Economic Policies
#2Key Findings
Showing exceptional results in a number of areas, Sweden falls into the top ranks internationally (rank 2) with respect to economic policies. Its score on this measure is unchanged relative to its 2014 level.
Though the pandemic led to a sharp fall in GDP in early 2020, the overall decrease for the year was just 2.8%, mitigated by the government’s economic response measures. Modest levels of growth returned the following year. Policy measures were aimed at softening the decrease in demand and protecting the sectors most exposed to hardship.
Though traditionally low, unemployment rates have now risen above those in many comparable economies. In October 2021, the rate was 8.5%, with significant decreases expected in the following years. Levels among young people and immigrants are considerably higher. Active labor-market policies and polices aimed at integrating immigrants are strong.
Tax abatements were provided to businesses during the pandemic. Energy and CO2 emissions are increasingly taxed. The overall debt level reached 38.9% in 2021. R&D investments and policies are both strong. High household debt levels and rising housing prices are an increasing concern.
Though the pandemic led to a sharp fall in GDP in early 2020, the overall decrease for the year was just 2.8%, mitigated by the government’s economic response measures. Modest levels of growth returned the following year. Policy measures were aimed at softening the decrease in demand and protecting the sectors most exposed to hardship.
Though traditionally low, unemployment rates have now risen above those in many comparable economies. In October 2021, the rate was 8.5%, with significant decreases expected in the following years. Levels among young people and immigrants are considerably higher. Active labor-market policies and polices aimed at integrating immigrants are strong.
Tax abatements were provided to businesses during the pandemic. Energy and CO2 emissions are increasingly taxed. The overall debt level reached 38.9% in 2021. R&D investments and policies are both strong. High household debt levels and rising housing prices are an increasing concern.
Graph View
Graph View
How successful has economic policy been in providing a reliable economic framework and in fostering international competitiveness?
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9
9
Economic policy fully succeeds in providing a coherent set-up of different institutional spheres and regimes, thus stabilizing the economic environment. It largely contributes to the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
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7
6
7
6
Economic policy largely provides a reliable economic environment and supports the objectives of fostering a country’s competitive capabilities and attractiveness as an economic location.
5
4
3
4
3
Economic policy somewhat contributes to providing a reliable economic environment and helps to a certain degree in fostering a country’s competitive capabilities and attractiveness as an economic location.
2
1
1
Economic policy mainly acts in discretionary ways essentially destabilizing the economic environment. There is little coordination in the set-up of economic policy institutions. Economic policy generally fails in fostering a country’s competitive capabilities and attractiveness as an economic location.
The Swedish economy fared substantially better than expected in the spring of 2020 as a result of the economic measures adopted by the government with a view to alleviating the consequences of the COVID-19 pandemic (Finanspolitiska rådet 2021a). More specifically, Sweden’s economic performance was in line with that of other Scandinavian countries and markedly better than that of the euro area as a whole. Even though GDP fell by 7.6% during Q2 of 2020 (the largest recorded contraction), the overall decrease in GDP for the year was 2.8%, compared to 6.8% in the euro area. A year later, in Q3 of 2021, GDP rose by 2.0% compared to Q2, an increase driven mainly by household consumption (SCB, 2021).
There is no question that the pandemic affected the Swedish economy. However, the state was well positioned to intervene with economic measures, which continued in 2021. The objectives fell broadly under three categories, seeking 1) to allow the economy to weather the crisis, 2) to alleviate the decrease in demand for goods and services, and 3) to protect the sectors of the population that suffered the greatest financially hardships (Finanspolitiska rådet, 2021a). The Swedish Fiscal Policy Council (Finanspolitiska rådet) posits that the government acted swiftly and appropriately, though it has been critical of blanket measures that may or may not have benefited people not in need of assistance. They also point out the lack of statistics generated among the public authorities tasked with administering the financial support, rendering evaluation difficult (Finanspolitiska rådet, 2021a).
The prognosis of the National Institute for Economic Research (NIER, Konjunkturinstitutet) forecasts that as of December 2021, the recession was over (Konjunkturinstitutet, 2021). Most long-term economic indicators on Sweden assuage concern, particularly with regard to international competitiveness. Thus, it is fair to say that the institutional and regulatory framework of the Swedish economy provides basic stability and predictability. However, there are some challenges. For example, there are still unused resources in the labor market, despite the swift recovery after the pandemic-induced downturn in 2020.
The housing market and increased household debt has been a concern over the past few years. In an attempt to cool the market, the government introduced mandatory mortgage repayment rules in 2018. In 2020, both the average size of the mortgage (in relation to the value of the property) and the ratio of the mortgage compared to household income increased, but at rates lower to those seen prior to 2018, before the mandatory mortgage repayment rules were introduced. Sweden’s financial supervisory authority, Finansinspektionen, temporarily lifted these requirements, but this exception ended in August 2021 (Finansinspektionen, 2021). Together with increasing construction, these measures were intended to help cool off the real-estate market in metropolitan areas over the longer term. Nonetheless, the current housing shortage in metropolitan areas that is driving real-estate prices up increases the short-term risk of a bubble in the real-estate market.
