The report, issued every two years, praised Sweden’s ‘strong and steady’ economic performance, saying that the country’s economy had done better than most other European countries. The report said that the country’s response to the economic crisis of the early 1990s had laid foundations for current successes.
But the OECD reserved strong criticism for the housing market, calling for the abolition of rent controls.
Heavy regulation of rent levels forces people who might have preferred to rent into buying property instead, particularly in Stockholm, the reports said. Rent controls also force people onto the black market, lead to the conversion of rental flats into tenant-owned apartments and lead to low construction levels of rental flats.
Eight percent of the population of Stockholm is queuing for an apartment, with an average waiting time of 10 years, while well-connected people are able to jump the queue. This benefits insiders and people who are already privileged, the report argues.
“Our main concern over rent controls is that prices do not respond to demand and supply,” said Felix Hüfner, one of the report’s authors, to The Local.
“They could also have an effect on labour mobility, thereby having an impact on other areas of the economy,” he said.
The report praised the government’s programme to cut taxes on labour and reduce benefits, with the aim of getting more people into work. The authors added, however, that curbing Sweden’s strict employment protection laws could be necessary in the long term.
“It’s an ambitious programme, and we will have to wait to see what the effects are, but it should be recognized that employment protection is something to focus on in the future,” said Hüfner.
Still more efforts were needed, however, to help immigrants onto the job market. Youth unemployment among immigrant groups is 30 percent, it said. Strict labour market regulations, high benefit levels and high starting wages were among the factors making it harder for immigrants to get a foothold on the job market.
Employment protection legislation is criticised for the effect it has on entrepreneurship. The last-in-first-out rule in Swedish companies means that somebody leaving a job to start out in business is giving up a lot of security, the report says.
Overall levels of entrepreneurship are among the lowest in Europe, leading the report to propose a wide-ranging policy review, looking at taxes, regulations, bankruptcy laws, entrepreneurial education and access to finance.
The report warns against unfinanced spending or tax cuts, and says that ways should be looked at for people to pay more for public services at the point of use, such as through university tuition fees. The report also floats the idea of reducing the top rate of income tax, and suggests raising the threshold at which people pay state income tax.
“The threshold is quite low in Sweden, compared to other OECD countries,” Hüfner said.
The OECD was critical of one of the government’s tax cut proposals – the election promise to abolish property tax. This is not an area in which taxation is too high at the moment, it argues, and the focus should be on cutting taxes on labour. The abolition of property tax could also have an effect on house prices, which are already rising fast, the report said.
On inflation, the report’s authors said that the effects of globalization have helped Sweden to have one of the lowest average rates since the mid-1990s among European countries. But the report questioned the Riksbank’s decision to take house prices into account when setting interest rates, pointing to the fact that inflation was consistently below the target of 2 percent.
The report was positive about the Riksbank’s decision to release its assessment of the future path of interest rates.