Treasury finances in January - July 2000. Report date: August 23, 2000

Figures are now available for Treasury finances for the first seven months of this year. They are on a cash basis and therefore not comparable to the fiscal budget which is presented on an accruals basis. Nonetheless, these figures represent a good indication on the development of Treasury finances in the course of this year, in comparison with the two previous years.

Summary
For the first seven months of this year the revenue surplus amounted to 7.5 billion krónur, compared with 1.4 billion a year ago and a deficit of 4.6 billion in 1998. This result is more favourable than had been expected. The net financial surplus amounted to 5.8 billion, compared to 0.4 billion in 1999 and a deficit of 2.4 billion in 1998. The net financial surplus represents the funds available for debt redemption which amounted to 26.4 billion in the first seven months of the year, whereas new borrowing amounted to 18.9 billion. The overall cash deficit amounted to 1.7 billion, an improvement of more than 5 billion over the previous year.

	1998	1999	2000
Revenue.................................................................	89,771	102,726	114,186
Expenditure............................................................	94,408	101,315	106,709
Revenue balance.............................……….........	- 4,637	- 1,411	7,478
Sundry capital transactions, net.......................	2,237	- 1,002	- 1,679
Net financial balance…….................................	- 2,400	409	5,801
Debt redemption................................................	- 17,149	- 18,163	- 26,398
Domestic….......................................................	- 7,373	- 8,492	- 12,906
Foreign..............................................................	- 9,776	- 9,671	- 13,490
Gross borrowing requirement.........................	- 19,549	- 17,754	- 20,596
New borrowing...................................................	15,568	10,738	18,855
Domestic….......................................................	15,036	1,666	2,371
Foreign..............................................................	536	9,072	16,484
Overall cash balance………..............................	- 3,981	- 7,016	- 1,742

Revenue
Total revenue of the Treasury amounted to 114.2 billion krónur in the first seven months of this year, compared to 102.7 billion during the corresponding period a year ago, and 89.8 billion in 1998.¹ The increase of 11 per cent from 1999 to this year is somewhat lower than the 14S per cent a year earlier. The increase in tax revenue shows the same pattern; the rise this year amounted to 11S per cent compared to 16S per cent a year ago. This indicates that the growth of domestic demand this year is slowing down after the rapid pace of the past two years.
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¹ It should be borne in mind that revenue figures fluctuate substantially between months, generally by about 5 billion krónur, because a large part of the receipts of the value added tax are is collected every other month. This, in turn, is reflected in the overall outcome, i.e. the revenue balance and the net financial balance.

				Change	in per cent
	1998	1999	2000	1998-1999	1999-2000
Total tax revenue...............................	81,646	95,221	106,273	16.6	11.6
Taxes on income and profit..............	21,257	25,617	32,291	20.5	26.1
Personal income tax…......................	16,356	19,117	23,648	16.9	23.7
Corporate income tax.......................	2,490	3,641	4,488	46.2	23.3
Other taxes on income and profit…	2,411	2,859	4,155	18.6	45.3
Social security taxes..........................	9,163	10,072	10,985	9.9	9.1
Net wealth taxes................................	4,394	4,675	5,014	6.4	7.3
Taxes on goods and services............	46,576	54,673	57,801	17.4	5.7
Value added tax ............................	27,502	33,000	35,976	20.0	9.0
Other indirect taxes.........................	19,074	21,673	21,825	13.6	0.7
Other taxes........................................	257	184	182	-28.2	-1.2
Other revenue...................................	8,124	7,505	7,913	-7.6	5.4
Total revenue....................................	89,771	102,726	114,186	14.4	11.2

As in recent months, the rise in income tax revenue is the main reason for the increase in overall revenue. This applies to the personal income tax as well as the corporate income tax and the capital income tax. The personal income tax yielded 24 per cent more revenue in the first seven months of this year than in the corresponding period of 1999 which in part reflects a considerable decline in tax refunds between the two years. Excluding those, the increase comes to 14 per cent, a similar rise as in recent months. The capital income tax also yields sharply increased revenue, which is due to considerably increased activity in the financial market.

