the fiscal budget proposal for 2005
DESCRIPTION
The fiscal budget proposal for 2005. October 1st 2004. Highlights of the 2005 budget. The 2005 revenue surplus is estimated at 11.2 billion krónur, 1.2 per cent of GDP. The 2005 financial surplus estimated at 4 billion krónur. Treasury finances. Revenue balance, excluding irregular items. - PowerPoint PPT PresentationTRANSCRIPT
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The fiscal budget proposal for 2005
October 1st 2004
2 0
0 5 The 2005 revenue surplus is estimated at
11.2 billion krónur, 1.2 per cent of GDP
Highlights of the 2005 budget
The 2005 financial surplus estimated at 4 billion krónur
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Treasury finances
Billion krónurAccounts
2003Budget2004
Estimate2004
Budget2005
Revenue ......................................... 273.9 282.0 290.2 305.8
Expenditure ................................... 280.0 275.3 282.4 294.6
Revenue balance ......................... -6.1 6.7 7.8 11.2
Financial balance ...................... 15.3 14.0 16.9 4.0
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Revenue balance, excluding irregular items
Revenue balance ............................. -6.1 6.7 7.8 11.2
Irregular expenditure ......................... 14.4 8.7 8.7 8.8
Irregular revenue ................................ 9.9 0.1 0.1 0.1
Rev. bal. excl. irreg. items ............. -1.6 15.3 16.4 19.9
2 0
0 5 • The revenue balance increases by 3.4
billion from 2004 and by 17.4 billion from 2003
• This reflects a tighter fiscal policy
Stronger fiscal finances
2 0
0 5 • The Government’s Medium Term
Programme calls for a further tight fiscal policy in 2006-2008
• Public consumption to increase by 2 per cent a year in real terms and transfer payments by 2½ per cent a year
Tight fiscal policy in 2006-2008
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Investment declines 2005-2006 and increases 2007-2008
• Investment will be cut by 2 billion in 2005 and again by 2 billion in 2006...
• to be increased again by 2 billion in 2007 and 2 billion in 2008
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Room for tax cuts
• Increased expenditure restraint and a rising revenue surplus creates room for significant tax cuts in 2005-2007...
• ...for the benefit of households
• A logical continuation of earlier tax cuts
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Continued economic stability
• ...without endangering economic stability, according to the projections of the Ministry of Finance
• The fact that Treasury expenditure remains unchanged in 2005 and decline by 1.4 per cent in relation to GDP reflects the tightness of fiscal policy
2 0
0 5 30.41
25.75
21.75
0
5
10
15
20
25
30
35
1997 2004 2007
%
The personal income tax
2 0
0 5
1.5
0.6
0.00
1
2
2001 2002 2007
%
The personal net wealth tax
2 0
0 5 7.0
5.0
4.0
2.0
0.00
1
2
3
4
5
6
7
8
2002 2003 2004 2005 2006
%
The personal income surtax
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0 5
Main economic assumptions 2005
2 0
0 5 • Economic growth 5%
• Rise in real disposable incomes 3¼%
• Inflation 3½%
• Unemployment 2¾%
• Current account deficit 11% of GDP
• Exchange rate index 125
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0 5
-1
0
1
2
3
4
5
6
%
Strong economic growth
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Price stability
%
0
1
2
3
4
5
6
7
8
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2 0
0 5
90100110120130140150
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Increasing real disposable incomes
2 0
0 5
Low unemployment
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
OECD
Iceland
2 0
0 5
Temporary increase in the current account deficit
-16
-14
-12
-10
-8-6
-4
-2
0
2% of GDP
2 0
0 5
Highlights of the budget
2 0
0 5
29.129.6
31.0
32.8
31.2
29.9
25
26
27
28
29
30
31
32
33
34
2000 2001 2002 2003 2004 2005
% of GDP
Treasury expenditure declines* in relation to GDP
* Excl. irregular items
2 0
0 5 30.3
28.5 28.3
29.530.2
29.4
25
26
27
28
29
30
31
2000 2001 2002 2003 2004 2005
% of GDP
Tax revenue declines in relation to GDP
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Priority in expenditures
• Expenditure on education increases 8.8 per cent
• Special increase in development aid
• Expenditure on law enforcement and security increases by 5.4 per cent
• Increase in housing space for the disabled and in nursing homes
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Special expenditure measures
• Expenditure cut by 800 million through a 1 per cent cost-efficiency demand upon government agencies
• Investment is cut by 2 billion
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Special revenue measures
• The personal income tax rate will be cut by 1 per cent, from 25.75 to 24.75 per cent
• The personal income surtax declines from 4 per cent to 2 per cent
• Various user charges will increase in line with general prices
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Looking ahead
• A ministerial committee will conduct a review of government agencies
– The aim is to increase efficiency and improve services
• A special effort will be made to outsource government tasks
• Transfer payments will be reviewed in order to reduce the automatic rise in expenditure
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What has been achieved in recent years?
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Treasury debt has declined by half since 1995...
0
10
20
30
40
50
60
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
% of GDP
Total debt
Net debt
2 0
0 5
...which has led to an 11 billion reduction in interest payments
1,91,7
2,12,42,3
2,5
1,6
0,0
0,5
1,0
1,5
2,0
2,5
3,0
1999 2000 2001 2002 2003 2004 2005
% VLF.
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Prepayments against pension fund commitments have amounted to 79 billion since 1999
7.917.3
34.0
45.2
78,871,2
60,7
0
10
20
30
40
50
60
70
80
1999 2000 2001 2002 2003 2004 2005
Bn.kr.
Reiknaðir vextir 5% árin 2004 og 2005
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Social security and social assistance payments
19.2 21.024.1 25.3
28.433.2
36.6 38.0
0
5
10
15
20
25
30
35
40
1998 1999 2000 2001 2002 2003 2004 2005
Bn.kr.
2 0
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Disability pensions
4.9 5.77.5 7.6
9.0
11.313.2
14.3
0
2
4
6
8
10
12
14
16
1998 1999 2000 2001 2002 2003 2004 2005
Bn.kr.
2 0
0 5
0
5
10
15
20
25
1998 1999 2000 2001 2002 2003 2004 2005
Universities Other higher education
Bn. kr.
Expenditure on research, universities and other higher education
11,9 13,414
15,719
21,2 21,5 24
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In summary
• Improved Teasury finances have led to declining debt and lower interest payments
• Sharply increased fiscal restraint to offset the impact of power project construction
• A significant Treasury surplus, partly due to expenditure restraint, will create room for tax cuts in 2005-2007
• A review of government operations will be launched
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