(Bloomberg) — Sweden will move away from a budget-surplus target to leverage the Nordic nation’s low debt levels for higher spending on defense and restoring decrepit infrastructure.
The change, due to enter into force from 2027, comes against the backdrop of the newest NATO member ramping up spending on its military in response to Russian aggression in Ukraine and as an unprecedented wave of violence has prompted more funding for police and prisons. At the same time, the Covid-19 pandemic revealed shortcomings of the Swedish health care, and parts of the country’s infrastructure have been neglected for decades.
A parliamentary committee announced a six-party agreement Thursday to change the previous goal of running a 0.33% of gross domestic product surplus, over an economic cycle, to a balanced-budget target that would keep government debt constant, while providing room to spend about 25 billion Swedish kronor ($1.9 billion) more per year.
“It is very clear that we need to continue in invest in defense, in infrastructure and in research, for example,” Finance Minister Elisabeth Svantesson said at a news conference in Stockholm on Thursday. “We are doing that already, but this will provide additional opportunities for Sweden to achieve more growth.”
The government has moved toward an expansionary fiscal policy, after holding back outlays out of fear that stimulating demand could fan the flames of inflation. Still, the planned timing — taking effect a year after the next general election — means the new rules won’t impact near-term spending,
Economists and parts of the political opposition have long argued for abandoning the surplus target, as public debt has fallen to just above 30% of GDP. That’s among the lowest in Europe and far below the 70% level it touched in the 1990s, when the fiscal policy rules were introduced.
While the deal is backed by six of eight parties in parliament, the Left and Green Parties argue that it doesn’t go far enough in freeing up funds for investments. They would have wanted the rules to allow governments to run a deficit.
“That would be reasonable in light of the temporary bump we are facing in the need for investments in climate transition as well as infrastructure,” the Left Party’s economic policy spokesperson, Ida Gabrielsson, said. “We would still be in a good position when it comes to public debt, compared with the rest of Europe.”
The fiscal policy frameworks also include a debt anchor, which stipulates that public debt should be around 35% of GDP. The Confederation of Swedish Industries, the country’s largest business lobby, has argued for raising that anchor level to 40%, and making it the prioritized target for fiscal policy.
“Despite an already low debt, politicians continue to have a very cautious approach to government finances, highlighting the need for buffers in case of a more severe economic crisis,” SEB AB Chief Strategist Olle Holmgren and economist Marcus Widen said in a note to clients. “In our view it is uncertain whether the revised target will be large enough to break the long downward trend for the government debt.”
(Adds quotes from Finance Minister, opposition politician and economists.)
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Publish date : 2024-10-17 15:12:00
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