Sustainability in the long run remains the departure point for the financial policy framework, both legislated and with regard to rules in use. In 2019, an acceptable debt level was adopted for the country’s gross debt – the so-called Maastricht debt. This is not an operative target, but rather reflects the desired middle-range level, and is set at 35% of GDP. In 2021, Maastricht debt was at 38.9% (Finanspolitiska rådet 2021b; Konjunkturinstitutet 2021). More importantly, the economic policy framework states that public debt is to be brought down incrementally. Sweden’s economy and the regulation thereof are generally considered to be efficient and sound. Whether this is a product of policy incentives, or a consequence of being outside the euro area is a matter debated among economic experts.
Although the institutional and regulatory framework of economic policy remains overall robust and efficient, the governance of that system has proven exceedingly complex since the 2018 general elections. With 62 seats, the extreme-right Sweden Democrats (SD) party holds a pivotal position between the Social Democratic-Green-Left bloc and the center-right “Alliance.” In January 2019, the Social Democratic-Green government negotiated a 73-item agreement (“the January Accord”) with the Center Party and the Liberals to secure parliamentary passage for major government bills (https://januariavtalet.se). The agreement indicated a shift toward neoliberal economic policy, including an overhaul of the tax system and reevaluation of public services across a large number of policy areas. This agreement broke down over a disagreement in housing policy in the summer of 2021, leading to a political crisis, when, for the first time in Sweden, a prime minister received a no-confidence vote.
Citations:
Finansinspektionen. 2021. ”Den Svenska Bolånemarknaden.” https://www.fi.se/contentassets/1f11d50883754a7da8c217457e154d46/den-svenska-bolanemarknaden-2021.pdf
Finanspolitiska rådet. 2021a. ”Sammanfattning Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.dc1dc8b17941ccc9dbde0d/1620981128106/Sammanfattning%20Svensk%20finanspolitik%202021.pdf
Finanspolitiska rådet. 2021b. ”Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Konjunkturinstitutet (NIER). 2021. ”Konjunkturläget, December 2021.” https://www.konj.se/download/18.10535f7c17db81574dd3f47b/1640074614038/KLDec2021.pdf
SCB. 2021. ”Uppgång i BNP Tredje Kvartalet 2021.” https://scb.se/hitta-statistik/statistik-efter-amne/nationalrakenskaper/nationalrakenskaper/nationalrakenskaper-kvartals-och-arsberakningar/pong/statistiknyhet/namnlos2/
There is no question that the pandemic affected the Swedish economy. However, the state was well positioned to intervene with economic measures, which continued in 2021. The objectives fell broadly under three categories, seeking 1) to allow the economy to weather the crisis, 2) to alleviate the decrease in demand for goods and services, and 3) to protect the sectors of the population that suffered the greatest financially hardships (Finanspolitiska rådet, 2021a). The Swedish Fiscal Policy Council (Finanspolitiska rådet) posits that the government acted swiftly and appropriately, though it has been critical of blanket measures that may or may not have benefited people not in need of assistance. They also point out the lack of statistics generated among the public authorities tasked with administering the financial support, rendering evaluation difficult (Finanspolitiska rådet, 2021a).
The prognosis of the National Institute for Economic Research (NIER, Konjunkturinstitutet) forecasts that as of December 2021, the recession was over (Konjunkturinstitutet, 2021). Most long-term economic indicators on Sweden assuage concern, particularly with regard to international competitiveness. Thus, it is fair to say that the institutional and regulatory framework of the Swedish economy provides basic stability and predictability. However, there are some challenges. For example, there are still unused resources in the labor market, despite the swift recovery after the pandemic-induced downturn in 2020.
The housing market and increased household debt has been a concern over the past few years. In an attempt to cool the market, the government introduced mandatory mortgage repayment rules in 2018. In 2020, both the average size of the mortgage (in relation to the value of the property) and the ratio of the mortgage compared to household income increased, but at rates lower to those seen prior to 2018, before the mandatory mortgage repayment rules were introduced. Sweden’s financial supervisory authority, Finansinspektionen, temporarily lifted these requirements, but this exception ended in August 2021 (Finansinspektionen, 2021). Together with increasing construction, these measures were intended to help cool off the real-estate market in metropolitan areas over the longer term. Nonetheless, the current housing shortage in metropolitan areas that is driving real-estate prices up increases the short-term risk of a bubble in the real-estate market.
Sustainability in the long run remains the departure point for the financial policy framework, both legislated and with regard to rules in use. In 2019, an acceptable debt level was adopted for the country’s gross debt – the so-called Maastricht debt. This is not an operative target, but rather reflects the desired middle-range level, and is set at 35% of GDP. In 2021, Maastricht debt was at 38.9% (Finanspolitiska rådet 2021b; Konjunkturinstitutet 2021). More importantly, the economic policy framework states that public debt is to be brought down incrementally. Sweden’s economy and the regulation thereof are generally considered to be efficient and sound. Whether this is a product of policy incentives, or a consequence of being outside the euro area is a matter debated among economic experts.
Although the institutional and regulatory framework of economic policy remains overall robust and efficient, the governance of that system has proven exceedingly complex since the 2018 general elections. With 62 seats, the extreme-right Sweden Democrats (SD) party holds a pivotal position between the Social Democratic-Green-Left bloc and the center-right “Alliance.” In January 2019, the Social Democratic-Green government negotiated a 73-item agreement (“the January Accord”) with the Center Party and the Liberals to secure parliamentary passage for major government bills (https://januariavtalet.se). The agreement indicated a shift toward neoliberal economic policy, including an overhaul of the tax system and reevaluation of public services across a large number of policy areas. This agreement broke down over a disagreement in housing policy in the summer of 2021, leading to a political crisis, when, for the first time in Sweden, a prime minister received a no-confidence vote.
