Treasury

Treasury finances in 2000. Report date: January 26, 2001

1/26/2001

Preliminary figures are now available for Treasury finances for the year 2000. 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 last year in comparison with the two previous years.

Summary
The net revenue surplus of the Treasury amounted to 12.2 billion krónur in 2000 compared with 17 billion in 1999. The reason for the reduced surplus is, on one hand, that the cash outlay for interest expenditures exceeded the budget by close to 5 billion krónur, mainly due to prepayments of Treasury debt in the course of the year. Such debt is nearly all in the form of zero-coupon Treasury bonds that accumulate interest while outstanding. The interest paid at redemption therefore shows up in the cash figures although it has been entered as expense on an accruals basis when it was incurred in earlier years. On the other hand, revenue from asset sales fell short of the result in 1999 by 6 billion krónur. These two factors also explain the lower net financial balance. It should be emphasised that the revenue surplus on an accruals basis is expected to amount to 23 billion krónur, an amount similar to the result in 1999, and exceeding the 2000-budget by 6 billion krónur. New borrowing in 2000 amounted to 25.3 billion krónur and repayments to 34.5 billion, in addition to a 7 billion krónur special prepayment to the Government Employees Pension Fund in order to reduce the burden of future pension commitments of the Treasury. The overall Treasury balance was marginally in surplus, by about 302 million krónur, as against a 255 million krónur deficit in 1999.

Summary of Treasury finances January-December

(Millions of krónur, cash basis)

1998
1999
2000
Revenue.................................................................
166.764
194.993
207.561
Expenditure............................................................
159.651
177.964
195.411
Revenue balance.............................……….........
7.113
17.029
12.150
Sundry capital transactions, net.......................
8.547
3.407
-2.602
Net financial balance…….................................
15.660
20.436
9.548
o.w.: Pension fund prepayments…...................
-
-6.000
-7.000
Debt redemption................................................
-28.933
-35.012
-34.542
Domestic….......................................................
-19.102
-18.213
-21.008
Foreign..............................................................
-9.831
-16.799
-13.534
Gross borrowing requirement.........................
-13.273
-14.576
-24.994
New borrowing...................................................
18.435
14.321
25.296
Domestic….......................................................
19.150
-1.373
3.564
Foreign..............................................................
-715
15.694
21.731
Overall cash balance………..............................
5.162
-255
302



Revenue

Total revenue of the Treasury amounted to 207S billion krónur compared with 195 billion in 1999 and close to 167 billion in 1998. The increase between 1999 and 2000 therefore amounts to only 6S per cent compared with 17 per cent a year earlier. The increase in tax revenue also follows the same pattern; they rose by 10S per cent in 2000 and 15 per cent in 1999.

The slowdown in revenue has been in evidence for most of 2000, reflecting a gradual slowdown in economic activity. The clearest signal of the slowdown is to be found in imports of non-durable consumer goods that have hardly increased in 2000 from the previous year. Imports of passenger motor vehicles have in fact declined. About 15,000 passenger vehicles were imported in 2000 compared with 17,400 in 1999, a decrease of some 13 per cent. Retail turnover has also shown the same pattern; it declined by 4 per cent in the first ten months of 2000 compared with 7S per cent during the same period in 1999. By comparison, the consumer price index rose by 5.2 per cent in 2000 and 3.1 per cent in 1999, which indicates that retail turnover declined by about 1 per cent in 2000.

Treasury revenue January-December
(Millions of krónur, cash basis)

Increase
in %
1998
1999
2000
1998-1999
1999-2000
Total tax revenue...............................
152,081
174,576
193,064
14.8
10.6
Taxes on income and profit..............
40,576
48,024
56,283
18.4
17.2
Personal income tax…......................
31,130
36,464
42,354
17.1
16.2
Corporate income tax.......................
6,776
8,377
8,257
23.6
-1.4
Other taxes on income and profit…
2,669
3,183
5,672
19.3
78.2
Social security taxes..........................
15,687
17,180
19,247
9.5
12.0
Net wealth taxes................................
7,901
8,315
9,848
5.2
18.4
Taxes on goods and services............
87,526
100,561
107,299
14.9
6.7
Value added tax ............................
54,010
63,326
69,050
17.2
9.0
Other indirect taxes.........................
33,516
37,234
38,249
11.1
2.7
Of which:
Excise tax on motor vehicles…..
4,754
5,714
5,025
20.2
-12.1
Excise tax on petrol……………
6,709
7,158
7,557
6.7
5.6
Diesel weight tax………………
3,427
3,939
4,546
14.9
15.4
Tobacco and liquor taxes……..
7,769
8,354
8,928
7.5
6.9
Other indirect taxes..................
10,857
12,069
12,193
11.2
1.0
Other taxes........................................
391
497
387
27.1
-22.2
Other revenue...................................
14,683
20,417
14,497
39.0
-29.0
Total revenue....................................
166,764
194,993
207,561
16.9
6.4



