Sweden gets a dose of liberalism

Traditionally a European champion when it comes to high taxes, Sweden has been getting a dose of economic liberalism over the past six months from its new conservative-liberal government.

In just a matter of weeks the new government of Prime Minister Fredrik Reinfeldt has announced it is abolishing the property tax, and very symbolically, the wealth tax.

The moves signal an easing of control by the state and a move away from the lavish welfare system which has been held up as a model of social democracy by a large part of Europe’s left-wing for decades.

“This is a step in a more liberal direction but it’s not a very big step, it’s not a very radical change,” commented Stefan Lundgren, the director of the Swedish centre of political studies (SNS).

Under the plans the wealth tax, which was created in 1947, will be abolished this year while the formal abolition of the property tax will be presented later this year and be applied in January 2008.

The measures both featured in the electoral platform of the four parties in the ruling centre-right coalition which ousted the Social Democrats in September 2006 legislative elections.

The outcome of the election was seen as a sign of a wish by the Swedish population to reform the way Sweden works.

“The goal of this government is in fact to have a smaller state,” said Mats Knutson, a political analyst at SVT television station.

In 2005 obligatory tax payments accounted for 52.1 percent Sweden’s gross domestic product, according to the European Union’s Eurostat data agency.

Since its arrival in power the centre-right coalition has launched a series of reforms.

It started out in December by modifying the system of unemployment benefits, reducing benefits and increasing payments.

And in March the government proposed ending state participation in six companies, including Vin & Spirit, the owner of the famous vodka Absolut.

“Sure it is a step towards a more market-oriented policy,” said Klas Eklund , chief economist at SEB bank.

“Lower real estate tax is of course a way to increase incentives to own your own house. There are a number of small steps taken now: wealth tax, real estate tax, low unemployment benefits, lower income tax, easier to start your own company, less bureaucracy for small entrepreneurs.

“Every single one of them is not very important, but if you add them all up surely Sweden is turning more liberal,” added Eklund.

The left-wing opposition also says the government has shifted to the right.

“We are starting to recognise a rightist policy, one week they abolish the wealth tax and the next the property tax instead of relying on the welfare state,” Pär Nuder , the Social Democrats’ economic spokesman, told the TT news agency.

“It is an unfair policy which increases gaps.”

The next challenge for the government is to take on the problem of unemployment of lesser qualified people and immigrants, another electoral promise.

Knutson says the government intends to reduce salary costs for businesses which give priority to hiring these people, who form the bulk of the country’s unemployed.

In mid-February the Organisation for Economic Cooperation and Development (OECD) said that in spite of excellent macro-economic performance with 4.4 percent growth in 2006, one of Sweden’s biggest challenges was to integrate immigrants into the work market.

It advised Sweden to continue reforms to strengthen the economy by introducing more competition into the public sector.

Delphine Toitou