Citations:
Finansinspektionen. 2021. ”Den Svenska Bolånemarknaden.” https://www.fi.se/contentassets/1f11d50883754a7da8c217457e154d46/den-svenska-bolanemarknaden-2021.pdf
Finanspolitiska rådet. 2021a. ”Sammanfattning Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.dc1dc8b17941ccc9dbde0d/1620981128106/Sammanfattning%20Svensk%20finanspolitik%202021.pdf
Finanspolitiska rådet. 2021b. ”Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Konjunkturinstitutet (NIER). 2021. ”Konjunkturläget, December 2021.” https://www.konj.se/download/18.10535f7c17db81574dd3f47b/1640074614038/KLDec2021.pdf
SCB. 2021. ”Uppgång i BNP Tredje Kvartalet 2021.” https://scb.se/hitta-statistik/statistik-efter-amne/nationalrakenskaper/nationalrakenskaper/nationalrakenskaper-kvartals-och-arsberakningar/pong/statistiknyhet/namnlos2/
Graph View
How effectively does labor market policy address unemployment?
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Successful strategies ensure unemployment is not a serious threat.
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6
Labor market policies have been more or less successful.
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3
4
3
Strategies against unemployment have shown little or no significant success.
2
1
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Labor market policies have been unsuccessful and rather effected a rise in unemployment.
Traditionally, unemployment rates in Sweden have been low, but current labor market statistics indicate that Sweden – with an unemployment rate of 8.5% in October 2021 – does not differ in any significant way from comparable market economies. If anything, unemployment rates in general, driven by high unemployment levels among young people and immigrants, are higher than in other comparable countries. For the same data point (October 2021), the average unemployment rates were 5.71% in OECD countries, 6.7% in the EU-27 and 7.30% in the euro area (OECD 2021). Having said this, the National Institute for Economic Research (NIER; Konjunkturinstitutet) forecasts that the unemployment rates in Sweden will decrease to 7.5% in 2022 and to 6.7% in 2023 (Konjunkturinstitutet. 2021).
High unemployment rates raise questions about the efficiency of Sweden’s labor market policies and the overall regulatory framework. Unpacking the unemployment statistics reveals cleavages along immigrant status in addition to age, educational attainment and geography, a trend that has persisted for some years now.
The huge influx of asylum-seekers into Sweden in 2015 and 2016 put pressure on the labor market. One of the key problems is matching the recently arrived refugees to the often knowledge-intensive jobs that are available in the job market. Also, language skills remain a significant barrier for the recently arrived job seekers. In 2017 and 2018, the strong economy kept unemployment (primarily among native Swedes) at a very low level, thereby moderating the impact of the growing number of job seekers. Inequalities persist, and the pandemic crisis exacerbated them.
The pandemic crisis affected different sectors of the labor market differently. For example, turnover in manufacturing recovered relatively quickly after the initial drop in 2020, and in March of 2021 stood at just under normal levels. This was not the case in the service sector or in some cultural industries. For example, in April 2021, turnover among travel agencies was about 72% lower than normal levels. Given that 42.5% of hotel and restaurant workers were born outside Sweden, it is not surprising that in 2020 the unemployment rate among this population rose seven times as much as among people born in Sweden. In addition, partly connected to this factor and in terms of geography, the more densely populated a region, the higher was the unemployment rate in 2020 and 2021 (Finanspolitiska rådet, 2021). A disproportionate representation of young people in the service sector is also cited as a significant factor behind the higher unemployment rate among people between 20 and 24 years of age, though a quarter of that group consists of students. (Finanspolitiska rådet, 2021).
However, the proportion of adults not in education, employment or training (NEET) in Sweden is lower than the OECD average, and is especially very low among women between 20 and 24 years of age; the rate is 9.8% in Sweden, much lower than the OECD average of 17.2% for 2020 (OECD, 2022). This indicates that, despite high levels of open unemployment, the Swedish labor market is successfully integrating a large share of young people into the labor market. This statistical artifact can be explained by the fact that in Sweden there is no compulsory insurance against the risk of unemployment, hence unemployment rates are mainly generated via surveys. As a result, youth unemployment rates are often overestimated, because to a certain extent students and even pupils are counted as unemployed.
The government took a series of measures aimed at assisting persons who became unemployed because of the pandemic, with the goal of preventing them from falling into long-term unemployment. As a means of increasing matching of employees with skills in demand by employers, the government invested in education, providing an increased number of places in universities, colleges, professional training programs and remedial education services ahead of higher education exams (Finanspolitiska rådet, 2021).
Ongoing EU integration and the mobility of labor has triggered a new set of issues related to the domestic regulations in the market. Also, there has been extensive debate about introducing an apprentice model to help younger age cohorts to make the transition from education to the labor market. Additionally, Swedish policymakers have been trying to create a short-time work scheme for public employees, as it exists in Germany. These examples may indicate that the old Swedish model of labor market policy is gradually moving toward the German model.
Union strength has declined rapidly in recent years, but union power remains strong by international standards. The strength of unions in part explains the relatively modest reform in labor market rules related to dismissal, minimum wage and apprentice arrangements, which would entail some workers earning a lower salary. But this applies only to insiders on the labor market because employment protection legislation for precarious work is underdeveloped. As in other European countries, Sweden’s labor market is undergoing dualization, albeit at a slower speed than, for example, in Germany. Wages increased considerably faster in 2021 than in 2020, and at a slightly higher rate than during the 2017-2019 period. Based on central agreements between unions and employers, salaries rose an average of 2.5% per year (Konjunkturinstitutet, 2021).