Total indirect taxes increased by 5S per cent between the two years, compared to a 17S per cent increase last year. Allowing for price increases, receipts from indirect taxes remain nearly constant. This indicates that domestic demand is declining this year with real wage rates (money wages deflated by the wage rate index) remaining nearly unchanged from the previous year. This is also reflected in receipts from the value added tax which yielded an increase of 9 per cent this year, compared to a 20 per cent increase between 1998 and 1999. The rise in other indirect taxes is smaller still, less than 1 per cent compared to 13S per cent a year ago.

Expenditure
Total Treasury expenditure amounted to 106.7 billion krónur in the first seven months, an increase of 5.4 billion or 5.3 per cent from last year. More than half of this increase, or 3.1 billion, is ascribable to increased interest expenditures due to the redemption before maturity of domestic government debt. Excluding this item, the expenditure increase comes to 2S per cent between the two years, considerably less than general price increases. This is in part due to the fact that the payment by the Treasury of rebates to taxpayers for home purchase interest payments took place on the last day of July last year, whereas this year they were made on August 1. This accounts for a 3.6 billion shift between the two years. Excluding that, total expenditures would have increased by some 6 per cent, in line with general wage and price increases.

				Change	in per cent
	1998	1999	2000	1998-1999	1999-2000
Administration....................................	9,940	11,050	12,730	11.2	15.2
General administration.......................	4,766	5,420	6,555	13.7	20.9
Law enforcement…….......................	3,596	3,953	4,447	9.9	12.5
The foreign service...........................	1,578	1,677	1,728	6.3	3.0
Social expenditure..............................	59,580	65,096	63,852	9.3	- 1.9
Of which: Education and culture…......	11,040	12,367	13,402	12.0	8.4
Health………...........................	16,905	19,259	21,376	13.9	11.0
Welfare and soc. security.........	24,546	26,214	21,493	6.8	- 18.0
Economic affairs.................................	13,139	14,040	14,640	6.9	4.3
Of which: Agricultural support............	4,987	5,252	5,347	5.3	1.8
Communications.......................	5,999	6,328	6,632	5.5	4.8
Interest…............................................	8,590	7,932	10,994	- 7.7	38.6
Other expenditure..............................	3,159	3,197	4,493	1.2	40.5
Total expenditure...............................	94,408	101,315	106,709	7.3	5.3

Administrative expenditures cover the administration of the central government, law enforce-ment and the foreign service. These have increased by 15 per cent between the first seven months of 1999 and 2000, i.a. because of a large increase in police pay. Social expenditures, however, decline by 2 per cent reflecting the shift in interest rebates noted above. Otherwise, this item would have increased by about 4 per cent, reflecting the stipulated increase in social transfers. The large increase in interest expenditure, as noted earlier, is due to the redemption of domestic debt which had accumulated interest over its life. The rapid increase in other expenditures reflects an increase in the contribution to the Government Employees Pension Fund.

Capital transactions
As noted earlier, the revenue surplus amounted to 7.5 billion krónur in the first seven months of this year. Of this amount, 1.7 billion was spent on sundry capital transactions, covering funds lent, sales and purchases of shares as well as the change in short-term accounts. The main inflow items were 1.3 billion in incoming redemptions on outstanding loans and proceeds from sales of shares in state commercial banks of 5S billion krónur. On the outflow side there was a rise in short-term claims of the Treasury by 4.7 billion, and extraordinary payments to the Government Employees Pension Fund to cover future commitments amounted to 3.5 billion krónur.

The net financial surplus – i.e., the revenue surplus less the net outflow on capital transactions net – amounted to 5.8 billion krónur in the first seven months of this year. This surplus was applied towards debt redemption of 26.4 billion whereas new borrowing amounted to 18.9 billion. Finally there was an overall cash deficit of 1.7 billion.

Amongst redemptions of outstanding debt of 26.4 billion, 9 billion represented a prepayment of domestic government bonds, twice the amount of last year. The early redemption was aimed at four bond issues which were so small that they traded ineffectively in the secondary market. Redemption of foreign debt amounted to 13.5 billion, 4 billion less than last year.

New borrowing amounted to 18.9 billion. about 8 billion less than a year earlier. In February, the Treasury floated a foreign bond issue of 200 million Euros, the domestic proceeds of which amounted to 14S billion krónur. At that time the proceeds were used to repay other foreign debt before maturity and reduce outstanding short-term debt, chiefly Euro-commercial paper.