.
This forecast hinges crucially on the nominal GDP growth
assumptions and sizeable proceeds from planned privatisations.
Should any of these factors fall short of expectations, even if
only by a small margin, the debt-to-GDP-ratio would not fall
below the 60 % reference value also in 2007.

After the 2003 pension reform, Austria appears to be in a
considerably better position than before
the
budgetary costs of an ageing population. This evaluation,

to meet

however, needs to be confirmed by actual developments.
First, projections assume a reform-induced strong increase in
participation rates. Second,
the 10 percent cap on benefit
losses compared with the status quo ante renders long-term
exonerating
budgetary effects
effects on government finances are delayed due to a long tran-
sition period for abolishing early retirement until 2017.

rather uncertain. Moreover,

Economic policies as reflected in the update are only partly
consistent with the recommendations in the Broad Economic
specifically those with budgetary impli-
Policy Guidelines,
cations. Specifically,
‘a cyclically-adjusted budgetary position
close to balance’ is only partly respected. Moreover, in 2005
the general guideline to ‘avoid pro-cyclical policies’ may not be
observed. Although the planned reduction of
the high tax
burden is in principle an appropriate step to render supply
side conditions more growth-friendly,
reductions
should be accompanied by corresponding expenditure restraint.
As concerns Länder and communities, the update is silent on
‘structural
levels of
government’, which are required to attain permanent surpluses,
an obligation enshrined in a national stability pact.

expenditure

(also) at

revenue

savings,

lower

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
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).

(it

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
the
2006. On the basis of currently available information,
scenario
macroeconomic
seems
realistic and is
in line with the Commission evaluation,
including the autumn forecast.

underlying

update

the

(1) OJ L 209, 2.8.1997.

The update targets a general government surplus of 0,6 % of
GDP in 2004, compared with an expected surplus of 0,4 % in

C 29/4

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Official Journal of the European Union

3.2.2004

2003. In cyclically-adjusted terms, based on Commission calcu-
lations 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.

to be addressed as

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
further
measures are necessary in order to achieve the target of half
the number of
according to the
sick days. Moreover,
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 update notes

that

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.

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:

the Council examined Denmark's
On 20 January 2004,
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
and format of Stability and
Convergence Programmes.

content

(1) OJ L 209, 2.8.1997.

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
acknowledged in the
programme.

are necessary,

supply

as

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

the programme forecast

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
is
expected to decrease from 45,5 % of GDP in 2002 to 27,5 %

the projection period. The debt