In summary, the pandemic crisis hit the Swedish labor market hard, but there is cause for optimism in 2022 and 2023. Moreover, the political effort to activate the labor force and integrate people with an immigrant background is very pronounced in Sweden.
Citations:
Finanspolitiska rådet. 2021. ”Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Konjunkturinstitutet (NIER). 2021. ”Konjunkturläget, December 2021.” https://www.konj.se/download/18.10535f7c17db81574dd3f47b/1640074614038/KLDec2021.pdf
Larsson, Torbjörn and Bäck, Henry. 2008. ”Governing and Governance in Sweden.” Studentlitteratur.
OECD. 2021. “Chart: Unemployment Rate, Total, % of Labor Force, Monthly, Jan 2021 – Oct 2021.” https://data.oecd.org/chart/6Agg
OECD. 2022 ”Youth not in employment, education or training (NEET).” https://data.oecd.org/youthinac/youth-not-in-employment-education-or-training-neet.htm?context=OECD
High unemployment rates raise questions about the efficiency of Sweden’s labor market policies and the overall regulatory framework. Unpacking the unemployment statistics reveals cleavages along immigrant status in addition to age, educational attainment and geography, a trend that has persisted for some years now.
The huge influx of asylum-seekers into Sweden in 2015 and 2016 put pressure on the labor market. One of the key problems is matching the recently arrived refugees to the often knowledge-intensive jobs that are available in the job market. Also, language skills remain a significant barrier for the recently arrived job seekers. In 2017 and 2018, the strong economy kept unemployment (primarily among native Swedes) at a very low level, thereby moderating the impact of the growing number of job seekers. Inequalities persist, and the pandemic crisis exacerbated them.
The pandemic crisis affected different sectors of the labor market differently. For example, turnover in manufacturing recovered relatively quickly after the initial drop in 2020, and in March of 2021 stood at just under normal levels. This was not the case in the service sector or in some cultural industries. For example, in April 2021, turnover among travel agencies was about 72% lower than normal levels. Given that 42.5% of hotel and restaurant workers were born outside Sweden, it is not surprising that in 2020 the unemployment rate among this population rose seven times as much as among people born in Sweden. In addition, partly connected to this factor and in terms of geography, the more densely populated a region, the higher was the unemployment rate in 2020 and 2021 (Finanspolitiska rådet, 2021). A disproportionate representation of young people in the service sector is also cited as a significant factor behind the higher unemployment rate among people between 20 and 24 years of age, though a quarter of that group consists of students. (Finanspolitiska rådet, 2021).
However, the proportion of adults not in education, employment or training (NEET) in Sweden is lower than the OECD average, and is especially very low among women between 20 and 24 years of age; the rate is 9.8% in Sweden, much lower than the OECD average of 17.2% for 2020 (OECD, 2022). This indicates that, despite high levels of open unemployment, the Swedish labor market is successfully integrating a large share of young people into the labor market. This statistical artifact can be explained by the fact that in Sweden there is no compulsory insurance against the risk of unemployment, hence unemployment rates are mainly generated via surveys. As a result, youth unemployment rates are often overestimated, because to a certain extent students and even pupils are counted as unemployed.
The government took a series of measures aimed at assisting persons who became unemployed because of the pandemic, with the goal of preventing them from falling into long-term unemployment. As a means of increasing matching of employees with skills in demand by employers, the government invested in education, providing an increased number of places in universities, colleges, professional training programs and remedial education services ahead of higher education exams (Finanspolitiska rådet, 2021).
Ongoing EU integration and the mobility of labor has triggered a new set of issues related to the domestic regulations in the market. Also, there has been extensive debate about introducing an apprentice model to help younger age cohorts to make the transition from education to the labor market. Additionally, Swedish policymakers have been trying to create a short-time work scheme for public employees, as it exists in Germany. These examples may indicate that the old Swedish model of labor market policy is gradually moving toward the German model.
Union strength has declined rapidly in recent years, but union power remains strong by international standards. The strength of unions in part explains the relatively modest reform in labor market rules related to dismissal, minimum wage and apprentice arrangements, which would entail some workers earning a lower salary. But this applies only to insiders on the labor market because employment protection legislation for precarious work is underdeveloped. As in other European countries, Sweden’s labor market is undergoing dualization, albeit at a slower speed than, for example, in Germany. Wages increased considerably faster in 2021 than in 2020, and at a slightly higher rate than during the 2017-2019 period. Based on central agreements between unions and employers, salaries rose an average of 2.5% per year (Konjunkturinstitutet, 2021).
In summary, the pandemic crisis hit the Swedish labor market hard, but there is cause for optimism in 2022 and 2023. Moreover, the political effort to activate the labor force and integrate people with an immigrant background is very pronounced in Sweden.
Citations:
Finanspolitiska rådet. 2021. ”Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Konjunkturinstitutet (NIER). 2021. ”Konjunkturläget, December 2021.” https://www.konj.se/download/18.10535f7c17db81574dd3f47b/1640074614038/KLDec2021.pdf
Larsson, Torbjörn and Bäck, Henry. 2008. ”Governing and Governance in Sweden.” Studentlitteratur.
