Sweden predicted it won’t reach its surplus target until 2017 as the government stimulates the largest Nordic economy to boost job creation ahead of next year’s election.
The government announced new measures of 24 billion kronor ($3.7 billion) for next year’s budget, including income and pension tax cuts, the Finance Ministry said today. The effect will be a boost of 20 billion kronor for households, helping disposable incomes to rise by 3.7 percent, the ministry said.
“Sweden is in a position of strength that allows fiscal policy to support measures for growth and jobs to prevent unemployment from becoming entrenched,” Finance Minister Anders Borg said in a statement.
The AAA rated Nordic country is tapping into its fiscal strength to help the $540 billion economy, which has been dragged down by slack demand from the struggling euro area, its largest trading partner. The government today reiterated growth forecast provided last month of 1.2 percent for this year and 2.5 percent next year.
The general government will post a deficit of 1.2 percent this year and 1.5 percent next year and won’t reach the 1 percent surplus target until 2017, according to the budget.
Borg said the room for reforms is very limited next year amid rising pension and sick-leave costs. Those expenses have risen by about 10 billion kronor, he wrote in an op-ed today in Dagens Nyheter.
“That’s why the majority of the measures to support growth and jobs are on the income side,” he said.
The government also predicted unemployment will be 8.1 percent next year, down from 8.2 percent this year.
Prime Minister Fredrik Reinfeldt’s coalition, which was re-elected in 2010, is trailing in polls ahead of elections in September next year.
“To secure a stable development and lower unemployment it’s reasonable to return to a surplus of 1 percent of GDP only when resource utilization nears balance,” Reinfeldt said yesterday in a speech at the opening of the Stockholm parliament’s 2013/2014 session. “This is expected according to our forecasts not until 2017.”
“Our strong position should be used to give support for an economic recovery,” he said.