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Swedish Economic Bounce Promises to Reward Reinfeldt

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Fredrik Reinfeldt, Sweden's Prime Minister
Swedish economic bounce promises to reward Reinfeldt. Photographer: Jock Fistick/Bloomberg

Sept. 17 (Bloomberg) -- Swedish voters look set to reward Prime Minister Fredrik Reinfeldt for achieving Europe’s most impressive economic rebound.

His four-party coalition may win more than 50 percent of the vote in the Sept. 19 elections, polls show, after steering the economy through the worst recession since World War II, protecting the welfare state, cutting taxes and running the narrowest budget deficit in the European Union. The main opposition party, the Social Democrats, may have their worst result in decades while the anti-immigration Swedish Democrats may win seats for the first time, the most recent polls show.

“The government has shown strong leadership and conducted sound fiscal policies,” said Johan Heijbel, managing director at Stockholm-based Novestra AB, a venture capital firm that oversees $63 million. “Sweden has been much better at keeping up business activity and supporting consumption. The tax cuts came at just the right time.”

Reinfeldt, 45, has ridden a wave of raised economic forecasts, consensus-beating declines in unemployment and a turnaround in exports to rival Germany’s performance. The 70 billion kronor ($9.9 billion) in income-tax cuts made since 2006, equivalent to 2.3 percent of the economy, haven’t eroded childcare, education, health-care or jobless benefits, according to most analysts.

In the last three polls by Stockholm-based Sifo, the country’s biggest pollster, Reinfeldt’s bloc won 50 percent support or more. The margin of error was 3.3 percentage points. The government’s lead over the three-party Social Democrat-led opposition has ranged from 6.4 percentage points on Sept. 5 to 9.7 points in the latest poll, published on Sept. 12.

Scandinavian Welfare

The Social Democrats, who say the government is providing tax cuts at the expense of protection for society’s weaker members, have suffered a two-decade trend of declining support after helping establish the Scandinavian welfare model in 1945. The country’s welfare comes at a cost, with Swede’s shouldering the world’s second-highest tax burden after Denmark, at 46.9 percent of gross domestic product, according to 2008 data compiled by the Confederation of Swedish Enterprise.

Reinfeldt is persuading voters, who backed Social-Democrat governments in 61 of the last 74 years, to stay with an administration campaigning on tax cuts. He will this year deliver the biggest economic rebound and the smallest budget deficit in the 27-member EU. At 4.5 percent, Sweden’s 2010 growth rate will be more than twice the EU average and the deficit will be 2.1 percent of output this year, compared with an average shortfall across the bloc of 7.2 percent of GDP.

Raised Forecasts

That has helped strengthen the krona by 10 percent against the dollar since the end of June. The currency is the second-best performer behind the Australian dollar of the 16 major currencies tracked by Bloomberg in the period.

Sweden is the second-most competitive economy in the world after Switzerland, climbing two spots from the 2009 list after overtaking Singapore and the U.S., which are now in third and fourth place, respectively, according to the World Economic Forum’s Global Competitiveness Report 2010-2011.

Reinfeldt raised economic growth forecasts twice since June and targets 25 billion kronor more in income and pensioner tax cuts through 2014.

“When we govern, it shows in your wallet that you work,” the premier said at an Aug. 25 rally. “We’re best at taking care of public finances and combine that with good politics for jobs and welfare ambitions.”

Investors agree.

The decision to abolish a tax on wealth -- a levy on net assets above a certain value -- has been the single “most important change” the government has made in the last four years since it means that “capital dares to stay in Sweden and dares to invest in Sweden,” said Christer Gardell, founder of Cevian Capital AB. The company controls 5.5 percent of voting rights in Volvo AB, the world’s second largest truckmaker, and 4.6 percent of Stockholm-based lender Swedbank AB.

Planning Taxes

Reinfeldt said on Aug. 26 his administration wants to cut income taxes by 15 billion kronor ($2.1 billion) by 2015 to help create jobs and increase the incentive to work.

“Sweden has become a very good country to run a business in,” said Max Hansson, chairman of PayEx, a Swedish payment services provider that employs more than 600 people in Scandinavia. “The government should continue down the same path. That people running businesses no longer have to spend so much time planning their taxes is fantastic.”

Social Democratic leader Mona Sahlin, bidding to become the country’s first female premier, has failed to differentiate her party from the government and convince voters it is the best guardian of the welfare state, polls show.

Only 19 percent of voters think Sahlin would be the best premier, compared with 81 percent support for Reinfeldt, according to a poll by Stockholm-based Skop on Sept. 16.

24 Parties

Reinfeldt “has a style and charisma that Swedes appreciate in a politician,” said Jenny Madestam, a political science lecturer at Stockholm University. “He appears knowledgeable, competent and serious.”

At least 24 parties will vie to pass the 4 percent threshold needed to get into the 349-seat parliament, according to the Election Authority’s website. Aside from the two main blocs, voters can choose among groups including the Pirate Party, which wants to axe Internet copyright laws, and the Feminist Initiative, which wants to broaden the definition of rape.

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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