OECD. 2021. “Chart: Unemployment Rate, Total, % of Labor Force, Monthly, Jan 2021 – Oct 2021.” https://data.oecd.org/chart/6Agg
OECD. 2022 ”Youth not in employment, education or training (NEET).” https://data.oecd.org/youthinac/youth-not-in-employment-education-or-training-neet.htm?context=OECD
Graph View
How effective is a country’s tax policy in realizing goals of revenue generation, equity, growth promotion and ecological sustainability?
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Taxation policy fully achieves the objectives.
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Taxation policy largely achieves the objectives.
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4
3
Taxation policy partially achieves the objectives.
2
1
1
Taxation policy does not achieve the objectives at all.
In terms of horizontal equity, this aspect of tax policy has improved over the last several years. The tax system has been reformed and simplified with fewer deductible items, which in turn has broadened the overall tax base. Combined with a less progressive tax rate and an overall reduction in taxes, horizontal equity has improved.
Vertical equity has significantly decreased, however. Differences between different socioeconomic strata have increased over the past decade in most OECD countries, but more rapidly so in Sweden. Current tax policy penalizes those who do not work, regardless of the reason for not being part of the workforce.
Though a broad tax reform has been envisaged for years, it has not taken place yet. A recent report proposed a tax overhaul based on the premise that the last tax reform was 30 years ago, and that incremental changes to tax policy have not had a holistic perspective (Eklund, 2021). Other voices do not consider a full-scale reform to be necessary, claiming that isolated changes, such as a progressive income tax reduction (Skatteverket, 2021), have the same effect (Wikström, 2020).
Tax abatement, mainly for businesses, was used as an instrument to ameliorate the consequences of the pandemic during 2021. The focus in 2020 was on direct economic measures in the form of subsidies and tax payment suspensions, starting in the fall of 2020. In 2021, however, the focus shifted to measures aimed at long-term adaptation, with measures carrying a total price tag of SEK 40 billion (Finanspolitiska rådet, 2021).
Taxes are also increasingly used to promote sustainability. This includes taxing energy consumption and CO2 emissions. Exemptions are given to high energy- consuming industries in order to safeguard their international competitiveness.
Tax policy is less of a factor in national competitiveness today than it was 10 to 15 years ago when economists pointed to the high-income tax levels as a major impediment to the competitiveness of Swedish businesses. Swedish tax levels are still largely on par with those of its main competitors – in fact, taxation of business is low from a comparative perspective.
Citations:
Eklund, Klas. (2021). Vårt framtida skattesystem – en ESO rapport med försläg på en genomgripande skattereform. https://eso.expertgrupp.se/wp-content/uploads/2020/11/2020_7-vårt-framtida-skattesystem-webb.pdf
Finanspolitiska rådet. (2021). Svensk finanspolitik: finanspolitiska rådets rapport 2021. https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Skatteverket. 2021. ”Jobbskatteavdrag.” https://www4.skatteverket.se/rattsligvagledning/2940.html#h-Vem-kan-fa-jobbskatteavdrag
Wikström, Tobias. 2021. ”Svensk Skattepolitik är ett Perspektivfel.” Dagens Industri. 16 November 2020. https://www.di.se/ledare/svensk-skattepolitik-har-ett-perspektivfel/
Vertical equity has significantly decreased, however. Differences between different socioeconomic strata have increased over the past decade in most OECD countries, but more rapidly so in Sweden. Current tax policy penalizes those who do not work, regardless of the reason for not being part of the workforce.
Though a broad tax reform has been envisaged for years, it has not taken place yet. A recent report proposed a tax overhaul based on the premise that the last tax reform was 30 years ago, and that incremental changes to tax policy have not had a holistic perspective (Eklund, 2021). Other voices do not consider a full-scale reform to be necessary, claiming that isolated changes, such as a progressive income tax reduction (Skatteverket, 2021), have the same effect (Wikström, 2020).
Tax abatement, mainly for businesses, was used as an instrument to ameliorate the consequences of the pandemic during 2021. The focus in 2020 was on direct economic measures in the form of subsidies and tax payment suspensions, starting in the fall of 2020. In 2021, however, the focus shifted to measures aimed at long-term adaptation, with measures carrying a total price tag of SEK 40 billion (Finanspolitiska rådet, 2021).
Taxes are also increasingly used to promote sustainability. This includes taxing energy consumption and CO2 emissions. Exemptions are given to high energy- consuming industries in order to safeguard their international competitiveness.
Tax policy is less of a factor in national competitiveness today than it was 10 to 15 years ago when economists pointed to the high-income tax levels as a major impediment to the competitiveness of Swedish businesses. Swedish tax levels are still largely on par with those of its main competitors – in fact, taxation of business is low from a comparative perspective.
Citations:
Eklund, Klas. (2021). Vårt framtida skattesystem – en ESO rapport med försläg på en genomgripande skattereform. https://eso.expertgrupp.se/wp-content/uploads/2020/11/2020_7-vårt-framtida-skattesystem-webb.pdf
Finanspolitiska rådet. (2021). Svensk finanspolitik: finanspolitiska rådets rapport 2021. https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Skatteverket. 2021. ”Jobbskatteavdrag.” https://www4.skatteverket.se/rattsligvagledning/2940.html#h-Vem-kan-fa-jobbskatteavdrag
Wikström, Tobias. 2021. ”Svensk Skattepolitik är ett Perspektivfel.” Dagens Industri. 16 November 2020. https://www.di.se/ledare/svensk-skattepolitik-har-ett-perspektivfel/
Graph View
To what extent does budgetary policy realize the goal of fiscal sustainability?
