Pressure Is Building in Sweden to Cast Off Fiscal Restraints

(Bloomberg) -- Clamor is growing for Sweden to throw off its fiscal shackles after years of spending restraint that has driven debt down to levels not seen in four decades.

The push is coming from think tanks on both the left and right, unions, newspaper editorials, bank economists and now finally, politicians. Sweden has massive spending needs to support its welfare system, take care of an aging population, build out its defense and police as well as its infrastructure. A fiscal boost would also help the nation’s central bank, which is struggling to lift interest rates above zero amid slowing economic growth.

Social Democratic Finance Minister Magdalena Andersson is under pressure both from within her own party and her coalition partners to loosen fiscal policy in order to boost investments that are sorely needed across Sweden.

“We contributed to a less strict framework and I think we’re facing a new such discussion,’’ Left Party leader Jonas Sjostedt said in an interview last week. “It’s important to have low public debt and we’ve contributed to that, but now we’re facing very big investment needs, not least in terms of climate-related investment.’’

Sweden’s Financial Markets Minister Per Bolund, who took over as head of the Green Party in March, also said some of the investments needed in coming years may not be possible within the current budget framework -- which calls for the government to run a 0.33% surplus.

“It’s important that if we undergo changes in society, such as demographic changes, then we also need to be prepared to reevaluate old frameworks and principles,” Bolund said in an interview. “If you look at Germany, which also has enormously stable government finances, they have a balanced budget target, not a surplus target.”

The surplus target in fact was lowered this year from 1% as a result of a bi-partisan budget deal. The opposition Moderate Party, Sweden’s Conservatives, have been the main driver in keeping a surplus target, in part to keep spending in check. The Social Democrats have called for a balanced budget.

The deal also set a so-called debt anchor at 35% of gross domestic product, which will be reached this year.

Swedish lender, Swedbank AB, said in a recent analysis, that lifting the debt anchor to 40%, would create an extra 400 billion kronor ($42 billion) in spending room up to 2023. It would also be a good time to borrow, with most of Sweden’s bond yields trading below zero.

The Green party wants to see “large investments,” according to Bolund. Sweden should use its strong fiscal situation to finance a transformation into a more sustainable society and reduce the risks from the climate crisis, he said.

Bolund’s party is in a minority government with the Social Democrats. It’s backed in parliament by the Liberals and Center party, and relies on passive support from the Left party.

The four main parties hammered out a deal in January after months of wrangling following Sweden’s chaotic election. One of the most expensive parts in the four-party, 73-point agreement is a plan to build a new high-speed train network, a project that may cost as much as 230 billion kronor.

The government will soon call the parties in parliament for discussions on how to finance the project.

Left Party leader Jonas Sjostedt said the country should just look to borrow the needed funds.

‘’It’s possible to borrow via the debt office,” he said. “That’s what we did for example with the Oresund bridge, and another possibility is borrowing from the European Investment bank.’’

Bolund said he’s open to changing the budget framework to carry out such investments.

“If you say that while we carry out these changes, you could deviate from it or lower the demands in the budget framework.”

But Andersson, the finance minister, has so far been reluctant to point to a way forward, also emphasizing that Sweden has many needs ahead, with defense, policing, health care, schooling and elderly care all clamoring for more funds.

She said there’s no way of keeping the project outside the regular budget, or to borrow the whole amount via the debt office.

“All that’s a confused discussion,” she said. “I don’t say no because I am opposed to it, but because it is a confused discussion that is based on ignorance of how state finances work.”

--With assistance from Rafaela Lindeberg.

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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