Sweden bill unchanged despite tax hikes

There were no major surprises in the 2016 Budget Bill as most of the content was already known. Tax revenues will increase by about SEK 33bn in 2016, while reforms amount to SEK 45bn. 

Nevertheless, the government financial savings are practically unchanged between 2015 and 2016, indicating a neutral fiscal policy. The public sector finances are not expected to reach balance until 2018.

This is a traditional Social Democratic policy with increased welfare spending and comprehensive tax hikes. The budget is more focused on redistribution of income than on employment and growth.  The major part of the tax increases are on income, SEK 25bn, and savings, SEK 2bn, while only SEK 5bn are on consumption.  

The reforms focus on three major areas, jobs, education and investments in climate. However, the labour market measures are offset by the tax hikes, which reduce the effect on employment. People who are sick, unemployed and low-income pensioners benefit from the budget, while middle- and high-income earners and people in rural areas depending on cars are disfavoured.

The Government's view on the Swedish economy is rather modest with GDP growing by 2.8% in the next two years.  On the other hand there is rather optimistic forecast for the labour market longer term with unemployment falling to 6.2% in 2018. 

"However, it is not likely that the Government will reach its unemployment target with the lowest unemployment in the EU, which at least should be below 5%", says Nordea Bank.