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Budgetary policy is fiscally sustainable.
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Budgetary policy achieves most standards of fiscal sustainability.
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Budgetary policy achieves some standards of fiscal sustainability.
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1
Budgetary policy is fiscally unsustainable.
Since the mid-1990s, fiscal, and budgetary discipline has been extraordinarily strong in Sweden and its tight budgetary regime has begun to yield benefits. In the wake of a financial crisis in the early 1990s, maintaining sound fiscal policy has been an overarching policy goal for both center-right and Social Democratic governments. Sweden is one of very few countries that targets a budget surplus and neither government nor opposition harbor any plans to abolish it (Brenton and Pierre, 2017).
The consequences of the pandemic put a considerable strain on the budget during the last two years. The budget approved by the Riksdag for 2022 was based on the government proposal, but also included amendments, taking into account the adjustments proposed by the Moderate Party, the Sweden Democrats and the Christian Democrats. Tax reductions for work income and on the income of persons over 65, higher salaries for police officers, and tax reductions on petrol and diesel were included in these amendments (Regeringskansliet, 2021).
However, there is cause for concern regarding public debt, which is now under 40% of GDP. The Swedish Fiscal Policy Council reports that the rate would have exceeded this limit but for a technicality involving the method used to count the financing for currency reserves (Finanspolitiska rådet, 2021). This comparatively low level of public debt is projected to decrease further, but the continuing pandemic injects a level of uncertainty into any projection. Finally, the Swedish National Accountability Office (Riksrevisionen) is critical of the budget in the sense that its fall 2021 numbers do not leave any room for adjustment in the spring of 2022, when the spring adjustment normally takes place (Riksrevisionen, 2021).
Citations:
Brenton, Scott and Jon Pierre. 2017. “Budget Surplus Goal Experiments in Australia and Sweden.” New Political Economy, 22 (2017):557-72.
Finanspolitiska rådet. 2021. “Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Regeringskansliet (Government Offices of Sweden). 2021. ”Genomförande av Riksdagsbesluten om Statens Budget för 2022.” https://www.regeringen.se/artiklar/2021/12/genomforande-av-riksdagsbesluten-om-statens-budget-for-2022/
Riksrevisionen [The Swedish National Accountability Office]. 2021. ”Regeringen Borde Varit Tydligare med att det inte Finns Utrymme för Ytterligare Utgifter.” https://www.riksrevisionen.se/om-riksrevisionen/kommunikation-och-media/nyhetsarkiv/2021-12-16-regeringen-borde-varit-tydligare-med-att-det-inte-finns-utrymme-for-ytterligare-utgifter.html
The consequences of the pandemic put a considerable strain on the budget during the last two years. The budget approved by the Riksdag for 2022 was based on the government proposal, but also included amendments, taking into account the adjustments proposed by the Moderate Party, the Sweden Democrats and the Christian Democrats. Tax reductions for work income and on the income of persons over 65, higher salaries for police officers, and tax reductions on petrol and diesel were included in these amendments (Regeringskansliet, 2021).
However, there is cause for concern regarding public debt, which is now under 40% of GDP. The Swedish Fiscal Policy Council reports that the rate would have exceeded this limit but for a technicality involving the method used to count the financing for currency reserves (Finanspolitiska rådet, 2021). This comparatively low level of public debt is projected to decrease further, but the continuing pandemic injects a level of uncertainty into any projection. Finally, the Swedish National Accountability Office (Riksrevisionen) is critical of the budget in the sense that its fall 2021 numbers do not leave any room for adjustment in the spring of 2022, when the spring adjustment normally takes place (Riksrevisionen, 2021).
Citations:
Brenton, Scott and Jon Pierre. 2017. “Budget Surplus Goal Experiments in Australia and Sweden.” New Political Economy, 22 (2017):557-72.
Finanspolitiska rådet. 2021. “Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Regeringskansliet (Government Offices of Sweden). 2021. ”Genomförande av Riksdagsbesluten om Statens Budget för 2022.” https://www.regeringen.se/artiklar/2021/12/genomforande-av-riksdagsbesluten-om-statens-budget-for-2022/
Riksrevisionen [The Swedish National Accountability Office]. 2021. ”Regeringen Borde Varit Tydligare med att det inte Finns Utrymme för Ytterligare Utgifter.” https://www.riksrevisionen.se/om-riksrevisionen/kommunikation-och-media/nyhetsarkiv/2021-12-16-regeringen-borde-varit-tydligare-med-att-det-inte-finns-utrymme-for-ytterligare-utgifter.html
Graph View
To what extent does research and innovation policy support technological innovations that foster the creation and introduction of new products?
10
9
9
Research and innovation policy effectively supports innovations that foster the creation of new products and enhance productivity.
8
7
6
7
6
Research and innovation policy largely supports innovations that foster the creation of new products and enhance productivity.
5
4
3
4
3
Research and innovation policy partly supports innovations that foster the creation of new products and enhance productivity.
2
1
1
Research and innovation policy has largely failed to support innovations that foster the creation of new products and enhance productivity.
Sweden has ranked among the top five advanced industrialized democracies on all aspects of research and development (R&D): spending (public and private) per capita; number of researchers; number of patent applications and intellectual ownership licenses. This high level of investment in R&D has existed for considerable time. As an economy with high labor costs, Sweden’s competitive edge lies not in large-scale manufacturing but in knowledge-intensive sectors. R&D spending thus directly sustains that competitive edge.