The changes in individual revenue items differ considerably. Revnue from taxes on income and profit increase by more than 17 per cent compared with a 6S per cent increase in taxes on goods and services. Income taxes are heavily influenced by the capital income tax, the revenue from which increases by 78 per cent in 2000. Revenue from the personal income tax increased by 16 per cent compared with 17 per cent in 1999. By comparison, the wage index rose by 6.6 per cent in 2000, 6.8 per cent in 1999 and 9.4 per cent in 1998. Revenue from the social security tax rose by 12 per cent, somewhat more than in 1999. This is not in conformity with figures on an accruals basis which project a lower increase in 2000 than the year before. Leads and lags in tax collection probably explain the difference. The same applies to revenue from the corporate income tax which declined slightly in 2000 from the previous year. These figures are usually subject to uncertainty due to a large number of tax assessments in the absence of tax returns that were not filed.

The rise in revenue from the net wealth tax of 18 per cent reflects the rise in real property assessments and the general rise in net wealth.

The rise in revenue from taxes on goods and services corresponds to an increase of some 1S per cent in real terms, a substantial slowdown from the 11 per cent increase in 1999. The nominal increase in value added tax revenue of 9 per cent is about half of the increase a year earlier.

Revenue from the excise duty on new motor vehicles declined by 12 per cent, compared with a 20 per cent increase in 1999, reflecting a decline vehicle imports as noted earlier, in addition to a reduction in the excise tax on certain types of vehicles.

The petrol tax yielded an increase of only 5S per cent at the same time as the import price of petrol almost doubled. This is due to the fact that the tax on petrol was changed to a fixed krónur rate per litre whereas earlier a part of the tax had been on an ad valorem basis. Revenue from the weight tax on diesel vehicles increased by 15S per cent, a similar increase from the year before. These figures reflect in part the impact of changes in the weight tax structure and its collection as well as the increase in the number of vehicles. This tax was reduced by 10 per cent shortly before the end of the year which will be reflected in tax collections early in 2001.

Other revenue, such as dividends, interest income and profits from asset sales, decline sharply almost wholly due to the postponement of asset sales into the present year.

Expenditure
Total Treasury expenditure amounted to 195.4 billion krónur, an increase of 17.4 billion or close to 10 per cent from the previous year. Roughly a fourth of this increase, about 5 billion, is attributable to interest payments due to the prepayment of government debt. Excluding interest, the increase amounts to 7S per cent between the two years. By comparison, the most recent forecast of the National Economic Institute, issued in December, estimates that national expenditure in nominal terms rose by more than 10 per cent in 2000, half of which is a volume increase.

Administrative expenditures cover the administration of the central government, justice, law enforce-ment and the foreign service. These have increased by 12 per cent 1999 and 2000, whereas there is a considerable disparity between individual expenditures. Expenditures due to temporary events, such as the 1000-year Christianity Com-memoration which was held in July and the 1000-year celebration of the discovery of America by Leif Eriksson. Expenditure of the Althingi also increased considerably between 1999 and 2000. The cost of the police and the justice system rose by more than 400 million krónur or 5.6 per cent, mostly due to an increase in pay. Expenditure of the foreign service rose by 25 per cent between the two years; due to the increase in the number of embassies; embassy premises in Tokyo were purchased in December. The cost of operating the foreign service also increased, in part due to participation in an international exposition in Hannover.


