Sweden Squirrels Away Cash Ahead of Demographic Time Bomb

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    Scandinavia’s biggest economy has so much money it’s now looking to take care of the next generation.

    The Swedish government published new estimates for the economy on Wednesday that project much larger budget surpluses than it had forecast only a few weeks ago. The Finance Ministry cited "higher revenues, mainly from capital and value added tax, and lower expenditure" as the reasons behind an additional 85 billion kronor ($10 billion) in projected net lending available over the 2017-2020 period.

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    Finance Minister Magdalena Andersson said much of the money would be used to tackle future pressures on the country’s generous welfare state. Her officials predict there will be 300,000 more children and as many extra pensioners that will need taking care of by 2025. Coupled with longer life expectancy and an increase in immigration, those are significant numbers for a country whose population currently totals just about 10 million.

    "Our tight fiscal policy has put us in a new economic position," Andersson said in Stockholm. "We will use this strong position to employ health and social care professionals, preschool staff, teachers and police officers."

    Sweden’s center-left government is keen to underscore its role as a paladin of the welfare state and to make the most of the current boom as it prepares to fight for a new mandate in elections next year. But it’s also constrained by rules that force governments of all colors to target a budget surplus of around 1 percent during the good times, so as to have funds available when things turn bad.

    Improved Forecasts

    According to the latest forecasts, Sweden’s budget surplus will rise to 0.8 percent this year, hit the target next year before surging above 2 percent in 2020. The latest growth estimates, which do not take into account any potential stimulus that may lie hidden in the surpluses, were tweaked through to 2019.

    2017 2018 2019 2020
    GDP 2.5% (2.6%) 2.3% (2.1%) 2.1% (2.0%) 2.5% (2.5%)
    Budget Surplus 0.8% (0.3%) 1.0% (0.6%) 1.8% (1.4%) 2.5% (2.1%)
    Unemployment 6.6% (6.6%) 6.3% (6.4%) 6.3% (6.3%) 6.2% (6.2%)
    * April forecasts in brackets

    Andersson said the government would spend an extra 30 billion kronor on welfare compared with 2014 and a further 5 billion kronor on health care, schools and social services in 2018.

    "Although we have invested substantially in welfare services, we need to invest even more. I will always stand up to protect Swedish welfare. And the scope exists," Andersson said.

    Unemployment Goal

    The government is also sticking to its goal of achieving the lowest unemployment rate in the European Union, while Andersson and Prime Minister Stefan Lofven are gearing up for a parliamentary battle after the summer recess to push for tax hikes.

    The four-party opposition Alliance is threatening to respond with a no-confidence motion against the government unless it pulls planned tax increases on aviation, small businesses and general incomes. Together with the anti-immigration Sweden Democrats, the opposition has a majority to thwart the plans of the Social Democratic-led minority government.

    Since assuming office, the government has increased income taxes to fund more generous sick leave and unemployment benefits and spend more on jobs programs, and Andersson used Wednesday’s estimates to again make the case that high levies can go hand-in-hand with low unemployment and fast growth.

    In an opinion piece published earlier on Wednesday, the government said it wants to exploit the positive developments in the economy to “tirelessly attack” the unemployment rate, which is currently at 7.2 percent. Lofven centered his 2014 election campaign on Sweden achieving the lowest jobless rate in the EU by 2020.

    courtesy of Bloomberg News


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