Government's spending limits decision for 2013 - 2016: key figures
The spending limits decision is based on the earlier on-budget expenditure limits adopted by the Government in October 2011 for the 2012 - 2105 electoral term. This spending limits decision reflects the new adjustment measures adopted by the Government in a bid to reduce the central government debt to GDP ratio by 2015. The decision is based on the Ministry of Finance’s cyclical outlook, which is currently being prepared for publication on 4 April 2012.
Supplementary budget proposal for 2012
The Government’s 2012 supplementary budget proposal includes an increase in expenditure of EUR 224 million, primarily for employment-promoting measures, business financing and education. The revenue estimate is revised upwards by EUR 97 million, mainly to reflect updated information on tax revenue and changes to macro-economic assumptions. Furthermore the revenue estimate is affected by the Icelandic government’s decision to amortize its debt faster than originally anticipated. The sum total of budgeted expenditure for 2012 would thus reach EUR 52.7 billion. With revenue estimated to come in at EUR 45.3 billion, the budget in 2012 would thus show a deficit of EUR 7.5 billion.
Central government revised spending limits for 2013 - 2016
The Government announced on 22 March2012 net expenditure savings of EUR 1.2 billion and tax hikes worth EUR 1.1 billion at 2015 levels. The adjustment measures are incorporated in the 2013 - 2016 spending limits decision.
Expenditure under the central government spending limits in 2013 comes to around EUR 42.4 billion, some EUR 0.5 billion more than the figure indicated in the October spending limits decision. Items excluded from the spending limits include expenditure that fluctuates with economic cycles as well as automatic fiscal stabilizers, such as unemployment security expenditure and housing allowances, interest payments on central government debt, VAT expenditure, financial investment expenditure and expenditure corresponding to technically transmitted payments and external funding contributions. Total expenditure outside the spending limits in 2013 comes to an estimated EUR 11.7 billion, which is around EUR one billion more than in the previous spending limits decision. The single factor with the greatest upward effect is financial investment, for instance in export refinancing.
In 2013 - 2016 central government on-budget expenditure will increase nominally by an annual average of around 1 %. During the same period real expenditure will decrease by an annual average of 1% a year. During the budget planning period expenditure will be reduced by the expenditure savings announced by the Government. Expenditure will be increased by additional commitments to prevent social exclusion among younger people, to promote activation through employment and education policy measures, and to provide the necessary framework conditions for effective policing. Age-related expenditure, interest payments on central government debt and annual index corrections will also drive expenditure levels.
It is estimated that over the 2013 - 2106 planning period, on-budget ordinary revenue will show an annual average increase of 4.3%. Tax revenue growth is forecast to come in slightly higher than this at 4.8%. With the slowdown of economic growth and tax base growth towards the end of the budget planning period, tax revenue growth is also set to slow. The revenue forecasts reflect the revisions made to tax bases and other relevant decisions taken in connection with the spending limits decision. The factors with the greatest bearing on revenue estimates are the one percentage point increase in VAT tax bases and the discontinuation of the earned income and inflation adjustments in earned income taxation in 2013 and 2014. Compared to the revenue estimates made in the October spending limits decision, estimated on-budget revenue for 2013 has increased by EUR 0.5 billion.
It is estimated that central government debt will increase by some EUR 18 billion during the 2013 - 2016 planning period.
The 2012 supplementary budget proposal will be submitted to Parliament on 29 March 2012. The revised spending limits for 2013 - 2016 will be submitted to Parliament on 4 April 2012.
The MoF Economics Department’s cyclical outlook will also be published on 4 April 2012. This outlook takes account of the measures adopted by the Government in connection with the spending limits decision for 2013 - 2016.
Mr Hannu Mäkinen, Director General of the Budget Department, tel. 358 9 160 33036 and Mr Juha Majanen, Ministerial Adviser, tel. 358 9 160 33105
Mr Jukka Pekkarinen, Director General, tel. 358 9 160 33191 and Mr Mika Kuismanen, Head of Unit, tel. 358 9 160 34865, gsm 358 40 502 5107