IMF: Sweden needs more tax cuts

Sweden's new centre-right government needs to make more tax cuts, the International Monetary Fund has said.

The IMF praised Sweden’s new government, underlining the positive growth it inherited from its Social Democratic predecessor, which at four percent outstrips growth in the eurozone. But the fund’s economists said in a report released on Tuesday that more was needed to give a sustained fall in unemployment.

Subhash Thakur, leading the IMF delegation to Sweden, welcomed the tax cuts so far proposed by the new government.

“These are in line with the proposals previously sought by the IMF,” he said.

Thakur said he thought that finance minister Anders Borg had been right to focus tax cuts first on people with low incomes. But he said that more cuts were needed if they were to have a real effect on the Swedish economy.

“Small adjustments usually give small effects, and there can be a need for a critical mass to gain large effects,” he said.

Future tax cuts should focus on higher income groups, Thakur argued.

“In a globalised economy, Sweden needs to give a return on higher education,” he said. He indicated that tax cuts in the region of 4-6 percent of GDP, or 110-170 billion kronor might be in order. The IMF economists underlined that reduced taxes needed to be accompanied by cuts in public spending.

The IMF economists met representatives for the Riksbank, the finance ministry, the industry ministry, the National Insitute for Economic Research, employers organisations and unions during their visit to Sweden.