Sweden Predicts Surplus, Plans Tax Cuts as Economy Beats European Rivals
Swedish Finance Minister Anders Borg
Chris Ratcliffe/Bloomberg
Swedish Finance Minister Anders Borg.
Swedish Finance Minister Anders Borg. Photographer: Chris Ratcliffe/Bloomberg
Sweden predicted a budget surplus and raised its economic growth forecast for the next two years, allowing Europe’s fastest-growing economy to cut taxes while the rest of the region struggles through austerity cuts.
The largest Nordic economy will expand 4.6 percent this year, compared with the 4.8 percent predicted last month, the government said in its spring fiscal policy bill released today in Stockholm. The government raised its forecast for growth in 2012 and 2013 and predicted a widening surplus over the next four years as unemployment falls.
“In a situation when many other countries are experiencing austerity and weak economies, Sweden’s economy is growing stronger,” Finance Minister Anders Borg said. “We must use this to ensure that more people find work and that welfare initiatives can be implemented.”
Prime Minister Fredrik Reinfeldt’s government, which won another four years in office in September, said yesterday it plans to reduce taxes for a sixth consecutive year in 2012 as other nations such as the U.K. slash spending to pare deficits. The Swedish economy grew 5.5 percent in 2010, the most since 1970, as exports recovered from the global financial crisis.
Krona Friendly
The krona strengthened 0.8 percent to 6.2507 per dollar and 0.7 percent to 9.0586 per euro at 11:26 a.m. local time.
“The government saying there is still room for further tax cuts and growth-friendly reforms is positive for the krona for the medium term,” said Anders Eklof, a currency strategist at Swedbank AB in Stockholm. The lender forecasts the krona to be at 8.65 per euro in six months.
The economy will grow 3.8 percent in 2012 and 3.6 percent in 2013, the government said, compared with estimates of 3.5 percent and 3.2 percent in March. Unemployment will fall to an average 7.3 percent this year and 6.6 percent in 2012, while consumer prices will rise 2.5 percent in 2011 and 2.0 percent in 2012, according to the government.
Borg said that gains in the krona, the best performer this year against the euro and dollar among 16 major currencies tracked by Bloomberg, will likely be tempered by rising interest rates outside the country. The government predicted the krona will rise to 8.70 per euro at the end of this year and weaken to 8.80 per euro at end of 2012.
Rising Rates
Sweden’s central bank has raised its key rate five times since July, bringing it to 1.5 percent in February from a record low of 0.25 percent. Governor Stefan Ingves has said he can’t rule out raising rates at all five remaining policy meetings this year. The bank will announce its next decision on April 20.
The government today forecast the central bank’s benchmark rate would reach 2.25 percent this year, 3.25 percent next year and level out at 3.75 percent in 2013.
Reinfeldt’s four-party government alliance had already revealed it will invest more money in the country’s railway infrastructure and that it wants to ease benefit rules for long- term sick leave. It’s also considering next year cutting income taxes for foreign nationals with “expert knowledge,” dividend taxes for some small businesses and allowing bigger write-offs for investments in research and development.
The government will also lower taxes for pensioners as well as cut the value-added taxes for restaurants.
Fiscal Expansion
“Even though the government is somewhat optimistic on the economic outlook, public finances seem very solid,” said Bengt Rostroem, an economist at Nordea Bank AB, in a note. “Furthermore, the government’s own calculations show that expenditures are systematically overestimated by roughly 9 billion kronor at this forecast horizon. Thus we see the possibility for an even more expansionary fiscal policy for 2012.”
The initiatives have been made possible by improving public finances, which will show a surplus of 0.3 percent of gross domestic product this year, and surpluses of 1.8 percent 2012 and 2.8 percent in 2013, the government said.
The spring fiscal policy bill outlines the government’s ambitions for the next few years and additional measures for the current year.
The government has cut income taxes by 70 billion kronor ($11.1 billion), or about 2.1 percent of the economy, since coming to power in 2006. It has also reduced corporate and payroll taxes and abolished a levy on wealth.
To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net
To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net
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