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Sweden’s Borg Seeks Higher Taxes as Election Pushes Spending

Feb. 20 (Bloomberg) -- Sweden’s government proposed increasing taxes on pension saving and motor vehicles amid the widest deficits in 18 years as it seeks revenue for spending to win back voters ahead of elections in September.

The plan, which also includes cutting direct support for students and higher alcohol and tobacco taxes, will raise 9 billion kronor ($1.4 billion) a year by 2016, the Finance Ministry said today. The government sees economic growth at 2.5 percent this year and 3.5 percent next year.

“We want to finance important spending on education and jobs and competitiveness,” Finance Minister Anders Borg said today in Stockholm. “We’re now in a situation where the world economy is starting to emerge from a crisis and it’s then also reasonable that we apply the principle that reforms are financed krona by krona.”

Prime Minister Fredrik Reinfeldt this month pledged to end years of tax cuts that polls show alienated voters focused on education and welfare spending. The four-party coalition of Reinfeldt, which has cut income taxes five times and corporate taxes twice since coming to power in 2006, trails the Social Democratic-led opposition in polls by more than 15 percentage points.

Sweden’s krona slid 0.4 percent, weakening for a fourth day, to 8.9741 per euro as of 4 p.m. in Stockholm.

Unemployment Drops

The largest Nordic economy, home to companies such as Hennes & Mauritz AB, grew just 1 percent last year, weighed down by slack demand from recession-wracked Europe. The government today predicted unemployment will be at 7.7 percent this year, compared with 8.0 percent last year. Joblessness will fall to 7.3 percent next year.

The ministry said the economy will now gradually “return to normal” and expects to emerge from deficits in 2016. It raised its deficit estimate for this year to 1.9 percent of gross domestic product, the biggest since a 3.3 percent deficit in 1996. The deficit will be 0.7 percent next year.

“Sweden is in a situation where we’re seeing pretty good growth and then these deficits are far too big,” Magdalena Andersson, economic spokeswoman for the Social Democrats, told reporters today. “Anders Borg’s savings program today shows that also he’s making that call.”

Education Gains

While unemployment has remained high, polls show education has become the biggest concern among voters, after an Organization for Economic Cooperation and Development study last year indicated that Swedish students are falling behind globally. The Social Democrats, together with their allies in parliament, look poised to win the Sept. 14 election, pledging to strengthen Sweden’s welfare model.

The three-party opposition, which includes the Left Party and the Green Party, would win 52.8 percent of votes, compared with 36 percent for the government, according to a Sifo poll published in Svenska Dagbladet on Feb. 16. An Ipsos poll in Dagens Nyheter this month showed Swedes ranked education as the most important issue, followed by jobs, health care and care for the elderly. Taxes ranked 10th.

“We have a government that has failed to create jobs, that’s failed the schools and that has also created big problems with public finances,” said Andersson, who is top candidate to become finance minister should the opposition win this year’s elections.

To contact the reporters on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net; Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net

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

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