Sweden Needs $15 Billion Tax Boost to Keep Up Welfare, NIER Says

Sweden’s next government will need to reverse much of the past eight years’ tax cuts to keep up with surplus targets and maintain the quality of the welfare state, a state-sponsored research group said.

The country needs 100 billion kronor ($15.5 billion) in tax increases by 2018, or about 2.8 percent of gross domestic product, Jesper Hansson, head of forecasting at the National Institute of Economic Research, said at a press conference today in Stockholm. That would raise the tax burden of Swedish households and companies to more than 46 percent of GDP in 2018 from about 44 percent.

“The Swedish economy, unemployment and so forth, can surely cope with a tax burden of 46 percent of GDP,” Hansson said. “It all comes down to what ambitions one has for the public sector.”

Sweden’s four-party government is trailing by more than 15 percent in some polls ahead of September elections following attacks by the opposition that years of tax cuts have eroded the quality of the country’s cradle-to-grave welfare system. Prime Minister Fredrik Reinfeldt this year lowered income taxes for a fifth time since coming to power in 2006 to boost growth in the export-dependent $560 billion economy.

Reinfeldt has also cut corporate taxes, reduced payroll taxes and abolished Sweden’s wealth levy in 2007. He’s now facing criticism from the opposition that he’s not doing enough to return Sweden to its 1 percent of GDP budget surplus target after projecting deficits this and next year.

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