Defence Specific Cost Escalation in Sweden

"The defence budget has always been 40 billion SEK". This often repeated statement contains an element of truth, as the appropriations to the Swedish Defence in the national budget has long hovered around 40 billion SEK at current prices. However, when taking account of the effects of inflation the quoted statement must be reconsidered. The purpose of this study has been to present a comprehensive description and analysis of the cost structure and purchasing power of the Swedish Armed Forces. The Swedish Armed Forces' purchasing power is estimated to be close to 18 billion SEK lower in 2014 than it was in 1999. This is partly explained by decisions by the Parliament on successive reductions in appropriations, but also partly by the fact that the Armed Forces has been undercompensated for price, wage and cost escalation by the defence price index , DPI. DPI does not fully reflect defence specific inflation and cost escalation. This development has resulted in the defence expenditures share of the gross domestic product (GDP) for Sweden being reduced by more than most other comparable countries, including the Nordic countries. FOI:s calculations in previous reports and presentations showed that the defence resolution from 2009 was underfunded in the long term. Since then, additional studies from other agencies have confirmed this picture. The defence resolution of 2009 left a legacy of long-term economic imbalance. The Defence Commission has declared that they are prepared to cover this imbalance with raises in the appropriation to the Armed Forces. The Defence Commission has also pointed out the deteriorating security situation in Europe as a reason to demand a strengthened capability of the Swedish Armed Forces in the upcoming defence resolution in 2015. If such an enhancement of the capability, compared with the intentions in the defence resolution of 2009, is to take place it will call for the need of additional funding increases in the upcoming defence resolution in 2015. There is also reason to look into the system for price and wage compensation, DPI, so that new economic imbalances can be avoided in the future.