Sweden Considers Investment Budget to Cut Unemployment

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Swedish Prime Minister Stefan Loefven
Prime Minister Stefan Loefven said in an interview, “It’s important for us to keep the real capital in order so that we know how it’s managed and develops.” Photographer: Scott Eells/Bloomberg

Sweden’s government is looking to set up an investment program outside of its main budget to push unemployment down to the lowest in the European Union over the next five years.

The government is considering carving out a separate plan as it raises spending on infrastructure and housing to create jobs, Prime Minister Stefan Loefven said in an interview in Stockholm on April 20.

“It’s important for us to keep the real capital in order so that we know how it’s managed and develops,” said Loefven. “It’s absolutely crucial to strengthen competitiveness -- that we know the status and what we want to do with housing, roads and railways.”

Loefven, whose Social Democratic minority government took over last year, is running up against budget constraints to meet a pre-election pledge of reducing unemployment to levels not seen in more than a decade. The government forecasts budget deficits through 2017 and has pledged to fully finance all spending measures.

Sweden’s seasonally-adjusted unemployment rate was 7.8 percent in February, compared with 4.8 percent in Germany, the EU’s lowest, according to data from Eurostat.

Boosting investments in infrastructure and housing will be one important factor in reaching the unemployment goal, according to Enterprise Minister Mikael Damberg.

“Unemployment is historically high and this creates inequality,” he said in an interview last week.

Raised Ambition

The Swedish Trade Union Confederation, LO, backs the government’s plan, arguing it needs to raise its ambition level.

“Never mind how it’s done -- you can either do it this way or allow larger deficits during a period of time,” Ola Petterson, chief economist at the group, said in an interview on Monday. “That’s more of an accounting issue. That it happens is the important thing.”

The government plans to present a plan “on the side of the budget,” where it “will give an account of the investment needs so that this can be followed parallel to the regular budget,” Damberg said. It may also consider allowing the AP pension funds to invest more in infrastructure, he said.

Pension Cash

There’s talk “on slightly freer investment rules for the pension funds” with “many in the Social Democratic Party that see that as a possibility to increase investments,” he said.

An investment budget, which is used by Swedish municipalities, would spread the cost for large projects such as railways over the investment life-span rather than booking it in the budget as soon as the money has been spent.

In a document released ahead of the Social Democratic Party congress in May, its leadership floated the possibility of investigating whether strategic, larger projects -- such as the construction of high-speed railways -- could be financed through borrowing.

“We’re looking at different types of financing because these are rather significant investments,” Loefven said. “There’ll be interest costs in the budget anyway but let us look at what different funding sources there are to perhaps also increase the volume of investments. We need that.”

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