Borg Sees Tax Cuts as Top Priority as Sweden Faces Lean Years

Swedish Finance Minister Anders Borg said the first priority after elections in 2014 will be to lower taxes for low and middle-income earners while backing away from cutting the top marginal rate.

The government will also work to lower corporate and ownership taxes, Borg said today at a Moderate Party event in Stockholm. There won’t be money to lower the tax rates for high-income earners because Sweden should prioritize spending on welfare and education, he said.

“We still want to strengthen tax cuts for low and middle income earners during the years ahead,” Borg said, adding that it could be done as early as next year. While Sweden should target a 1 percent surplus also after the 2014 election, the country is unlikely to reach that target until 2017.

Sweden has steered clear of the recession that’s engulfed the euro area, helping the AAA-rated Nordic nation to emerge as a haven from the debt crisis and allowing the state to cut both income and corporate taxes. Still, Prime Minister Fredrik Reinfeldt last year scrapped a fifth round of income tax cuts since taking power in 2016 to protect the economy against deficits.

Reinfeldt also said today at the same event Sweden must create more jobs, which is likely to become the main topic in the general election. Swedish companies are buckling under strains from a surging krona, which is driving up the price of exports for the trade-reliant economy. The krona has jumped 28 percent versus the euro since early 2009.

Limited Room

The premier said last month that companies will need to adapt to a stronger currency.

Slumping demand for exports slowed economic growth to 0.8 percent last year from 3.7 percent in 2011. The country’s central bank forecasts unemployment will rise to an average 8.1 percent in 2013 from 7.7 percent in 2012.

The government will consider measures to broaden the tax base by targeting corporate tax evasion and reducing interest rate deductions, Borg said.

Sweden’s corporate tax rate was cut in January to 22 percent from 26.3 percent previously.

The country will post a 1.3 percent deficit of gross domestic product this year, the government forecast in December.

Sweden has “limited” room for new fiscal initiatives “in the years ahead,” he said. The country should also avoid “significant changes” to labor laws, leaving it to unions and employers’ organizations to make the job market more flexible, he said.

Borg’s Moderate Party, which is the largest in government, today said it will have to negotiate a common election platform with the three smaller coalition parties ahead of the next parliamentary elections in 2014.

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