Public Finances in Sweden 2006 Public sector expenditure 6 Public sector expenditure In this Chapter we present public sector expenditure. The expenditure is reported in accordance with NA according to a real economic distribution in consumption, investments, transfers and interest and also by function, in other words the activity charged by the expenses. The expenditure presented in the central government budget (see Chapter 4) only contains central government expenditure. Expenditures, for example, for health and medical care, and also social care in the central government budget are thus just a smaller part of the total expenditure of the public sector on these functions, since the larger part shows up in the local government sector. This chapter is based on the National Accounts (NA), where the whole of the public sector is presented. The presentation on income and expenditure of the public sector based on NA shows the consolidated public sector. Transfers between different parts within a sector, for example, between the central and local government, have thus been excluded. Total expenditure of the public sector in accordance with NA amounted to SEK 1 397 billion in 2004. Public sector expenditure is distributed by consumption, investments, transfers and interest payments. Public sector expenditure 1993 2004, current prices. SEK billions Year Consumption Investments Transfers Interest Total 1993 454 31 513 90 1 087 1994 466 64 480 105 1 114 1995 481 68 478 117 1 145 1996 504 54 459 119 1 136 1997 514 60 450 119 1 143 1998 541 42 456 108 1 148 1999 569 60 469 99 1 199 2000 583 58 476 90 1 207 2001 613 64 488 70 1 236 2002 657 73 510 77 1 318 2003 691 71 552 58 1 372 2004 706 72 568 51 1 397 Statistics Sweden 59
Public sector expenditure Public Finances in Sweden 2006 Public sector expenditure is also distributed by function. Expenditures for similar purposes are grouped into functional categories. The distribution by function, Classification of the Functions of Government, COFOG), follows the UN standard for public sector expenditure. Public sector total expenditure 2003 by function. Per cent Other 10% General public services 14% Economic affairs 9% Social protection 42% Health and Medical care 12% Education 13% Preliminary data. Other consists of defence, public order and safety, environmental protection, housing and community amenities, recreation, culture and religion. The largest part of total expenditure is for social protection. Social protection covers social benefits (both cash benefits and benefits in kind) for persons and households with specially defined needs, for instance in the event of sickness and unemployment, persons with functional impairments, the elderly and others. A large part of expenditure for the transfer systems are thus included here. Expenditure on consumption As described in Chapter 3, expenditure on consumption is frequently used as a measure of the size of the public sector. Expenditure on consumption refers to spending on activities provided as a public service which are financed out of taxes, e.g. medical care and schooling. 60 Statistics Sweden
Public Finances in Sweden 2006 Public sector expenditure GDP and public sector consumption expenditure 1993 2004 in current prices. SEK billions and as percentage of GDP Year GDP Consumption Relative to GDP 1993 1 557 454 29 % 1994 1 662 466 28 % 1995 1 788 481 27 % 1996 1 829 504 28 % 1997 1 905 514 27 % 1998 1 987 541 27 % 1999 2 096 569 27 % 2000 2 217 583 26 % 2001 2 288 613 27 % 2002 2 372 657 28 % 2003 2 459 691 28 % 2004 2 573 706 27 % During the last decade, expenditure on public consumption has been a relatively stable part of GDP. Expenditure on consumption is calculated in NA on the basis of data on production and value-added. Since no market prices apply in the public sector, production and value-added in this sector are based primarily on salaries, employer contributions and depreciation. Production value, but not value-added, also covers intermediate consumption, i.e. the value of the goods and services used as input in the production process. NA also presents what are called social benefits in kind that is benefits which are financed by taxes and directly provided to consumers. Examples of these are the financing by the county councils of pharmaceutical products, or the purchase by municipalities of activities financed out of taxes such as educational places and care of the elderly. Social benefits in kind have increased by 4 percentage points in relation to total consumption between 1993 and 2004. In 1993 this amounted to 7 per cent of total consumption expenditure, and in 2004 the figure was 11 per cent. The proportion of expenditure on salaries has decreased during the same period, from 48 per cent of total consumption expenditure to 45 per cent. This reduction coincides with an increase in social benefits in kind and an increase in subcontracting, since publicly Statistics Sweden 61
