Sweden Faces Turmoil as Opposition Exits Budget Agreement

  • Swedish PM Loefven says will keep current government set up
  • Largest opposition party says won't seek budget breakouts

The deal that ensured political stability in Sweden lasted less than a year.

The four-party Alliance opposition last week voided a December agreement designed to ensure the minority Social Democratic-led government could pass its budgets. The accord was brokered to avoid a snap election after the anti-immigration Sweden Democrats abandoned parliamentary tradition and used its status as power broker to cause the government’s budget to fail.

For now, opposition leaders say that they will refrain from putting forth a joint budget to allow the Social Democrats and its partner, the Greens, to push through their spending plan. Discontent had been brewing among opposition lawmakers that the deal has given the government too much leeway to set policy after it has announced tax increases, higher welfare spending and increased outlays on jobs programs and education to drive down unemployment.

“The autumn budget will go through but the Alliance could already next year propose a joint budget and that could cause the government’s budget to fall,” said Anna Breman, an economist at Swedbank, in an e-mailed comment. “It causes great uncertainty for both households and companies.”

Can’t Afford

The collapse of the accord sparked speculation that the opposition could also carve out parts of the budget or change measures in committee. The Liberal Party called on Prime Minister Stefan Loefven to dump his Green Party partner, while the Sweden Democrats called for a no confidence vote against the finance minister as the nation grapples with absorbing a record number of refugees.

As the government “isn’t going to rule on someone else’s budget,” it now needs clear answers from the opposition, Loefven said in a debate with Moderate Party Leader Anna Kinberg Batra on Swedish Radio. “We can’t afford any political chaos in Sweden.”

The country is currently experiencing a difficult security situation and going through the worst refugee crisis since the World War II, he said. “To then risk political stability in Sweden, that’s irresponsible.”

Parliament Decides

Anna Kinberg Batra said that while the four center-right parties in the Alliance may ask for changes to the budget before it’s voted on, her group will stick with procedures and won’t break out individual items after it has passed, and won’t support a no confidence vote from the Sweden Democrats.

“I won’t take initiative to throw Sweden into a political crisis,” she said in the debate. “But I think the prime minister should respect that it’s parliament that in the end makes the decisions.”

Danske Bank A/S warned in a note Monday that the turbulence now gripping Swedish politics could weaken the krona. This year’s budget will probably pass “unless some unholy alliance comes together and votes for one party’s plan,” Stefan Mellin, an analyst at Danske, said in a note.

“But already next year the Alliance could get together and propose a joint budget and that automatically complicates things,” he said. “A snap election can’t be excluded.”

Both blocs have so far refused to cooperate with the Sweden Democrats because of its views on immigration.

The government budget presented last month means taxes will increase by 45 billion kronor ($5.4 billion) next year to pay for new spending measures of the same amount. Income tax increases, higher social fees for young workers and lower tax breaks on home repairs and household services have proven unpopular with the opposition.

The collapse of the December accord also casts doubt on whether measures to cool the housing market, such as tighter amortization demands, will pass next year, said Swedbank’s Breman.

“It also makes it more difficult for the Riksbank because it won’t know whether housing market reforms will come through,” she said. “The central bank is of course also affected by the general uncertainty on fiscal policy, including uncertainty surrounding taxes since of those directly feed through to inflation.”

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