security payments to reasonable levels. Sickness leave has fallen by half since employees are no longer paid from the first day or in full. Today, Sweden has regular budget surpluses, although tax revenues have been reduced by 9 per cent of GDP from 1994 until 2011. Sweden’s main scourge was tax. In 1990, the social democratic government actually cut sky-high marginal income tax from 90 per cent to 50 per cent. The current government has decreased taxes every year and abolished the wealth tax. Inheritance tax and gift tax are also gone. A corporate profit tax of 26 per cent may seem reasonable, but tax competition is fierce in this part of Europe, as most East European countries have slashed corporate taxes to 15-19 per cent. Business wants to reduce the corporate profit tax to 20 per cent. One of the greatest reliefs is the simplification of tax administration. Since the tax reforms of 1990 abolished almost all deductions, while cutting rates, tax declarations have become extremely simple. Ninety per cent of taxpayers simply confirm with a phone message that the declaration automatically prepared by the tax authorities for them is correct. Pensions have been subject to a major reform, giving everybody a pension in accordance with their contributions plus a minimum pension for all. As a consequence, the Swedish pension system is actuarially correct without any pay-as-you-go system or implicit pension debt. It is also transparent so that all can see how large a retirement capital they have saved, and to a considerable extent they can choose when and how to invest it and access it. The Swedish school system, Palme’s original bailiwick, was badly ravaged by left-wing reforms of the 1960s and 1970s. Today, all pupils are entitled to school vouchers of equal value for each child of a certain age. Their parents can allocate this school voucher to any school the child is qualified to enter. As a result, while in the 1970s Sweden had only four private schools, one-fifth of Swedish secondary schools are now private, some for profit, others cooperatives or non-profit foundations. Yet, in international school comparisons, Sweden lags behind Finland that never carried out any foolish left-wing reforms. In 1995, Sweden joined the European Union in order to safeguard the rule of law. In the bad old days, the Social Democratic Party regularly appointed its partisan top civil servants as supreme court judges. Being within the jurisdiction of the European Court of Justice means that the prospects of winning against the Swedish government have improved greatly. After the devaluation of 1992, Sweden adopted a floating exchange rate and inflation targeting. The Riksbank used to be little more than a subdepartment of the ministry of finance, but now it is independent. The Salisbury Review — Autumn 2012
Today Sweden has persistently one of the lowest inflation rates in Europe. In 2003, a referendum dismissed euro adoption. One of the first decisions of the Bildt government was to abolish the wage-earners’ funds (sharing company profits with employees) and stop all nationalisation. By and large, Sweden has followed Margaret Thatcher’s policy of privatisation, privatising piecemeal when market conditions are conducive. A tedious but important task is deregulation. Swedish governments have quietly deregulated one market after another, contributing to greater economic dynamism. The annual centralised wage bargaining between the Trade Union Confederation (LO) and SAF was the pride of the old Swedish model. But in the 1970s it led to inflation and strikes, and today this system is long gone. Wage bargaining is still collective, but it is becoming increasingly decentralised. Wage inflation is no longer a concern and strikes are extremely rare. The employers have won, but real wages are rising with productivity. As everywhere, trade unions are losing members, money, and power. The Trade Union Confederation has adjusted, its chair declaring recently: ‘We want flexibility on the labour market.’ As the Thatcher revolution exemplified, real ideological victory is when your opponents steal your clothes. In 1994, the social democrats under Göran Persson returned to power and stayed until 2006. Although they complained about all the cuts the non-socialist government had undertaken and carried out few reforms, they did not revoke the reforms but completed fiscal tightening. It was actually Persson who abolished the inheritance and gift taxes. In 2006, four non-socialist parties formed a coalition government with Fredrik Reinfeldt as prime minister. Finance Minister Anders Borg, with his trademark pony-tail and earring, has led further reforms. After having taken Sweden successfully through the global financial crisis, this government was re-elected in 2010, and the Financial Times named Borg Europe’s best finance minister last year. Keynesianism remains disliked in Sweden. Before the global financial crisis Sweden had a budget surplus on average of 2.5 per cent of GDP in the years 2004‑7. After a minimal budget deficit in 2009, it has once again a budget surplus. Sweden remains, like Germany and Finland, highly dependent on exports, and its GDP fell by 5 per cent in 2009, but it rebounded by 6 per cent in 2010 and 4 per cent in 2011, and the current account surplus is substantial. Sweden’s credit default swaps are lower than Germany’s. The only concerns are the euro crisis depressing demand, and unemployment, which hovers around 7.5 per cent. Swedes shake their heads when they see the 7
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