Public sector expenditure Public Finances in Sweden 2006 employed personnel are not used when services are purchased from other providers. The proportion intermediate consumption, that is for material and services which serve as inputs in public production, amounted to 33 per cent in 2004. This means a reduction of 4 percentage points from 1993. Expenditure on consumption by function Public sector consumption is dominated by three major areas: health and medical care, education, and social protection, for example, care of the elderly and persons with functional impairments. Together these amounted in 2003 to 70 per cent of public sector expenditure on consumption. Health and medical care accounted for the largest proportion, 24 per cent or SEK 148 billion. The functions of environmental protection as well as housing and community amenities accounted for the lowest expenditure, approximately SEK 1 and SEK 4 billion respectively. Public sector expenditure on consumption by function, 2003. Per cent Social protection 22% General public services 9% Defence 6% Public order and safety 5% Economic affairs 6% Environmental protection 0% Education 24% Recreation, culture and religion 3% Health and medical care 24% Housing and community amenities 1%. The data refers in fact to public authorities, i.e. activities which are more than 50 per cent financed out of fees have been excluded. 62 Statistics Sweden
Public Finances in Sweden 2006 Public sector expenditure The functions which account for the largest expenditure education, health and medical care have increased since the beginning of the 1990s. Essentially, this is due to an increase in the number of admissions to universities and university colleges. The costs of social protection on the other hand were largely the same in 2003 as in 1993. Public expenditure on defence has decreased during the first few years after 2000. The reduction in expenditure on recreation, culture and religion in 2000 is due to the fact that the Swedish Church has been reclassified from the public sector to the household sector as a consequence of the change in its relationship to the government. Public sector expenditure on consumption by function, 1993 2003, constant prices. SEK millions 160 000 140 000 120 000 100 000 80 000 60 000 40 000 20 000 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 General public services Defence Public order and safety Economic affairs Environmental protection Housing and community amenities Health and medical care Recreation, culture and religion Education Social protection. The data refers in fact to public authorities, i.e. activities which are more than 50 per cent financed out of fees have been excluded. Expenditure on investments Part of public expenditure goes to investments or gross capital formation. In 2004 this amounted to SEK 72 billion in current prices. Statistics Sweden 63
Public sector expenditure Public Finances in Sweden 2006 Gross capital formation refers to the purchase of durable assets such as buildings and machinery, e.g. schools, hospitals, theatres and roads. Gross capital formation in the public sector consists largely of gross fixed capital formation (acquisition minus sales) but also of inventories. Public sector expenditure on gross capital formation 1993 2004, constant prices. SEK billions 80 70 60 50 40 30 20 10 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004. The data refers in fact to public authorities, i.e. activities which are more than 50 per cent financed out of fees have been excluded. Gross capital formation remained more or less at the same level in constant prices in 2004 as in 1993, at the same time as there were large fluctuations between the years. During 2004, approximately one third of all gross capital formation related to trade and industrial issues, where expansion of infrastructure (mainly roads and railways) took place. Transfer payments The public sector plays an important role in the economy through reallocation of resources. The income which the sector receives through taxes from other sectors are used not only for consumption and investments in the public sector, but also go back to the other sectors, in the first instance, to the household sector. This redistribution is usually referred to as transfers. Transfers refer to income transfers which take place without any compensation requirements 64 Statistics Sweden
Public Finances in Sweden 2006 Public sector expenditure demanded in return. They cover, for example, pensions and child allowances. Transfers expressed in relation to GDP provide a view of their size. It is, however, important to bear in mind that transfers themselves are not a part of GDP. GDP and transfers, current prices. SEK billions, and as a percentage of GDP Year GDP Transfers Relative to GDP 1993 1 557 513 33 % 1994 1 662 480 29 % 1995 1 788 478 27 % 1996 1 829 459 25 % 1997 1 905 450 24 % 1998 1 987 456 23 % 1999 2 096 469 22 % 2000 2 217 476 21 % 2001 2 288 488 21 % 2002 2 372 510 22 % 2003 2 459 552 22 % 2004 2 573 568 22 % Transfers measured in relation to GDP have decreased during the last decade. One of the reasons is that at the beginning of the period, support to the banks was paid out, which meant that transfers to companies were at a temporarily high level. Transfers to the corporate sector were close to SEK 130 billion in 1993, and in 2004 were down to slightly less than SEK 40 billion. But transfers to households have also changed over time, as is apparent in the following section. Transfers to households Households are completely dominant as recipients of transfers from the public sector. In 2004 households received 86 per cent of public sector transfers, whilst companies, for example, received 7 per cent. Pensions, which are the largest item in transfers to households, accounted for 49 per cent in 2004 of total transfers to households. This is an increase of four percentage points from 1993 and does not include early retirement pensions. Pensions have increased by 45 per Statistics Sweden 65
