Swedes Risk $3.4 Billion Bill If Premier Ousted, Employers Say

Swedish employers are warning voters against ousting Prime Minister Fredrik Reinfeldt in elections this year, arguing a regime change will raise costs for consumers and businesses.

Raising payroll taxes and higher value added taxes will add 6.9 billion kronor ($1.1 billion) in costs for the hospitality companies, according to Visita, which represents 6,000 employers in the industry. For industries that rely on young hires, raising payroll taxes will add about 16.7 billion kronor in costs, Visita estimated.

Employers are adding their voice to an election debate that has come to focus on welfare, education and jobs. With polls suggesting Swedes are tired of Reinfeldt’s legacy of tax cuts, the Social Democrats look poised to return to office in September after an eight-year hiatus. The party, positioning itself as the defender of Sweden’s welfare model, argues increased taxes will help create jobs elsewhere in the economy.

“It’s a smoldering fire out there and these politicians’ proposals stir strong feelings,” Eva Oestling, chief executive officer of Visita, said in an interview in Stockholm. The Social Democrat proposal would be a “double blow” to employers, she said.

Since coming to power in 2006, Reinfeldt has presided over a public debt load that has hovered around 40 percent of gross domestic product, less than half the average in the euro area, according to the European Commission. The largest Nordic economy will grow 2.8 percent this year, more than double the 1.1 percent pace in the 18-nation euro area, the commission estimates.

Burger Wars

Yet Reinfeldt’s Moderate Party-led coalition trails the opposition by more than 10 points in most polls. That’s sparked panic in corners of Sweden’s business community.

Max, a Swedish hamburger chain, wrote a letter to its employees last month warning an election win by the Social Democrats and its allies would be a “total catastrophe.” Silentium, a company that provides call centers, told its workers they need to be aware that tax increases come at a cost.

Max, which operates about 90 restaurants in Sweden, said the 2012 VAT cut allowed it to add 279 new full-time employees.

Expansion Plans

“The consequences will be that we get substantially increased costs and that of course impacts our business,” said MAX Chief Executive Officer Richard Bergfors, in an e-mailed reply to questions. “And as we act in a low-margin-industry, we will likely have to review our costs and substantially raise prices, as well as review future expansion plans.”

Reinfeldt would lose the election if it were held today, polls show. The opposition is backed by 49.7 percent of those polled by United Minds, Aftonbladet newspaper said Feb. 10. The government would get 36.7 percent. Swedes vote on Sept. 14.

In a clip on YouTube, Visita said Reinfeldt’s 2012 cut in VAT for restaurants to 12 percent from 25 percent helped create 10,000 new jobs, mainly for young people. It also led to a 0.1 percent drop in prices in 2012 -- the first time in 15 years that prices declined. Compared with the projected price gain, that means prices are now 3.8 percent lower than they would have been without the VAT cut, Visita said.

Raising payroll taxes will cost the hospitality industry 1.5 billion kronor while higher VAT will add 5.4 billion kronor in costs, Oestling said. For industries that rely on young hires, raising payroll taxes will add 16.7 billion kronor in costs, based on 2012 prices, according to Visita.

Uneasy Influence

Jonas Sjoestedt, who leads the opposition Swedish Left Party, told Aftonbladet newspaper it makes him “uneasy that companies try to influence their employees” in how to vote. He described the approach as “unusual.”

The Social Democrats argue previous tax cuts did little to boost employment, while depleting government revenue.

“It creates very few jobs and the jobs that are created therefore become very expensive,” Fredrik Olovsson, a Social Democrat who is a member of parliament and deputy chairman of the parliament’s finance committee, said in a phone interview.

“It’s obvious that if companies like Max have a chance to make profits,” they “will of course want to continue to do that,” he said. “We can use society’s resources more effectively than giving big companies, and it’s mainly those we’re talking about, very big subsidies.”

To contact the reporters on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net; Katarina Gustafsson in Stockholm at kgustafsson@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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