In assessing the fiscal situation, SGC uses a wide range of indicators over a period of several years, since looking at one concept for a single year could give a distorted picture, given changes in economic conditions and special one-off factors.
More specifically, the cyclically-adjusted budget balance represents what government revenues and expenditure would be if output were at its potential level. In evaluating the stance of fiscal policy it is also useful to correct the cyclically adjusted balance for interest payments on government debt since these payments do not represent discretionary spending items. Thus, the primary cyclically-adjusted budget balance is derived by adding back net interest payments to the cyclically-adjusted balance. Changes in the primary cyclically-adjusted balance can then be used as a rough indicator for changes in discretionary fiscal policies.
Special attention is also paid to the general government’s consolidated gross financial liabilities which measure the total debt held outside the government’s accounts and provides an indicator of the likely future debt servicing burden of the economy. It should be noted that measured debt does not give a complete picture of debt servicing burdens, as it generally excludes contingent liabilities and financial assets (i.e. pensions, health care, deferred taxes) and the value of the government’s real assets. The “true” value of the government’s financial assets is also often difficult to gauge (e.g. government loan programs and holding of shares in state owned enterprises). Nevertheless, the size of government debt – both gross and with financial liabilities netted out – is a key variable for estimating and evaluating issues related to fiscal sustainability and the room of adjustment for fiscal policy.