Governments – center-right as well as Social Democratic-Green – rarely miss an opportunity to reinforce the argument that public spending on higher education, research institutions and research and development in general is integral to future prosperity and wealth. There is nothing suggesting that the commitment among all major political players to R&D spending is about to change.
However, the portion of the population self-reporting that they have entrepreneurial skills is low. This is the case despite a reform that drastically reduced the regulatory burden on new startups to the point that it is very low compared to the average among EU member states. Additionally, recent public policy efforts to increase innovation and entrepreneurship included the provision of better communication through a consolidated portal (www.verksamt.se), and the digital streamlining of communication between municipalities and firms (OECD, 2020).
Vinnova, the Swedish public agency for innovation, has expressed concern for the immediate future of innovation policies caused by the uncertainty and concomitant budget cuts associated with the pandemic. The agency stresses that its current focus is placed on innovation systems. It also provides financing for start-ups, and backs increased collaboration with the European Union (Vinnova, 2021).
Finally, the pandemic notwithstanding, there are signs that R&D public policies are bearing fruit in Sweden, as the country was ranked second in the world in the Global Innovation Index (GII) 2021 (Dutta et al., 2021).
Citations:
Dutta, Sumitra, Bruno Lanvin, Loreta Rivera León, and Sacha Wunsch-Vincent. (eds.). 2021. “Global Innovation Index 2021: Tracking Innovation Through the COVID-19 Crisis.” World Intellectual Property Organization. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2021.pdf
OECD. 2020. “Inclusive Entrepreneurship Policies, Country Assessment Notes. Sweden, 2020.” https://www.oecd.org/cfe/smes/Sweden-IE-2020.pdf
Vinnova. 2021. “Årsredovisning 2020.” https://www.vinnova.se/contentassets/218b4a9789844354a1f56e2629c9dc7f/vinnova_ar2020.pdf?cb=20210331142235
Governments – center-right as well as Social Democratic-Green – rarely miss an opportunity to reinforce the argument that public spending on higher education, research institutions and research and development in general is integral to future prosperity and wealth. There is nothing suggesting that the commitment among all major political players to R&D spending is about to change.
However, the portion of the population self-reporting that they have entrepreneurial skills is low. This is the case despite a reform that drastically reduced the regulatory burden on new startups to the point that it is very low compared to the average among EU member states. Additionally, recent public policy efforts to increase innovation and entrepreneurship included the provision of better communication through a consolidated portal (www.verksamt.se), and the digital streamlining of communication between municipalities and firms (OECD, 2020).
Vinnova, the Swedish public agency for innovation, has expressed concern for the immediate future of innovation policies caused by the uncertainty and concomitant budget cuts associated with the pandemic. The agency stresses that its current focus is placed on innovation systems. It also provides financing for start-ups, and backs increased collaboration with the European Union (Vinnova, 2021).
Finally, the pandemic notwithstanding, there are signs that R&D public policies are bearing fruit in Sweden, as the country was ranked second in the world in the Global Innovation Index (GII) 2021 (Dutta et al., 2021).
Citations:
Dutta, Sumitra, Bruno Lanvin, Loreta Rivera León, and Sacha Wunsch-Vincent. (eds.). 2021. “Global Innovation Index 2021: Tracking Innovation Through the COVID-19 Crisis.” World Intellectual Property Organization. https://www.wipo.int/edocs/pubdocs/en/wipo_pub_gii_2021.pdf
OECD. 2020. “Inclusive Entrepreneurship Policies, Country Assessment Notes. Sweden, 2020.” https://www.oecd.org/cfe/smes/Sweden-IE-2020.pdf
Vinnova. 2021. “Årsredovisning 2020.” https://www.vinnova.se/contentassets/218b4a9789844354a1f56e2629c9dc7f/vinnova_ar2020.pdf?cb=20210331142235
Graph View
To what extent does the government actively contribute to the effective regulation and supervision of the international financial architecture?
10
9
9
The government (pro-)actively promotes the regulation and supervision of financial markets. It demonstrates initiative and responsibility in such endeavors and often acts as an international agenda-setter.
8
7
6
7
6
The government contributes to improving the regulation and supervision of financial markets. In some cases, it demonstrates initiative and responsibility in such endeavors.
5
4
3
4
3
The government rarely contributes to improving the regulation and supervision of financial markets. It seldom demonstrates initiative or responsibility in such endeavors.
2
1
1
The government does not contribute to improving the regulation and supervision of financial markets.
The Swedish government has stood behind essentially all efforts to enforce regulation aiming at preventing criminal financial behavior in international financial management. Sweden also supports and implements rules laid out by the European Union and other international institutions related to international finance. It has rejected proposals, however, to introduce a Tobin-style tax on international financial transactions, and in fact this discussion has been all but nonexistent in the past few years.
