Increased deposits in tax accounts reduce the central government borrowing requirement.
This also applies to pure capital investments, even though they are, in practice, not actual income for central government. Which deposits are capital investments can be estimated on the basis of total deposits less what is debited by the Swedish Tax Agency and what can be considered as a normal level of funds on deposit.
Capital investments in tax accounts are an expensive and involuntary form of loan for central government. The Debt Office estimates that capital investments in tax accounts result in an additional cost for central government of approximately SEK 1.7 billion for 2015–2019, compared with if the Debt Office had borrowed the same sum directly in the market. The calculation is based on the difference between the interest rate on 3-month T-bills and the tax account, and on assumptions about deposits and withdrawals of extra funds in tax accounts (see figure 2 on page 23).
Capital investments in tax accounts have also created extra uncertainty in the management of the central government debt since the central government borrowing requirement has become harder to forecast. They have crowded out other borrowing, which has contributed to lower issue volumes and worsened liquidity in the market for government securities.
The outcome for the budget balance is also misleading to anyone wanting to analyse the state of public finances. There is a risk that excess deposits in tax accounts will be interpreted as real tax income. In addition, the central government debt reported will be lower than it actually is since balances in tax accounts are, in practice, a debt for central government. However, Statistics Sweden adjusts the Maastricht debt for capital investments, which means, for example, that the debt anchor is not affected.
Strong economic situation leads to high income from corporate taxes
Central government income from corporate taxes has been revised upwards slightly for both 2018 and 2019 compared with the February forecast, see table 3.
The Swedish economy has been growing strongly for several years, and this has resulted in good profit growth in the business sector. Domestic demand is continuing to grow at a good pace, mainly driven by high investments and consumption. The international recovery – not least in the EU, where investment growth is expected to continue to rise – is now estimated to be slightly stronger than in the assessment made in February. This is expected to lead to rising demand and profitability for export companies.
This bright picture is supported by forward indicators, where, for example, the export managers index, the purchasing managers index and the NIER’s confidence survey are at levels above their historical average. The optimism is greatest in manufacturing, which is benefiting from the good investment climate in Europe. Taken together, this strengthens the picture of positive profit growth for some more time to come. The forecast for profit growth in 2018 has therefore been revised upwards slightly from the February forecast.
The assessment of profit growth in 2019 is unchanged compared with the previous forecast. As growth in the economy weakens at the end of the forecast period, profit growth falls back. Profits are then estimated to grow slightly more slowly than their historical average. However, the upward revision for 2018 means that the level of corporate profits in 2019 will still be slightly higher than in the February assessment.
Slightly higher income from payroll taxes
Central government income from payroll taxes will be SEK 2 billion higher in 2018 and SEK 3 billion higher in 2019 than in the previous forecast. This is primarily because the payroll is expected to be 0.3 per cent higher in both 2018 and 2019.
Tax income, change from previous forecast
SEK billion 2018 2019
Payroll taxes 2 3
Consumption taxes 0 0
Corporate taxes 1 1
Supplementary taxes 3 24
Total 6 29
Figure 4. Household capital gains
Source: Swedish tax agency and the Debt Office.
No change in development of consumption taxes
Income from consumption taxes will be unchanged in both 2018 and 2019 compared with the previous forecast. The outcome for VAT and other consumption-based taxes has been in line with the forecast so far this year. At the same time, only minor changes have been made in the underlying assumptions.
High capital gains for households
The Debt Office expects households’ capital gains in 2017 to be around SEK 195 billion. This is SEK 7 billion more than in the previous forecast and SEK 5 billion more than in 2016. The
weakening of the housing market that started in the autumn is not judged to have had time to have any substantial effect on capital gains for the year. Statistics from Svensk Mäklarstatistik [Swedish Real Estate Agent Statistics] show that the total sales value of owner-occupied and cooperative homes sold increased by approximately 10 per cent compared with 2016. How this affects the gains reported is not certain, but historically the correlation between gains and sales value has been strong. Some support for this assessment is also provided by the income statements from the Swedish Tax Agency available so far this year. For 2018 and 2019 the Debt Office makes the assessment that gains from home sales will decrease. This is an effect of the slackening of prices that has occurred, but also that the turnover in the housing market is judged to be lower.
0 50 100 150 200 250 SEK billion
The Debt Office also makes the assessment that gains from the sale of securities will decrease, which is an effect of more and more people switching to saving in investment savings accounts (ISAs). In aggregate, households’ capital gains decrease in 2018 and 2019, but from high levels.
Rising dividends on state-owned shares
The strong economic situation also means that profits in companies with state ownership are developing well. This means that central government income from share dividends is rising. Dividend income is estimated to be just under SEK 3 billion higher in both 2018 and 2019 than in the previous forecast. This is mainly explained by higher dividends from LKAB. This company reported strong earnings for 2017, mainly on account of rising market prices of iron ore products. This meant that the company delivered a dividend for the first time since 2015. The dividend was SEK 2.9 billion, which was much higher than the Debt Office’s forecast. Demand is expected to remain good and production volumes are estimated to rise in 2018. This means that the forecast for the dividend to be paid in 2019 has also been revised upwards.
In total, central government income from share dividends is estimated at just under SEK 15 billion in 2018 and around SEK 17 billion in 2019, see table 4.
Dividends on state owned shares
SEK billion 2018 2019
Akademiska hus AB 1.6 1.6
LKAB 2.9 3.5
Telia Company 3.7 4.0
Vattenfall AB 2.0 4.0
Sveaskog AB 0.9 0.9
Other corporations 3.5 3.3
Total 14.6 17.3
Slightly lower expenditure for social insurance
Expenditure for social insurance is estimated to be SEK 1 billion lower in 2018 and SEK 2 billion lower in 2019 compared with the previous forecast. The outcome has been slightly lower this year, and this explains the change. Next year attendance allowance, for instance, is expected to be slightly lower than in the previous forecast.
Net lending by the Debt Office is unchanged in 2018, but higher in 2019.
For 2018 net lending by the Debt Office is expected to total just over SEK 2 billion. Compared with the previous forecast on-lending to the Riksbank has increased on account of a weaker krona. But this is offset by higher deposits from government agencies and public enterprises, which mean that aggregate net lending is unchanged from the February forecast.
Net lending in 2019 is expected to be almost SEK 8 billion. This is an increase of SEK 9 billion from the previous forecast. The increase in 2019 is also largely explained by higher on-lending to the Riksbank on account of the weaker krona. The loan to Ukraine previously forecast for 2018 has now been postponed until 2019. That increases the forecast of net lending in 2019 by just under SEK 1 billion.