Stockholm’s Partygoers on Collision Course With Prime Minister

A Stockholm nightclub and hotel whose guests have included everyone from Rihanna to the Dalai Lama is about to make life a lot harder for the government.

The people running Berns, an establishment that traces its history back to the 1860s, say a plan to raise payroll taxes on young workers means they’ll probably need to start cutting staff in a country where youth unemployment is 24 percent.

“It will hit our results directly, so we have begun to prepare for cuts,” Yvonne Soerensen Bjoerud, chief executive officer at Berns, said by phone. The Confederation of Swedish Enterprise says many businesses are considering axing jobs because of the tax increase. Hospitality and retail will be hit hardest, it estimates.

The reaction marks a blow to a cornerstone of Prime Minister Stefan Loefven’s program as he tries to reduce Scandinavia’s highest jobless rate and bring unemployment in Sweden to the lowest level in the European Union by 2020.

The government, which is removing a youth payroll-tax cut that the previous administration pushed through in 2007, says there’s no evidence to suggest its move will hurt jobs. Instead, Loefven says he’s reversing a measure that drained 100 billion kronor ($12 billion) from state coffers and actually cost Sweden more jobs than it created.

“It’s an idiocy that needs to be fixed,” the 58-year-old said in an interview in April

Unachievable Goal?

His Social Democrat-led coalition, which took office after September elections, says raising payroll taxes on Sweden’s youngest workers will help free up funds to cut the country’s jobless rate to 6.4 percent by 2019 from about 7.5 percent this year. Loefven estimates the measure will raise as much as 18 billion kronor annually by 2017, helping pay for more public-sector jobs, better education and benefits as well as infrastructure.

Loefven’s goal of achieving the EU’s lowest jobless rate in just half a decade “seems unachievable,” according to Robert Bergqvist, chief economist at SEB AB. It would take a “vigorous Swedish labor and education policy” to deliver on that election pledge, he said.

In a report this week, the Fiscal Policy council said the government’s proposal could cost as many as 10,000 youth jobs, while higher unemployment benefits may increase unemployment by 27,000 people.

Part of the problem is Sweden’s asylum policy, which is one of the world’s most generous. The influx of people has kept unemployment high even as the supply of jobs grows.

Soerensen Bjoerud at Berns said without a tax incentive for employers, there will no longer be any impetus to hire young people, who often need more training.

“Most young people we hire today haven’t had a job before,” she said. “We have to spend time on what we call ‘potty training,’ for example teaching them to arrive on time. Stefan Loefven thinks we would have hired these young people anyway, but that’s not true.”