Government’s budget deficit cut by 26 billion kroner

Surprise news about government finances leads political parties and trade unions to urge additional funding to stimulate economy and create jobs

Unexpectedly positive news about the government’s finances was announced on Monday, when it was revealed that 2012's budget deficit would be 26 billion kroner less than initially expected.

The economy minister, Margrethe Vestager (Radikale), welcomed the news but urged caution.

“It’s no cause for celebration, but it does seem to be getting better,” Vestager told Berlingske newspaper. “Our deficit is reducing, we are on track to keep EU targets and our debt is becoming manageable. Those are three pieces of good news.”

While the budget deficit is now expected to fall at around 75 billion kroner, instead of the previous estimate of 101 billion kroner, government MPs admit that there is still work to be done in reconciling governmental income and expenditures.

“We haven’t got more money in our hands just because we have to borrow 75 billion instead of 101 billion kroner,” Jesper Petersen, a political spokesperson for Socialistiske Folkeparti, told Jyllands-Posten. “We still have a large deficit and we still face the problems of an ageing population and diminishing workforce.”

The large budget deficit is partially caused by early payouts of early retirement (efterløn) funds, though these were offset by unexpectedly large pension taxes and revenue from North Sea oil.

The budget deficit is expected to be reduced to 35 billion kroner in 2013, or 1.9 percent of GDP, which is well below the EU’s limit of three percent.

With the government set to present its eight-year economic plan – the 2020 Plan – later this month, trade unions are now hoping the government will now find more money for an extra economic stimulus package.

“If the economy is in better shape than it was initially thought, it should raise the prospect of the government introducing a second growth package,” Kim Simonsen, the chairman of the trade union HK, told Jyllands-Posten newspaper.

Johanne Schmidt-Nielsen, political spokesperson for far-left government support party Enhedslisten, also implied that the government could now find more money for public investment.

“When you suddenly discover that the deficit is 26 billion kroner less than anticipated, you would expect it to be reflected in the coming budget,” Schmidt-Nielsen told Berlingske.

But Simon Ammitzbøll, chairman of opposition party Liberal Alliance, argued that despite the positive numbers, the deficit was still enormous and that without significant tax and employment reforms, Denmark’s economic problems would remain.

“This is no time for popping open a bottle of champagne,” Ammitzbøll told Berlingske. “We still face the same challenges today that we did yesterday.”

The latest employment figures from the Economic Council of the Labour Movement showed that 6.2 percent of the Danish workforce is unemployed, or about 160,000 people, a number that has flatlined after peaking in 2010.

With figures showing unemployment is still double 2008’s lowest level, the Confederation of Labour Unions (LO) argued that the drop in the government’s deficit could justify government investment to create jobs.

“We think the government should do more to create jobs,” LO’s chairman Harald Børsting told Jyllands-Posten. “That means we need to invest. Whether it is now or next year or in two years time, I don’t know.”