Treasury expenditure January-December
(Millions of krónur, cash basis)
Change
in %
1998
1999
2000
1998-1999
1999-2000
Administration....................................
18,321
21,004
23,553
14.6
12.1
General administration.......................
8,679
10,330
11,702
19.0
13.3
Justice and law enforcement…..........
6,876
7,729
8,164
12.4
5.6
The foreign service...........................
2,766
2,945
3,687
6.5
25.2
Social affairs.......................................
102,039
113,168
120,937
10.9
6.9
Of which: Education and culture.........
18,736
20,682
21,613
10.4
4.5
Health........................................
31,974
36,978
40,097
15.6
8.4
Social security............................
38,650
41,794
44,757
8.1
7.1
Other social expenditure............
10,281
10,959
11,470
6.6
4.7
Economic affairs..................................
22,512
25,347
26,416
12.6
4.2
Of which: Agriculture.. ........................
8,281
8,788
9,025
6.1
2.7
Communications........................
10,511
11,984
12,999
14.0
8.5
Interest expenditure...........................
12,412
11,163
16,126
-10.1
44.5
Other expenditure..............................
4,367
7,283
8,380
66.8
15.1
Total expenditure...............................
159,651
177,964
195,411
11.5
9.8




About two-thirds of expenditure, close to 121 billion krónur, was spent on various social purposes, such as education, culture, health and social security. The expenditures in this category rise by a total of 7 per cent. Outlays for hospital costs and old age care increase by 8 per cent and health insurance costs by 11.4 per cent or well in excess of general price increases, mostly because of doctors' bills and increased costs of medical services for patients sent abroad. Unemployment declined in 2000 to a very low level, 1.3 per cent, as against 1.9 per cent in 1999, which does much to explain the low increase in other social expenditure, less than 5 per cent.

Expenditure on economic affairs rose by 4.2 per cent from last year with outlays for roads increasing by 8 per cent, whereas outlays for harbour construction declined. Agricultural support expenditures remain broadly unchanged between years in accordance with an agreement between the Government and the Farmers' Union. Direct support payments to farmers increase by 5.2 per cent whereas other payments to agriculture decline, except for payments to the Land Fund which increase by 100 million krónur.

Other expenditure increases by 1.1 billion krónur which is largely attributable to several environmental expenditures, such as those following the earthquakes in the south-west part of the country this past summer and to the Avalanche Prevention Fund, a total of 0.8 billion krónur.

Capital transactions

The "Sundry capital transactions" item in the first table above covers such items as credit extended by the Treasury and repayments thereof, sales of shares in public enterprises and changes in short-term accounts. Incoming repayments of outstanding loans exceeded new loans by 2 billion krónur, compared with 3.3billion a year ago. Credit from the Treasury is no longer a significant item, since such transactions have declined in recent years. Payments over short-term accounts amounted to 2.9 billion and in-payments on account of sales of shares late last year in government-owned commercial banks amounted to 5S billion krónur. These payments were received early this year on a cash basis, whereas on an accruals basis they belong to the 1999 accounts, when the actual sale of the shares took place. The Treasury also made a prepayment to the Government Employees Pension Fund of 7 billion krónur, following a 6 billion krónur payment in 1999.

Repayments of Treasury debt amounted to 34S billion, about the same as last year. The most important part of these were 10S billion krónur of domestic government bonds redeemed before maturity. The redemption was directed at four small bond issues which traded thinly in the secondary market and were close to maturity. Repayments of foreign debt amounted to 13.5 billion, 3.3 billion less than last year.

Treasury borrowing amounted to 25.3 billion, 11.1 billion more than last year. Of the total this year, 21.7 billion were borrowed abroad and 3.6 billion at home. In February, the Treasury floated a foreign bond issue of 200 million Euros, the domestic proceeds of which amounted to 14S billion krónur. The proceeds were used to repay other foreign debt. In addition, 7.2 billion were borrowed abroad in the Euro-commercial paper market to meet short-term financing requirements. Treasury bills outstanding decreased by about 4 billion, compared with a 5.3 billion decline a year ago. Sales of domestic government bonds and medium-term notes amounted to 7.4 billion this year compared to 3.9 billion last year.


Recently, an agreement was concluded with three financial institutions on making markets in Treasury bills. These market makers have the exclusive right to bid for Treasury bills, and at the same time they are appointed as the principal market makers in Treasury bills. The purpose of the agreement is to ensure the issue of Treasury bills and strengthen their position in the secondary market. The Treasury commits itself to issue 3-4 billion krónur in three tenders. An increase in outstanding Treasury bills of 4-6 billion krónur is projected to take place in the course of this year.