On the domestic scene, some friction between the Ministry of Finance and large commercial banks has been noticeable over the past couple of years. This discord has related to the banks’ high profit levels and their insistence on giving their staff huge bonuses while charging high financial management fees. The government announced in August 2019 that it intends to levy a special tax on the commercial banks, starting in 2022. The government argues that this tax will help to fund measures guarding against financial market turmoil in the future. As of December 2021, the tax committee approved the new tax on commercial banks, and has proposed approval of the measure within the Riksdag. The logic behind this is that commercial banks risk causing financial harm during a potential crisis, and for this reason it is reasonable that they contribute funding to offset any consequences (Riksdagen, 2021). The pandemic crisis has, if anything, highlighted the role of the state in protecting the incomes of households and businesses. s
Another potential source of friction between the finance ministry and major commercial banks relates to policy changes forcing lenders to forcing lenders to structure loans so that borrowers would always be repaying a part of the principal, rather than just paying interest. The Ministry, in concert with the National Bank, is concerned about the level of household debt, suggesting that there is a growing bubble in metropolitan real-estate markets. Reducing debt and/or phasing out the right to deduct interest payments would help reduce the likelihood of such a bubble. Although the banks do not have a commercial interest in debt reduction per se, they have also recently expressed concerns regarding the high household debt levels. The Swedish Fiscal Policy Council has judged this reform favorably (Finanspolitiska rådet, 2021). The measure was halted for a period of time as a means of softening the economic consequences of the pandemic for households, but the Swedish National Bank, the Swedish Fiscal Council and the Finansinspektionen all recommend that the moratorium on amortization of mortgages be discontinued as part of the long-term sustainability of the financial system. High household debt levels remain a cause for concern in Sweden, while the combination of sharply rising asset prices combined with high levels of indebtedness in other countries is part of the risk outlook into 2022 (Riksbanken, 2021).
More broadly, the domestic and global financial systems must balance pandemic support measures while paying attention to long-term vulnerabilities. The Swedish central bank (Riksbank) stresses the importance of introducing internationally agreed standards such as Basel II in Sweden and other countries.
Taken together, Sweden is a forerunner for the sustainable regulation of international as well as domestic financial markets. This status is a consequence of the financial crisis in Sweden in the early 1990s, which initiated rapid policy learning in all major parties represented in the Swedish parliament.
Citations:
Finanspolitiska rådet. (021. Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Riksbanken. 2021. “Financial Stability Report.” 2021:1. https://www.riksbank.se/globalassets/media/rapporter/fsr/engelska/2021/210526/financial-stability-report-2021_1.pdf
Riksdagen. 2021. ”Skatteutskottet Säger Ja till Ny Riskskatt för Banker.” https://www.riksdagen.se/sv/aktuellt/2021/dec/10/skatteutskottet-sager-ja-till-ny-riskskatt-for-banker/
On the domestic scene, some friction between the Ministry of Finance and large commercial banks has been noticeable over the past couple of years. This discord has related to the banks’ high profit levels and their insistence on giving their staff huge bonuses while charging high financial management fees. The government announced in August 2019 that it intends to levy a special tax on the commercial banks, starting in 2022. The government argues that this tax will help to fund measures guarding against financial market turmoil in the future. As of December 2021, the tax committee approved the new tax on commercial banks, and has proposed approval of the measure within the Riksdag. The logic behind this is that commercial banks risk causing financial harm during a potential crisis, and for this reason it is reasonable that they contribute funding to offset any consequences (Riksdagen, 2021). The pandemic crisis has, if anything, highlighted the role of the state in protecting the incomes of households and businesses. s
Another potential source of friction between the finance ministry and major commercial banks relates to policy changes forcing lenders to forcing lenders to structure loans so that borrowers would always be repaying a part of the principal, rather than just paying interest. The Ministry, in concert with the National Bank, is concerned about the level of household debt, suggesting that there is a growing bubble in metropolitan real-estate markets. Reducing debt and/or phasing out the right to deduct interest payments would help reduce the likelihood of such a bubble. Although the banks do not have a commercial interest in debt reduction per se, they have also recently expressed concerns regarding the high household debt levels. The Swedish Fiscal Policy Council has judged this reform favorably (Finanspolitiska rådet, 2021). The measure was halted for a period of time as a means of softening the economic consequences of the pandemic for households, but the Swedish National Bank, the Swedish Fiscal Council and the Finansinspektionen all recommend that the moratorium on amortization of mortgages be discontinued as part of the long-term sustainability of the financial system. High household debt levels remain a cause for concern in Sweden, while the combination of sharply rising asset prices combined with high levels of indebtedness in other countries is part of the risk outlook into 2022 (Riksbanken, 2021).
More broadly, the domestic and global financial systems must balance pandemic support measures while paying attention to long-term vulnerabilities. The Swedish central bank (Riksbank) stresses the importance of introducing internationally agreed standards such as Basel II in Sweden and other countries.
Taken together, Sweden is a forerunner for the sustainable regulation of international as well as domestic financial markets. This status is a consequence of the financial crisis in Sweden in the early 1990s, which initiated rapid policy learning in all major parties represented in the Swedish parliament.
Citations:
Finanspolitiska rådet. (021. Svensk Finanspolitik: Finanspolitiska Rådets Rapport 2021.” https://www.fpr.se/download/18.3e9ba604179f5fc737de1d0/1624285470841/Svensk%20finanspolitik%202021.pdf
Riksbanken. 2021. “Financial Stability Report.” 2021:1. https://www.riksbank.se/globalassets/media/rapporter/fsr/engelska/2021/210526/financial-stability-report-2021_1.pdf
Riksdagen. 2021. ”Skatteutskottet Säger Ja till Ny Riskskatt för Banker.” https://www.riksdagen.se/sv/aktuellt/2021/dec/10/skatteutskottet-sager-ja-till-ny-riskskatt-for-banker/