Sweden’s Wealth Cap at Stake as Minister Faces Budget Crisis

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Sweden’s new government says failure to pass its budget could stall measures needed to ensure that a global rise in income inequality doesn’t spread to a nation long held up as a bastion of egalitarianism.

Finance Minister Magdalena Andersson, a graduate of the Stockholm School of Economics who also attended Harvard, urged opposition lawmakers to end threats that they may block the minority coalition’s budget proposal, arguing such a move could hurt Sweden’s welfare model. With a vote set for next month, the government may face new elections if its bill fails.

Even in Sweden, income disparities “haven’t developed in the right direction,” Andersson said in an interview in Stockholm. “Unemployment is far too high” and “long-term unemployment is too high,” she said.

Andersson, together with Prime Minister Stefan Loefven, in October unveiled a budget that included tax increases for those with higher incomes and more spending to create public sector jobs and bring down unemployment. The government has promised to cut Sweden’s jobless rate, which at 8.1 percent is Scandinavia’s highest, to the lowest in the European Union.

To achieve this, “people with higher incomes will contribute a bit more, for example with a higher income tax,” Andersson said.

Not all Scandinavian governments are responding to the threat of income inequality in the same way. In neighboring Denmark, Finance Minister Bjarne Corydon said in an interview last week he wants to create room for people to “make more money, even if you make a lot of money already.”

Nordic Models

Denmark saw the biggest increase in income inequality from 2008 to 2012, according to a Eurostat study. Corydon rules out further tax increases for Danes.

On a so-called Gini coefficient scale of zero to 100 -- where zero reflects total income equality and 100 total inequality -- Denmark scored 27.5 in 2013, compared with a European Union average of 30.5, the Eurostat study showed. Sweden’s was 24.9, compared with 23.4 in 2005.

Andersson and Loefven say their government needs to raise taxes to fund programs for the unemployed, to improve standards at schools and to help under-privileged families.

Sweden predicts gross domestic product will expand 2.1 percent in 2014 and 3 percent in 2015. The economy expanded 0.3 percent in the third quarter from the second, more than the 0.2 percent estimated in a Bloomberg survey of analysts.

Public debt will reach 40.3 percent of gross domestic product this year, the European Commission estimates. That’s about half the average in the EU.

Loefven says it’s the role of government to step in and repair the damage done by malfunctioning financial markets.

“When financial markets don’t function as they should, the real economy doesn’t work properly either,” he said. “In systems where you don’t have adequate support for the unemployed, the worst hit are those who are already the worst off.”

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