Government betraying voters

Bil Sweden, the association that represents manufacturers and importers in the automotive industry, has accused the government of betrayal after it announced plans to hike fuel taxes, even though both PM Stefan Löfven and Finance Minister Magdalena Andersson promised not to raise taxes in the run up to the election last year.

Bil Sweden MD Bertil Moldén says a survey carried out by Statistics Sweden on behalf of the Swedish Taxpayers’ Association (Skattebetalarna) shows that close to one million households will each pay an additional SKr 5,500 in fuel taxes over the next three years. The hikes will hurt rural residents and companies in particular, who often have no alternative means of transport.

Moldén is also highly critical of the way in which the government is now trying to “sneak in” a further hike, by proposing indexation of fuel taxes from 2017. He warns that this would lead to a 50% hike over a decade.

Saco warns of funding crisis

Sweden’s welfare sector faces a massive funding crisis, writes Robert Boije, head of social policy issues at the Swedish Confederation of Professional Associations (Saco). He criticises the political blocs over their inability to explain to the voters how they intend to solve the looming crisis with the tax system.

“It would not be out of place in the upcoming autumn budget proposals to provide concrete information on how the funding crisis will be solved,” writes Boije.

Tax hikes in pipeline

New tax reforms totalling SKr 62 billion are to be expected over the next four years, reveals Dagens Industri (DI), which has taken a closer look at the long-term trend in government’s budget proposals and the expenditure ceiling.

The expenditure ceiling in the government’s autumn budget proposal reflects how many reforms the government wishes to implement and how much taxes need to be raised.

“Which means that taxes need to be raised with a corresponding amount,” says Jesper Hansson, head of forecasts at the National Institute of Economic Research, who points out another way would be to relax deficit targets. The Institute would have liked to have seen greater clarity on this.

When DI confronts Finance Minister Magdalena Andersson over what the rising expenditure ceiling really means, she does not wish to admit to plans to raise taxes, and explains that it is about “creating scope for reform if we get good jobs growth and increased tax revenues.”

At the same time the Finance Ministry is fully occupied hunting for new sources of tax revenue, and the minister talks of a new tax on financial activities, “The finance sector should be able to contribute a bit more.”

Taxes higher than we think

All of 94% of Swedish taxpayers think they pay lower taxes than they actually do, finds a new report “Underestimated taxes” by the Confederation of Swedish Enterprise (Svenskt Näringsliv) and TNS Sifo.

Swedish taxpayers think they pay around 34% of their income in tax revenue, but in fact they pay on average 52%. The misconception is largely due to the many indirect taxes, of which payroll charges constitutes the biggest one, states the report.

Nightmare for Ingves

Risk aversion and waning confidence that the US Federal Reserve will raise interest rates in September caused Monday’s sharp fall in market interest rates and the US dollar to weaken against other currencies, including the Swedish krona.

The fact that the Swedish currency strengthens when there is turbulence on the financial markets is not something that is appreciated by the Riksbank, which is actively seeking to keep the krona weak to boost inflation.

“It’s a nightmare scenario for the Riksbank that the krona may become a safe haven at times like this,” says Claes Måhlén, chief strategist at Handelsbanken.

Traditionally, the Swedish krona has never been a safe haven, but following the financial crisis of 2008 (ed.) Sweden was viewed as being a refuge where assets could be placed in turbulent times.

Growth forecast differs

At a Centre for Business and Policy Studies (SNS) seminar on Friday, Kerstin af Jochnick, deputy governor of the Riksbank, said the bank’s growth forecast for the Swedish economy was broadly positive, not withstanding rising household debt, and that the GDP growth forecast of 2.9% for 2015 and 3.6% for 2015 remained on course. She also predicted that inflation would reach the 2% target by the year-end.

SEB’s Robert Bergqvist does not share the Riksbank’s optimistic forecast, and says, “Stronger growth does not necessarily mean that inflation will go up,” and cites idle production capacity and global price pressure as to reasons for this.

Riksbank helpless

Sweden’s central bank, the Riksbank, has had to resort to desperate measures in a bid to raise inflation. The benchmark interest rate has been cut to a negative 0.35% and the central bank is to purchase government bonds to a value of 135 billion kronor, which is equivalent to 4% of GDP. Despite this, inflation has not picked up and the time has come to consider other measures, according to Professor Tore Ellingsen of the Stockholm School of Economics.

The Professor, who is the chairman of the committee that awards the Riksbank’s Prize in Economic Sciences in Memory of Alfred Nobel, advocates an increase in government borrowing as a way of pushing up inflation. The idea is that the state borrows money and passes this on to households in the form of tax cuts or transfers.

“With more money, it becomes worth less, which is the same as inflation. The idea is that households become more interested in goods and services than money,” says Professor Ellingsen.

E.ON focuses on network investment

In the past four years the Swedish division of E.ON has invested approximately SKr 1 billion annually in its transmission network. But, with Sweden facing the closure of four nuclear reactors ahead of time, the shift towards more renewable energy is leading the electricity distributor to invest SKr 12.5 billion by 2020 in an upgrade of its network.

Politicians to blame

A number of experts Dagens Nyheter  has spoken to claim that weak Swedish governments past and present are to blame for the current crisis in the housing market. German politicians have shown far more resolve in Berlin and Hamburg, where segregation is seen as a major social problem that is to be avoided and where there is no shortage of housing, says Anna Granath Hansson, a PhD student at the KTH Royal Institute of Technology.

Granath Hansson calls into question recent measures such as Attefall back yard houses and an easing of the rules on lettings. “These are just emergency measures in a desperate situation. They do not tackle the problem of capital gains and interest rate deductions,” she says.

New rules – a year in the making

With household debt levels rising to new highs, the heads of Sweden’s central bank, financial watchdog and debt office called on Monday for tougher mortgage repayment rules to be introduced as soon as possible in order to prevent a potential financial crisis. However, Per Bolund, the minister for financial markets, has said that tougher rules may not come into force before summer 2016. First of all, the government and the opposition must agree to give the Financial Supervisory Authority the legal powers to make new mortgage borrowers pay more than just interest on their loans.