Austerity Riles Swedes Baffled by Years of Fiscal Vigilance

(Bloomberg) -- Why is the government making 310 million kronor ($33 million) in cuts in elderly care spending when it has a financial net fortune of 1.2 trillion kronor? asks Asa-Pia Jarliden, an economist at the Swedish Trade Union Confederation.

“What’s the point with the state being rich if the municipalities are poor?” she said.

Sweden’s powerful unions are part of a chorus questioning the fiscal choices of Finance Minister Magdalena Andersson who last week presented a budget targeting a surplus that’s twice as large as fiscal rules dictate. There was little to show in terms of measures that many say are urgently needed to fix imbalances in the housing market and other hot-button issues.

Stimulus could also be needed as a long economic expansion is cooling with central bank rates already at rock-bottom levels after years of trying to stabilize inflation (which hasn’t been made easier by a lack of fiscal boost). Government debt levels are at the lowest since 1970s, making the choice to keep building surpluses even more baffling.

Jarliden said that running just a small deficit of 0.5 percent could free up another 40 billion kronor for spending. European Union countries are on average expected to run a deficit of 1 percent this year, according to the European Commission.

Andersson blames the lack of initiative on the Conservative-led opposition, which managed to squeeze a budget full of tax cuts through during last year’s political turmoil. She also points to large increases in spending on welfare over the past four years while maintaining that finances must be kept in order and that new measures must be covered “krona for krona.”

Here are a collection of voices:

• “Sweden is marching toward a lower public debt - to no use” Goran Greider, the Social Democrat editor-in-chief of newspaper Dalademokraten, wrote in an op-ed, also calling for enormous investments in welfare.
• “There’s always tension between ‘listening to the grassroots’ and leading the country, between ideas and power,” Aftonbladet, the biggest Social Democrat newspaper wrote in an editorial. “No one is expecting miracles in the spring budget. But if the Social Democrats don’t want to drive in a ditch they could from time to time stop and ask for directions.”
• “The budget is a pinata and it’s splashing in all directions. It’s hard to see what direction this cooperation is going to take," said Karin Svanborg-Sjovall, CEO of think tank Timbro, to SVT.
• SEB chief economist Robert Bergqvist on Twitter said that the “the budget agreement lacked the necessary measures.”
• Peder Beck-Friis, portfolio manager at California-based fund giant Pimco, said the government should stop being so stingy and send a clear signal that it’s ready to stimulate if needed: “There is plenty of scope,” he said to news agency TT. “But Swedes are very much like Germans in that respect. They want to save, not consume.”
• Lena Granqvist, an economist at the Swedish Confederation of Professional Associations, said the budget lacked a long term strategy for the public welfare sector, urging the government to get going with a long overdue review of the tax system.
• Ulla Andersson, economic spokeswoman for the Left Party, said: “This is a budget aiming at tearing the country a part, where tax cuts come first, tax cuts before welfare and tax cuts before climate.”
• Even the opposition party to the right, the Moderates, said more should be spent on the police and on elderly care. In the debate following the budget on Thursday - Elisabeth Svantesson said: “How can you cut a quarter of a billion to the police budget and at the same time go out and look citizens in the eye?"
• Anna Breman, chief economist at Swedbank AB, said that the spring budget was unnecessarily tight given the signs of economic slowdown. The strong finances could have been used to improve infrastructure, deal with the integration problems and to meet the demographic shift.
• “The situation is acute”, said Tobias Baudin, chairman of Kommunal, Sweden’s largest trade union, in a comment on the budget, referring to the “chronic” staff shortages in the elderly care.

Andersson predicts that surpluses will grow in the coming years, though recently signaled that more measure were planned for next year. She was also defended by her new allies in the Center Party.

“There’s every reason to be cautious,” said Emil Kallstrom economic spokesman from the Center Party. “We know how fast things can change when the economy takes a downward turn, and then it’s important to have margins.”

Across the Gulf of Bothnia in Finland, voters on Sunday voted out the center-right government after years of austerity policies.

To contact the reporter on this story: Rafaela Lindeberg in Stockholm at rlindeberg@bloomberg.net

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

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