The Spring Budget Bill for 2015 in 5 minutes

On 15 April the Government presented its Spring Fiscal Policy Bill to the Riksdag, together with a proposed spring amending budget. In the Spring Fiscal Policy Bill, the Government presents its assessment of the state of the economy and the direction of economic policy for the coming years. The spring amending budget presents proposals on reforms this year and how to finance them.

Assessment of the economic situation

Stronger international outlook
On an overall assessment, the international economy will grow stronger in the coming years. However, all the indications are that the recovery will make slow progress in the euro area, which is Sweden's most important export market.

Gradual recovery in the Swedish economy
GDP growth in the Swedish economy rose slightly in 2014 compared with 2013 and the economy is recovering. The Government's assessment is that activity in the Swedish economy will increase in 2015 and 2016, partly as a result of expected growth in household consumption. The increase in consumption will be due partly to a gradual improvement of the situation in the labour market and low interest rates. Increased investments, above all in the services sector, will also contribute to GDP growth. In addition, public sector consumption is expected to increase sharply in 2015. The improved international economic situation is also expected to stimulate Swedish exports. Net exports are expected to make a positive contribution to GDP growth in 2015 and 2016.

Unemployment will gradually decline
Unemployment is expected to decline as the economic recovery increases the demand for labour. The Government considers that active measures will also be necessary to reduce unemployment. As a result of the recovery in the Swedish economy, resource utilisation will increase in the years ahead. Overall, approximately 380 000 people are expected to be unemployed in 2016 and a large proportion of them are likely to be individuals with a weak position in the labour market.

Large deficits in the public finances
The deficit in the general government finances has grown for several successive years , reaching SEK 74 billion, or 1.9 per cent of GDP, in 2014. The public finances will strengthen in 2015 and net lending is estimated to amount to SEK -57 billion, or -1.4 per cent of GDP. The continued recovery, together with responsible fiscal policies, will lead to a gradual strengthening of net lending in the coming years, with a balanced position expected from 2018 onwards. The strengthening of the public finances up to and including 2019 will be confined to the central government sector, while higher pension payments will lead to a gradual reduction in net lending in the old-age pension system. Net lending in the local government sector will be negative throughout the forecast period, but the sector is expected to post a positive result in all years.

The direction of fiscal policy

Sweden faces several major social challenges. Four hundred thousand people are unemployed, learning outcomes in school have deteriorated rapidly, Sweden is set to miss 14 of the 16 environmental objectives set by the Riksdag, and the resources available for welfare services need to be reinforced. While these challenges must be addressed, the Government also needs to take a firmer grip on the public finances. The deficits must be brought down, step by step. The Government's overall assessment is therefore that the reforms proposed in the spring amending budget for 2015 must be fully funded. This necessitates certain revenue enhancements, including a gradual abolition of the reduction of social security contributions for young people. Given current forecasts, the Government's assessment is that the reforms proposed in the Budget Bill for 2016 should also be fully funded. With fiscal policy along these lines, margins will be created to manage a deep recession without risking the ongoing economic recovery.

Reform proposals

More jobs and greater competitiveness
One of the Government's most important tasks during this electoral period is to reduce unemployment permanently and increase employment. More people must have a job to go to and fewer must be part-time unemployed. Sweden needs a knowledge boost. The Government is therefore increasing public sector investments in infrastructure, industrial policy and education to strengthen competitiveness and improve matching in the labour market.

Knowledge-based education in equal schools with time for each pupil
Strengthening learning outcomes in school is necessary - both to keep Sweden together and to ensure Sweden's competitiveness in the long term. To strengthen learning outcomes, teachers must have more time with each pupil, the quality of teaching must be improved and resources must be provided to areas where the challenges are greatest. The Government is therefore proposing reforms that focus on early action, a more attractive teaching profession and that all schools must be good schools.

A sustainable future
The Government's objective is a resource-efficient economy in which consideration for the environment is a natural part of the development of society. Environmental degradation must be stopped and climate emissions reduced. Reduced climate emissions require various types of measures and cohesive global and national political action. The Government is therefore proposing measure for climate investments and measures for biodiversity and nature conservation.

Increased welfare and security
Resources for welfare must be increased and income differentials between women and men must be reduced. Too many people - primarily women - have cut back their working hours to provide care for relatives when welfare services are insufficient. Investments in welfare and security help keep Sweden together and contribute to a more gender equal labour market. The Government is therefore proposing measures for more staff in elderly care. The Government is also proposing higher maintenance support for single parents and housing supplement for pensioners. To increase security and adjustment capacity, unemployment insurance will also be strengthened.

Proposed financing of reforms

The reforms that the Government is proposing are fully funded. The financing involves both expenditure cuts and revenue increases. The proposed revenue increases include:

  • decreased or abolished reduction of social security contributions for young people
  • higher environmental taxes
  • abolition of tax credit for help with homework and other schoolwork, etc.
  • higher tax on thermal output of nuclear power reactors
  • higher financing fee for unemployment insurance funds

Challenges for employment policy

One of the Government's most important tasks during this electoral period is to reduce unemployment permanently and increase employment. Unemployment has become entrenched at far too high a level. The number of people in work and the number of hours worked in the economy must increase to such an extent that Sweden achieves the objective of the lowest unemployment rate in the EU by 2020. More people must have a job to go to and fewer must be part-time unemployed. Women's employment and labour force participation must increase.

Unemployment is unevenly distributed. Many unemployed people have been out of work for a long time and risk being permanently excluded from the labour market. Moreover, unemployment is substantially higher among young people and adults with incomplete upper secondary education, people born outside Europe and people with disabilities that cause a reduced work capacity.

Raising the demand for labour requires increased public and private investments and an active industrial policy. While unemployment is high, there are also many vacancies in the economy. Increased investments in knowledge and skills will equip more people to take existing jobs.

A broad palette of measures is required to make it easier and quicker for new arrivals to become established in the labour market, and to reduce the risk of people in long-term unemployment being excluded from the labour market. Over the next few years, Sweden's population is expected to increase more rapidly than in the past. This increase is mainly due to disturbances in other countries, which are causing many people to flee to Sweden, but is also a result of increased labour immigration. In the longer term, the population growth is expected to mean more people employed and stronger economic growth, but initially it is likely to lead to higher unemployment. This makes it even more important that new arrivals are introduced to the labour market as quickly as possible.

The Government's assessment is that the labour market will recover relatively slowly over the next few years. The risk of a weaker development is considered relatively high, particularly if the international economy performs less well than expected. A weaker development would particularly hurt the groups that already have a weak attachment to the labour market.

Monitoring distribution policy

In recent decades, Sweden has become a richer country, but a country with wider income gaps. Income inequality has increased since those with higher incomes have enjoyed stronger growth than those in the middle of the scale, who in turn have done better than those with lower incomes.

There are several explanations for the general phenomenon of increased income inequality. Increased income from capital combined with lower income-equalising taxes are the most important factors behind income disparities that are wider in 2013 than in 1995. The role played by pay differentials in income inequality, on the other hand, was about the same in 2013 as in 1995.

Passage of the spring budget through the Riksdag

After the Spring Fiscal Policy Bill and the spring amending budget have been presented to the Riksdag, the members of the Riksdag have two weeks to present motions in response to the Government bill, with alternative proposals. Proposed guidelines for economic policy and budget policy included in the Spring Fiscal Policy Bill are processed by the Committee on Finance. The proposed amending budget, including changes in appropriation frames, revenue estimates and legislative proposals, if any, is also processed by the Committee on Finance. The Riksdag will then vote on the bill in June.