Sweden’s Finance Chief Warns of Ballooning Welfare Shortfall

(Bloomberg) -- Sweden’s Finance Ministry issued a warning on Wednesday of a growing budget gap as the baby boomers age, and an even bigger problem will be finding enough people to tend to them.

To just maintain the current level of service in health, elderly care and education Sweden will need to find an extra 90 billion kronor ($9.5 billion) by 2026, equal to almost 2% of gross domestic product, Finance Minister Magdalena Andersson said on Wednesday.

That’s more than four times what the current Social Democratic-led government is adding to help welfare spending at the local level in the current four-year period. The choice now will be for municipalities and regions to either find other places to trim spending or raise taxes. The state is unlikely to cover the whole bill since it’s burdened by other needs, such as increased defense spending.

If the state covered the whole budget shortfall, that would take up most of the scope for reforms during the coming years, according to Andersson. “The problem is in any case bigger than the money, they’re struggling to recruit staff,” she said.

This means local authorities need to become more attractive employers. The analysis now shows that 55% of the employment increase in Sweden until 2026 will need to go to welfare jobs in the coming years to cover shortages, compared with 25% over the past two decades.

Early Indication

In a statement on Wednesday, the Swedish Association of Local Authorities and Regions, said that it’s crucial that the national government steps up. “It’s very important that the government gives an early indication on how its contributions will grow in the coming years to tax increases that are too large,” said Anders Knape, chairman of the group.

Andersson is also taking heed of a buffer needed should economic growth deteriorate faster than predicted. With the central bank’s rate already below zero, any need for stimulus would likely fall heavier on fiscal policy.

The best way to tackle this would be spending through the local governments, according to the minister.

“If there’s a downturn in the economy, we don’t want to end up in a situation where municipalities and regions need to fire staff,” she said. “Infrastructure investment normally take more time and then you risk ending up in a situation where the shovel is put in the ground when the economy has already turned upward again.”

Sweden has plenty of fiscal firepower after building surpluses over the past years and driving state debt down to almost 30% of GDP.

But Andersson doesn’t see any possibility of lowering the surplus target to zero in order to free up more money after the recent bipartisan agreement trimmed it to 0.33% from 1%.

“We want a balanced target, but the center-right parties don’t and the Sweden Democrats even want to keep the 1% target,” she said. “A balanced target would have been better, but now this is what we will have to live with.”

The opposition Moderates said the “enormous challenges” facing Sweden will probably mean that the government will need to focus more on maintaining core welfare services, according to Elisabeth Svantesson, the party’s economic policy spokeswoman.

The Finance Minister’s call for a balanced budget target reveals a lack of hard thinking about spending challenges, she said. “That the Social Democrats are calling for lowering it further just shows that they don’t know how to prioritize,” Svantesson said.

To contact the reporter on this story: Amanda Billner in Stockholm at abillner@bloomberg.net

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net, Stephen Treloar

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