F&P Quarterly: Political stability or continued concern?

The red-green government has presented its spring budget – a somewhat slimmer version of the budget that didn’t pass in parliament last autumn. Jan Edshage, Senior Advisor, and Sandra Strandberg, Consultant – Fogel & Partners latest recruits within the area of Public Affairs – have reflected on the policies in the spring budget and potential effects.

Jan Edshage:
In general, the government’s spring budget has a tendency to be rather uninformative and focus mainly on the forecast for the economic development, a couple of proposals, and possibly some pre-notifications on the autumn budget. This year, the December-Agreement between the government and most parties of the opposition has created a completely new situation, with an unusually large spring budget with many proposals that the government intends to implement before 1 July.

These proposals are foremost about significantly increasing taxes on what is commonly considered to generate new jobs, which in turn decreases the incentives to actually work. A fundamentally different approach to job creation.

What do the proposals mean for Sweden’s finances?
One could say that the proposals are a clear redisposition of the political direction but hardly of the economic policies. In order to rearrange the economic policies, questions such as tax politics, the welfare sector’s organisation and especially its financing must be handled. These questions have not been addressed – which means that the proposed reforms will be financed, and that the financial policy direction will remain unchanged and neutral.

What does a neutral financial policy mean?
With Sweden’s high unemployment rate and low inflation, there should be room for a more expansive policy. The state bank’s unique measures, not the least the negative repo rate, however indicate that the financial policy may come to take a larger place in future stabilization policy. Along with a low national debt and the low interest rate (for the state), the finance policy capacity increases.

Stronger infrastructure and housing investments could then have been subjects for reforms, an area that would create potential for an economic recovery and at the same time it would have responded to a real structural necessity. For international investors and rating institutes, these sorts of measures would have shown a responsibly policy which isn’t solely founded on domestic political manoeuvring.

It should however be noted that the government has presented a measure to build 250,000 new residences, something that will have a positive effect, both for the players within the real estate business as well as for suppliers and building constructors. This is a positive proposal but it requires more measures in order to be able to talk about an expansive policy.

Sandra Strandberg continues:
Is there anything positive with the government’s budget:
Yes, the budget that is incorporated in the December Agreement, doesn’t contain anything unfamiliar, so the proposals will pass in parliament. Thereby the agreement has survived the first threshold and passed its first real test.

But it also means that it has placed the alliance in a difficult place and it makes the opposition work challenging. Meanwhile, the voters’ trust in the alliance is decreasing.

Jan Edshage finishes:
What does the budget mean substantially:
The budget contains a somewhat tricky labour policy, not at least for youths, with a doubled payroll tax. This will be implemented in parallel to the introduction of the so-called “trainee jobs”. The increased tax affects many small sized businesses, and so does the reduction of the so-called rot (repairs, conversion, extension) – and rut (cleaning, maintenance and laundry), as well as the increase in petrol tax.

It is not possible to argue that the economic-political incentives in the budget (approximately 100 million SEK) compensate for the billions of SEK that the tax increases actually mean. In total, this is the beginning of a clear left-wing policy within Swedish economic policy.

_s_Jan-Edhage_Fogelpartners_2015-04-16_015_2048px_sRGB kopiaJan Esdhage, Senior Advisor

_s_Sandra-Strandberg_Fogelpartners_2015-03-13_003_20cropped48px_sRGBSandra Strandberg, Konsult