Reinfeldt Pledges $2.7 Billion in Swedish Income Tax Cuts If Re-Elected

Swedish Prime Minister Fredrik Reinfeldt pledged a further round of tax cuts to reduce unemployment and galvanize economic growth as the Nordic country prepares for general elections next month.

Reinfeldt’s Moderate Party, which leads the four-party coalition government, wants to cut income taxes by about 20 billion kronor ($2.7 billion) in 2012 to 2014, the premier said at a press conference in Stockholm today. Pensioners would get about 5 billion kronor of the cuts, he said. Finance Minister Anders Borg said at the same event the government wants to run a fiscal surplus before implementing the tax cuts.

The measure would “create jobs and increase the incentive to work,” Reinfeldt said. Tax cuts “improve the will to work longer hours and this strengthens public finances.”

Both the government and the three-party opposition bloc have made job creation the centerpiece of their campaigns as they prepare for the Sept. 19 election. The jobless rate rose to 9.5 percent in June as students off for the summer holidays went looking for work, making youth unemployment a key election issue.

“It’s our ambition to carry out these initiative during the next parliamentary term, but we will never sacrifice the strength of public finances,” Reinfeldt said.

Sweden boasts the European Union’s smallest budget deficit to gross domestic product ratio. The shortfall was 0.5 percent last year and will widen to 2.1 percent in 2010, the European Commission estimates.

The government has led the opposition in most polls since May, with a 3.3 percentage point lead over the three-party opposition alliance, according to a survey published by pollster Sifo in newspaper Svenska Dagbladet on Aug. 8.

Reinfeldt Leads

More Swedes expect Reinfeldt’s Moderate party to be successful in reducing unemployment, compared with the largest opposition party, the Social Democrats, according to a survey by the same pollster published on Aug. 10.

Swedish companies including Ericsson AB, the world’s largest maker of wireless networks, and Assa Abloy AB, the world’s largest maker of locks, have cut thousands of jobs since the outbreak of the global financial crisis in 2008.

The government is spending 1.2 percent of gross domestic product this year to boost growth and cut unemployment after the economic crisis cut demand for exports, which generate about half the country’s total output. The economy contracted 5.1 percent last year -- the most since World War II.

The opposition has pledged to spend more on welfare than the government and reduce payroll taxes to create jobs, if it wins the elections. Since coming to power in 2006, the government has reduced payroll taxes for companies that hire long-term unemployed, immigrants and young people looking for work.

Improvement

Recent jobs data indicate the labor market is improving. The seasonally-adjusted jobless rate fell to 8.1 percent in June from 8.7 percent the previous month, Statistics Sweden said on Aug. 5.

Volvo AB, the world’s second-largest truckmaker plans to hire new workers in the second half, Chief Executive Officer Leif Johansson said on July 22. Scania AB, the truckmaker controlled by Volkswagen AG, in April resumed a five-day workweek for most of its Swedish manufacturing operations.

Swedish exports rose for a seventh month in June on an annual basis as most of the largest industrial companies including Atlas Copco AB, the world’s largest maker of air compressors, and SKF AB, the world’s biggest manufacturer of ball bearings, reported better-than-expected second-quarter results.

“We’re now seeing much higher growth than we predicted at the start of the summer and a significantly stronger labor market,” Finance Minister Anders Borg said on Aug. 5, adding the government will later this month probably cut its unemployment forecast, as measured by Statistics Sweden, for an average 8.9 percent this year. It may also raise its growth forecast from 3.3 percent for this year, he said.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net.

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