Forecasts of the Central Government budget and public finances March 2026

The recovery in the Swedish economy began last year and is expected to continue this year. The conditions are favourable – inflation is below the target, interest rates have fallen back from the elevated levels of a few years ago and fiscal policy is highly expansionary. In our current forecast we assume that the war in the Middle East will be short‑lived and therefore have a limited impact on the Swedish economy. Nevertheless, the conflict represents a risk of a substantially poorer development. After a subdued start in 2026, growth is expected to pick up during the spring, with GDP expanding 2.3 percent on average. Households provide the largest contribution to growth, while investments also make a strong contribution. Next year, GDP is projected to increase by the same magnitude as this year, placing the Swedish economy slightly above a now closed GDP gap. The labour‑market has begun to improve, but the average unemployment rate will only fall markedly from next year onwards. The reduction of VAT on food helps keep inflation low this year despite rising energy prices. Next year inflation is expected to rise during the year, prompting the Riksbank to raise the repo rate. By 2028, inflation will be noticeably above the target when the food VAT is increased again.

General government tax revenue grows faster this year as the economic recovery proceeds, yet tax cuts exert a dampening effect. The largest tax cuts comprise of an additional earned income tax credit, a temporary reduction of employers' social security contributions, and a lower VAT on food. Tax on labour nonetheless rises considerably this year compared with the previous year, driven by a higher wage sum. Revenues from tax on capital also increase markedly this year, primarily because household standardised income and capital gains rebound after a decline last year. The lower food VAT leads to an increase in tax on consumption and inputs at roughly the same pace as last year, even though the tax bases also expand more strongly. Next year, total tax revenues rise more sharply than this year, despite GDP growth being roughly similar, mainly because the tax cuts are far smaller. By 2028, tax revenues grow at the same rate as in 2027, even though the growth of tax bases is lower, as the temporary tax cuts cease. In 2029, tax revenues increase comparatively strongly as a result of the EU’s new emissions‑trading system (ETS 2).

Ceiling‑restricted expenditure rises sharply this year, chiefly due to large increases in expenditure for defence, including military support to Ukraine. Expenditure also increases markedly for Communications, Health care, Social care, Justice, and the EU contribution. In addition, general grants to the municipalities rise in compensation for tax cuts on labour income and pensions that reduce taxable income. Instead, expenditure for Labour market and work life and Economic security in old age fall this year. Next year, defence spending increases by roughly half of this year’s amount, causing ceiling‑restricted expenditure to grow considerably more slowly than this year.

Total expenditure also rises strongly this year and outpaces the growth in ceiling‑restricted spending. This due to the expected substantial increase in National Debt Office net lending, as we do not anticipate a significant inflow into the Svenska Kraftnät account this year, while the Defence Materiel Administration is expected to draw on funds that have accumulated in its account over the past two years. Next year, total public expenditure grows at approximately the same pace as ceiling‑restricted expenditure.

General government net lending shows a deficit of SEK 180 billion this year. Central government net lending deteriorates. The extensive increases in public expenditure and the tax cuts in the Budget bill for 2026 contribute to a deficit of SEK 172 billion. Net lending also worsens in the local and regional sectors this year. Although heightened economic activity raises tax revenues there, expenditure rises even more.

Next year, net lending in the public sector improves by about SEK 30 billion, but the deficit remains large. The improvement occurs in the central government sector, while the municipal sector is essentially unchanged compared with this year. In 2028, net lending strengthens markedly, by SEK 100 billion, and improves further the following year. The reinforcement of net lending in the later years occurs mainly in the central government sector, as the temporary tax cuts cease in 2028 and expenditure falls. Our forecasting method contributes to this outcome, as we only consider fiscal policy that has been decided or announced. In the municipal sector, net lending deteriorates towards the end of the projection period because revenues grow more slowly and expenditure does not fully adjust. Net lending in the social security funds is unchanged this year but strengthens over the projection horizon, showing a surplus in all years.

Structural net lending – i.e. net lending adjusted for the business cycle and one‑off effects – is estimated to show a deficit of 2.0 percent of potential GDP this year and 2.2 percent next year. Consequently, both 2026 and 2027 deviate markedly from the target, even though the surplus target is replaced by a balance target in 2027. The deficit in financial net lending is therefore largely structural this year. Next year, the deficit in structural net lending is larger than in financial net lending. According to a broad parliamentary agreement, new defence expenditures and support to Ukraine allow a deviation from the net‑saving target for 2026‑2034. Even excluding these expenditures, structural net lending amounts to roughly 1 percent of potential GDP in 2026 and 2027. Given that there already is an upturn in the economy, Statskontoret considers the deficit to be too large, particularly for 2027.

Maastricht debt rises as a share of GDP both this year and next year. Next year, Maastricht debt sits close to the upper bound of the tolerance interval. In level terms, the debt continues to increase in 2028 and 2029, but it is essentially unchanged relative to GDP.

In comparison with the previous forecast [1], the state of the business‑cycle is broadly similar, although GDP growth has been lowered slightly each year. The level of GDP is not lower because actual GDP in 2025 was higher than expected. The increase in the number of hours worked has been shifted slightly forward, growing a little slower this year but faster next year. Tax revenues have been revised down sharply this year. Tax on labour has been reduced the most, mainly due to a lower wage sum. At the same time, public sector expenditure in the central government budget has been revised upwards for the entire projection period. Consequently, the public sector’s net lending has been revised downwards for all years, with the greatest deficits now projected for the central government sector

[1] See ESV (2025:29), “The Central Government Budget and the Public Finances”, November 2025. From January 1 2026, ESV is Statskontoret.

Table: The forecast in figures

Sources: Statskontoret and Statistics Sweden.