Swedes Losing Jobs Are Focus of Union Push for Regime Change

Sweden’s biggest blue-collar union is preparing for a regime change after September elections and says it wants the next government to borrow more and raise taxes to save jobs.

Sweden, where unemployment is the highest in Scandinavia, should elect a Social Democratic-led coalition to ensure more is invested in education, elderly care, railways, roads and housing, Tobias Baudin, first vice president at the Swedish Trade Union Confederation, known as LO, said in a March 13 interview in Stockholm.

Scandinavia’s biggest economy “must start to invest in what creates jobs” to “reduce the mass unemployment that’s so devastating in so many ways,” said Baudin, whose union represents 1.5 million workers. He wants the next government to raise income taxes on high wage earners, he said.

LO is throwing its weight behind a campaign to remove the four-party Conservative-led government of Prime Minister Fredrik Reinfeldt in Sept. 14 elections after it failed to live up to pledges to cut unemployment, Baudin said. Reinfeldt’s coalition is trailing by more than 15 percentage points in some polls amid voter concerns that multiple rounds of tax cuts since 2006 have led to a deterioration in education and health-care standards.

The current government’s efforts to leave Swedes with more take-home pay have backfired in a nation where Social Democratic administrations have dominated since World War II, turning Sweden into a bastion of European welfare.

The krona strengthened 0.3 percent to 8.8603 per euro as of 2:34 p.m. in Stockholm.

Shutting Doors

“Cutting unemployment is the best way to fund all the initiatives that must be taken,” Baudin said. “That will cost money so we’re absolutely not shutting any doors to future tax increases.”

Baudin also blames the central bank for Sweden’s high jobless rate, which Statistics Sweden estimates was 8.5 percent in February. In neighboring Norway, unemployment was 2.9 percent last month. Even in Denmark, where a burst housing bubble has undermined consumer confidence, joblessness was 5.4 percent in January.

Adjusting for seasonal swings, Sweden’s jobless rate is 8.1 percent, compared with 6.7 percent when the government came to power in 2006. Some of Sweden’s biggest companies, including Volvo AB (VOLVB) and Electrolux AB (ELUXB), have cut thousands of jobs to stay competitive. The nation relies on exports to generate about half its total output.

Deflation Trap

The central bank hasn’t cut interest rates far enough to revive Sweden’s labor market, according to Baudin. The bank, which left its benchmark repo rate at 0.75 percent in February following a quarter-point cut in December, argues it needs to balance policy to avoid fueling a credit-driven housing bubble.

That goal “can’t come at the price that we have 400,000 unemployed in Sweden and that things get entrenched and we get deflation instead of inflation,” Baudin said. “That’s completely devastating.”

Though Sweden’s economy rebounded in the fourth quarter, growing 1.7 percent from the previous three-month period, consumer prices fell 0.2 percent in February from a year earlier.

Reinfeldt has lowered income taxes five times since coming to power in 2006. He’s also cut corporate taxes, reduced payroll taxes and abolished Sweden’s wealth levy. His minority government was blocked by parliament last year when it tried to cut levies placed on Swedes earning the highest salaries.

‘Sound Politics’

Baudin said that a Social Democratic coalition with support from the Left and Green parties will need to reconsider whether Sweden needs to stick to its budget target, which stipulates that governments must post an average surplus of 1 percent of gross domestic product over a business cycle.

The rule has been supported by the Social Democrats, which has criticized the current government for not meeting the target.

“What we absolutely must borrow for are all the investments we must make in infrastructure, in roads and railways, and borrowing money for that is sound politics,” Baudin said.

The election has become a contest over which side is the most fiscally responsible, with Finance Minister Anders Borg announcing last month that any new initiatives should be financed “krona by krona.” He steered AAA-rated Sweden through the global financial crisis, while reducing public debt to 41.5 percent of GDP, less than half Europe’s average ratio.

OECD Ranking

Sweden fell to fifth place in a 2012 ranking by the Organization for Economic Cooperation and Development that shows how much citizens are taxed as a share of GDP. In 2006, Sweden ranked second. Its tax ratio fell to 44.3 percent of GDP in 2012 from 48.3 percent in 2006. In the U.S., the ratio was 24 percent, while the OECD average was 34.1 percent in 2011.

The government has partly funded its tax cuts by scaling back unemployment benefits. Those measures must be reversed, Baudin said.

“We must get things going. We can’t just sit around, lean back and not do that,” he said. “Inequality is not good. It’s not good for individuals or for society, or poor or rich.”

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

To contact the editors responsible for this story: Jonas Bergman at jbergman@bloomberg.net Tasneem Brogger

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