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Sweden Sticks to Fiscal Restraint as Clamor for Stimulus Grows

Sweden Sticks to Fiscal Restraint as Clamor for Stimulus Grows

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Sweden’s revised budget is unlikely to contain good news for those arguing for more fiscal support for the largest Nordic economy.

The Social Democrat-led government will on Wednesday present its first budget after a bipartisan deal in January allowed Prime Minister Stefan Lofven to return to power. It will be Lofven’s first chance to put a mark on fiscal policy since he’s actually ruling with a budget pushed through by the opposition during the turmoil that followed September’s election.

The so-called spring budget isn’t a vehicle for major measures and the government has flagged it will spend about 4 billion kronor on new initiatives, including 2 billion kronor on restoring environment and climate measures and 500 million kronor in payroll tax cuts.

According to Finance Minister Magdalena Andersson, most of the scope for measures has been used up by income tax cuts in the opposition’s budget of about 20 billion kronor, which the government will leave in place. To finance the new measures, the government will cut spending on international climate initiatives and raise taxes by 1.3 billion kronor on aviation, fossil fuels in power plants and chemicals.

The focus will be on signals on future spending and the price of coming reforms in the 73-point January Agreement amid slowing economic growth and increasing doubts the central bank will be able to lift interest rates again later this year.

The government has already said it won’t meet the new surplus target of a third of a percent of gross domestic product this year, but will have growing surpluses in the following years.

Sweden Sticks to Fiscal Restraint as Clamor for Stimulus Grows

Public sector debt is also projected to fall far below 35 percent of GDP, which is the new debt anchor level set in Sweden’s new fiscal policy framework in place from this year. Any drop below 30 percent required the government to explain itself to parliament.

Sweden Sticks to Fiscal Restraint as Clamor for Stimulus Grows

According to economists at SEB AB, there’s a clear conflict between Sweden having a debt anchor and a fiscal surplus target.

“Our view is then that the debt target is more important than the surplus target,” SEB economist Daniel Bergvall said in a note. “When growth also slows at the same time as the Riksbank already has record low interest rates and households have been required to increase amortization, the policy mix becomes better if the public sector can provide some stimulus.”

Andersson, the finance minister, is more sanguine. Once the new coalition starts carrying out the list in the January Agreement “public debt is not going to decrease in the same way that is in the figures, not that quickly,” she said last month.

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

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net

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