Weekly Web Release from the Ministry of Finance, November 28, 2002.
Weekly Web Release from the Ministry of Finance November 28, 2002
Revised economic forecast of the Ministry of Finance
A revised economic forecast will be published on Tuesday December 3 for the years 2002-2003, as well as a first forecast for the year 2004.
The Ministry has been reviewing its presentation of published material and laid down certain main principles in connection therewith. A comprehensive review of economic developments and prospects will be published twice a year, including economic forecasts for the following two years. The forecasts will be periodically reviewed. Special reports will be published from time to time on various aspects of the national economy. Furthermore, the Ministry will publish a series of economic indicators on its website on a continuous basis, both as graphs and statistical data. The aim is to make the activities of the Ministry as well as the development of the economy as transparent as possible, thus contributing to a more informed debate on economic developments and forecasting assumptions.
European Union rules on government aid
Article 61 of the European Economic Area (EEA) Agreement stipulates that government aid which distorts competition is not permitted if it favours certain companies or the production of certain goods insofar as it affects the commerce of contracting parties.
The EU Commission has in recent years issued guidelines regarding the form and content of rules of government aid. EFTA has adopted these guidelines as soon as they have been issued and aligned them to the EEA. The Commission has in recent years firmed up these guidelines by issuing regulations on individual chapters thereof. Last year, the Commission issued three regulations regarding collective exceptions from the principles of Article 61. The three regulations pertain to workplace re-education, minimum government aid and aid to small and medium-sized companies.
Subject to the conditions in these regulations, government aid can be extended in the areas covered thereby. The regulations stipulate certain limits above which government aid can not be extended. These limits are governed in each case by a set of circumstances, such as the size of companies and their geographical location.
The adoption of these regulations in Iceland is expected before the end of the year.
Generation accounts
The Economic Institute of the University of Iceland has for a number of years worked on so-called generation accounts for Iceland. These accounts have the aim of ascertaining how government tax revenues and expenditures are distributed and provide an indication of whether government economic policies favour the present generation or generations of the future.
Last year, figures were for the first time published on the basis of a methodology used by the EU-countries. These methods tried to use a more understandable form of measurement of the balance between present and future generations. The method takes account of the direct public debt on one hand and also of the indirect debt and assets that will be incurred in the future as a result of public tax and expenditure policies.
The generation-adjusted debt and assets of the public sector is the sum of direct as well as indirect debt and indicates the gap created by public policies between present and future generations. In case where there is a net present value of debt or assets, it would indicate that public authorities would have to amend their tax and expenditure policies to create an equilibrium between present and future generations.
(In per cent of GDP)
Figures for 2000 are now at hand. They indicate that the direct debt of the public sector amounted to 36 per cent of GDP and the indirect debt was negative, equivalent to 80 per cent of GDP for a combined negative total of 44 per cent of GDP. These calculations confirm earlier conclusions that present policies favour future generations, primarily because net indirect debt has been reduced .
| % of GDP | 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 |
| Direct debt | 42 | 44 | 43 | 40 | 39 | 33 | 36 |
| Indirect debt | 78 | 28 | -6 | -40 | -55 | -89 | -80 |
| Generation-adjusted debt | 120 | 72 | 38 | 0 | -16 | -56 | -44 |
The net tax burden of future generations is lower than of the present generation. This is explained by the fact that indirect assets declined between 1999 and 2000 at the same time as direct public debt increased from 33 per cent to 36 per cent. This is largely explained by the economic cycle, since activity peaked in 2000, following an expansion that had lasted since 1994.
For comments and/or suggestions, send e-mail to:
"bolli.thor.bollason@fjr.stjr.is"
or contact the Ministry of Finance,
Weekly Web Release, Arnarhvoll, 150 Reykjavik, Iceland
