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Sweden 'slimmest Nordic welfare state '

Published: 21 Jan 2014 07:33 GMT+01:00

The Nordic model, known for high taxes and its cradle-to-grave welfare system, is getting a radical makeover as nations find themselves cash-strapped. During the post-war period, the Scandinavian economies became famous for a "softer" version of capitalism that placed more importance on social equality than other western nations, such as Britain and the United States, did.

Then came globalization and an ideological shift to the right has led to a scaling back of the public sector.

In Sweden, visitors are sometimes surprised to learn about year-long waiting times for cancer patients, rioting in low-income neighbourhoods and train derailments amid lagging infrastructure investment.

READ ALSO: French ambassador Jean-Pierre Lacroix on myth-busting the image of "leftwing Sweden"

"The generosity of the system has declined," said Gothenburg University politics professor Jonas Hinnfors. "Much of this already started changing in the 1980s and especially in the 1990s." 

In the wake of a banking crisis in the early nineties, Stockholm scrapped housing subsidies, reformed the pension system and slashed the healthcare budget. A voucher-based system that allows publicly funded, privately managed free schools to compete with state schools was introduced, and has drawn attention from right-wing politicians elsewhere, including Britain's Conservative Party.

In 2006, conservative Prime Minister Fredrik Reinfeldt's government accelerated the pace of reform, tightening the criteria for unemployment benefits and sick pay while lowering taxes. Income tax in Sweden is now lower than in France, Belgium and Denmark, and public spending as a share of GDP has declined from a record 71.0 percent in 1993 to 53.3 percent last year.

Once the darling of progressives, Sweden has become a model for free-market-leaning thinkers including British weekly The Economist, which last year hailed the scaled-down Nordic model as "the next supermodel."

"They offer a blueprint of how to reform the public sector, making the state far more efficient," it wrote.

This month, the Wall Street Journal praised tax cuts and entitlement reforms in Sweden and Denmark that "are now discomfiting their big-government admirers overseas."

Although polls show strong support among Swedes for the income tax cuts of the past few years, the leftist opposition looks set to win this year's general election. The Social Democrats, in power for much of last century, have been boosted by a string of scandals in private elderly care homes involving degrading treatment of their residents, and by plummeting school results in international rankings.

READ ALSO: Unlikely dalliance to usher out Alliance? 

Critics wonder, however, how the workers party will inance an improvement of public services, having already pledged to keep the popular income tax cuts.

If Sweden is the Nordic country to have gone the furthest in shrinking its welfare state, Denmark has moved the fastest. When her Social Democratic government took power in 2011, there was little to suggest Prime Minister Helle Thorning-Schmidt would make any dramatic changes to the country's cherished welfare state -- funded by the world's highest tax burden.

After a centre-right government had raised the retirement age and reduced the unemployment benefits period from four to two years, "Gucci Helle" -- as she is known among her detractors -- went on to cut corporate taxes to 22 percent from 25 percent.
Other reforms have included requiring young people on benefits to undertake training, and withdrawing student aid to those taking too long to finish their studies.
It has left her deeply unpopular in some quarters. At last year's May Day speeches, she was met by jeers as audience members sprayed her with a water pistol, threw tomatoes at her, and even flashed their buttocks.

For some of Thorning-Schmidt's allies -- notably the leftist Red Green Alliance -- the reforms have been too much to stomach, and in November her minority government had to seek support from the main opposition parties to pass this year's budget. Denmark has been spurred into action by a persistently sluggish economy since a housing bubble imploded in 2007, leading to anaemic household spending.

Among Danes there is also a sense that the welfare state was ballooning out of control. In 2011, a TV report aiming to show what life was like for the poor in Denmark visited the home of a single mother on benefits, whose disposable income turned out to be 15,728 kroner (2,107 euros, $2,860) per month.

"Poor Carina", as she was later nicknamed, sparked a national debate on the level of unemployment benefits, with one pollster crediting her with fuelling a rise in the number of people who felt benefits were too high.

The next Nordic country to reform its welfare state is likely to be Finland, battered by a downturn in the two pillars of its economy: the forest industry and information technology. Helsinki responded to the crisis by announcing in August a slew of measures to put more Finns to work. Under the controversial plan, the retirement age is to go up, time spent at university will go down, and incentives to enter the job market will be boosted for the unemployed and young mothers.

Only Norway looks unlikely to reform entitlements anytime soon, bolstered by its oil wealth. The country is home to the world's largest sovereign wealth fund. Worth some 5,116 billion kroner (610 billion euros, $830 billion), each of the country's 5,096,000 inhabitants is -- at least on paper -- a millionaire.

New centre-right Prime Minister Erna Solberg has pledged to preserve the welfare state. 

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