Public sector expenditure Public Finances in Sweden 2006 cent in current prices between 1993 and 2004. In 2003 the guarantee pension was raised. Distribution of transfers to households 1993 2004. Per cent 60 50 Pensions 40 30 Labour market Sickness 20 10 Studies Families and children 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Transfers in the figure are converted to aggregates which are used e.g. in the Budget Bill Sickness" in the figure also covers early retirement pensions, work injuries insurance and assistance allowance. These transfers have increased from 19 per cent of total transfers to households in 1993 to 24 per cent in 2004. Labour market related transfers have decreased as a proportion of total transfers from 16 per cent in 1993 to 9 per cent in 2004, which reflects changes in unemployment. Transfers related to families and children represent approximately the same proportion of transfers at the beginning as at the end of the period. The figure below shows changes from 1993 to 2004 for some transfers to households. Sickness benefits have increased substantially during the period and are currently significantly larger than unemployment benefits for open unemployment. There is a tendency for unemployment benefits to decrease when sickness benefits increase. Also economic assistance has a tendency to decrease when sickness benefits increase. Assistance allowances are also shown in the figure, since the increase in relative terms has been very large. Assistance allowance is currently greater than economic assistance. 66 Statistics Sweden
Public Finances in Sweden 2006 Public sector expenditure Certain transfers, changes 1993 2004, current prices. SEK billions 50 45 40 35 30 25 20 15 10 5 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Sickness Open unemployment Child allowance Parental insurance Assistance allowance Economic assistance Transfers from different subsectors Of the different subsectors in the public sector, the central government sector accounts for the majority of transfer expenditure. In 2004, the central government's proportion was 71 per cent. It is thus worth mentioning in this context that internal transfers within the public sector are included here, for example, transfers from the central government to the local government sector. Transfers from subsectors in the public sector in 2004. SEK millions Central government Local government Old-age pension system Total 525 589 51 513 164 990 to households 292 361 34 723 163 390 to companies 25 137 13 344 - to the old-age pension system 47 867 - - to the local government sector 124 046 - - to abroad 36 178 - - to the central government - 3 446 1 600 Non-profit institutions serving households, e.g. religious denominations, sports associations etc are included under the category of households. Statistics Sweden 67
Public sector expenditure Public Finances in Sweden 2006 Most of the transfers from central government, 56 per cent, go to households but the local government sector also receives a fairly large proportion, 24 per cent. Here general and earmarked central government grants are included. Smaller proportions go to the old-age pension system, companies and abroad. The largest part of transfers from the old-age pension system goes to households. Transfers from the local government sector, 67 per cent, go primarily to households, but companies also receive a relatively large proportion amounting to 26 per cent. Interest expenditure The fourth large expenditure area is interest expenditure, which has decreased since the end of the 1990s. Expenditure here consists largely of interest on the central government debt, but also other interest such as interest subsidies on study loans. In 2004 total interest expenditure amounted to SEK 51 billion. The main reasons for decreasing expenditure are lower interest rates and also the reduction in the central government debt since 1977. GDP and interest expenditure 1993 2004, current prices. SEK billions and proportion of GDP as a percentage Year GDP Interest Relative to GDP 1993 1 557 90 6 % 1994 1 662 105 6 % 1995 1 788 117 7 % 1996 1 829 119 7 % 1997 1 905 119 6 % 1998 1 987 108 5 % 1999 2 096 99 5 % 2000 2 217 90 4 % 2001 2 288 70 3 % 2002 2 372 77 3 % 2003 2 459 58 2 % 2004 2 573 51 2 % 68 Statistics Sweden
Public Finances in Sweden 2006 Public sector expenditure Reading recommendations: SCB. Social Protection Expenditure. Statistical Report NR 15 SM 0501. SCB. National Acounts 1999-2004. Statistical Report NR 10 SM 0501. Related to this section are the following: Table 4. Public sector expenditure, consolidated, current prices Table 8. Public sector consumption expenditure by function, current prices Table 9. Consumption expenditure of public authorities by function, constant prices Table 10. Transfers from public sector to households, current prices Table 11. Public sector gross fixed capital formation by purpose, current prices Table 12. Public gross fixed capital formation by purpose, constant prices Statistics Sweden 69
70 Statistics Sweden