16 October 2006
Ministry of Finance
Autumn Budget Bill: Putting Sweden to work - a good deal for all
Today the Government presents its budget proposal for 2007, which also indicates the emphasis of economic policy for this electoral period. Increasing employment by getting more people into work and combating exclusion is the single greatest challenge for economic policy. The Government's policy aims to create favourable conditions for sound, long-term economic development, create scope for increased welfare, and give individuals and families greater power over their own daily lives.
It will be more worthwhile to work and easier to employ
From 1 January 2007 a special job deduction will be introduced which will be a clear incentive for low and middle income earners to choose work as their means of support rather than benefits. There will be an extra large deduction for older people as special encouragement to them to stay in the labour market. The aim is to implement further income tax reductions in 2008.
From 1 January 2007 "new start jobs" will be introduced. The reform means that employers' contributions will be completely waived for people who have been receiving unemployment benefit, sickness benefit, disability pension or social allowance for more than a year.
In order particularly to facilitate young people's entry into the labour market, from 1 July 2007 a special allowance will be granted in calculating employers' contributions for those over the age of 19 but under the age of 25 at the beginning of the year.
In order to make better use of older people's potential in the labour market, prevent exclusion and facilitate employment, the special employer's contribution of about 16 per cent for those covered by the new old-age pension system - those born in 1938 and onwards - will be discontinued.
Household-related services will be made cheaper already in 2007. The Government will make further proposals for tax reductions on private individuals' purchases of domestic services, which are expected to enter into force on 1 July 2007.
It is also important to the Government to stimulate employment in various service sectors, for example by reducing employers' contributions in these sectors. Such a system must, however, be assessed in relation to Community regulations on state aid. Reduced employers' contributions are therefore not expected to be possible until 1 July 2008 at the earliest.
It will be simpler and more profitable to run a business
The rules on taxation of close companies (the "3:12 rules") will be reformed. Pending a broader review, important improvements will be made already in 2007. The margin for income taxed as capital on the basis of payroll expenses will be extended and the standard amount in the simplification rule will be increased.
The co-financing required of employers after the second week of sickness - 15 per cent of the cost of employees' sickness benefit - will be cancelled.
Wealth tax will be phased out during this electoral period. As a first step the tax rate will be halved from 1.5 to 0.75 per cent on business capital, i.e. financial assets, from 2007.
Administrative costs for companies arising out of all state rules and regulations are to be reduced by 25 per cent over a period of four years.
There will be special initiatives to support business advice for women entrepreneurs and research on women's entrepreneurship.
The tax on air travel decided by the previous Government will not be introduced.
Value added tax on ski lift transport will be reduced to 6 per cent from 1 January 2007.
Labour market policy will be made more effective
The Government intends to improve matching of jobseekers with vacancies.
The Swedish Labour Market Administration will be radically reformed; the National Labour Market Board and the county labour boards will cease to be separate agencies as of 2008. This will give an opening for more effective, flexible and less costly administration.
The public employment services will be supplemented by alternative employment agencies.
Ineffective and in some cases counterproductive labour market measures will be abolished. This applies to sabbatical years, bonus jobs, educational leave replacement positions, jobs for recent graduates, computer activity centres, international work placement grants, employment training in the regular education system and general and enhanced recruitment incentives.
In 2007 the Government intends to replace the activity guarantee with a job and development guarantee that covers all who have been unemployed for 300 days or 450 days in the case of parents with children under 18. A special job guarantee will be implemented for young people under the age of 25.
The work-first principle will be made clear in unemployment insurance.
Incentives to work will be augmented. Unemployment benefits will be based on the last 12 months' income instead of the last 6 months' income.
Benefit will be payable for a maximum of 300 days. Unemployed people with children may, however, receive benefit for 450 days. The highest daily allowance will be SEK 680. Benefit will be 80 per cent of lost income for the first 200 days and 70 per cent thereafter.
The work condition will be tightened up, the study condition removed and time exemptions restricted.
To further enhance incentives to work and to contribute to financing tax reductions for low and middle income earners, self-financing of unemployment insurance expenditure will be increased by SEK 10 billion. In autumn 2006 an inquiry will be set up to investigate and propose structures for compulsory unemployment insurance.
Changes in the sick leave process and measures to combat overuse
The ceiling for qualifying income in the sickness benefit system will be restored from ten to seven-and-a-half times the price base amount from 1 January 2007. In addition, the income on which sickness cash benefit is based will be calculated on a new basis.
Measures will be taken to promote more active rehabilitation to facilitate a return to work.
The panels of lay assessors will be abolished and the supervisory system for the administration of social insurance will be reviewed.
The role played by the health and medical services in the sick leave process for people absent from work with unclear symptoms will be reviewed.
Work on examining cases of long-term sickness and making use of any capacity for work will be made more effective and speeded up.
More stringent rules and increased supervision in the social insurance system are proposed, along with increased supervision and improved application of rules and regulations in the unemployment insurance system.
Criminal investigations relating to benefit cheating will be made more effective. In addition claims for repayment will be pursued more effectively and interest will be payable on repayment claims.
The delegation that is working to combat benefit irregularities will intensify its efforts in 2007.
Clear reforms for education and lifelong learning
Sweden's future prosperity will be based on knowledge and education. Teachers will be given increased opportunities for academic skills development and resources will be set aside to allow teachers greater scope to conduct research as part of their professional activities.
Reforms will be introduced to make it easier for teachers who lack full teaching qualifications to obtain validation of their skills and supplementary education.
National goals for Swedish will be introduced in year three of compulsory school.
Grading criteria will be revised with a view to giving grades at an earlier stage and differentiating more between grades.
Reviews will be introduced in years three, five and eight, including compulsory national examinations and more stringent requirements to provide individual support for school students.
Every school will be subject to quality control every three years.
During this electoral period, the Government intends to propose three orientations in upper secondary school: an academic orientation, a vocational orientation and an apprenticeship programme.
A forceful drive will be made to strengthen Swedish research by providing overall an additional SEK 900 million to research.
Improved care services and increased security
In order to encourage higher quality and greater accessibility, the Government intends during this electoral period to implement changes aimed at increasing diversity of provision and competition between different actors in health care and social services.
A "Freedom of Choice" will be introduced in elderly care. A targeted government grant of SEK 300 million will be provided to local governments to prepare the reform.
There will be a comprehensive review of the organisation of psychiatric health care and this sector will receive an additional SEK 250 million per year.
A further SEK 250 million will be set aside for the national health care guarantee in 2007.
The Government intends to carry though a major reform of dental care in 2008, both strengthening the high cost protection system and creating reasonable conditions for preventive dental care.
During this electoral period, the Government intends to implement vigorous reforms in law and order. Altogether, approximately SEK 1.5 billion more will be spent on law and order in 2007, compared with 2006.
It is proposed that the police receive extra resources of SEK 250 million in 2007, over and above previously announced commitments. In total, the police will receive approximately SEK 1 billion more in 2007.
Family policy will be strengthened
A childcare voucher system will be introduced so that parents themselves can choose childcare from among a range of providers.
A gender equality bonus will be introduced to increase economic opportunities for families to divide parental leave more equally.
A framework will be established to enable municipalities to introduce a municipal child-raising allowance.
Public open pre-school will be broadened to include three-year-olds. They will be offered a few hours of free pre-school per week with a special educational content.
National real estate tax will be abolished
The present national real estate tax will be abolished and replaced by a low local government property-related charge. The aim is for this to happen in 2008. The first step will be to freeze the taxable values of single-family houses and to limit the significance of the value of land for the real estate tax charged to SEK 2/m2, with a maximum ceiling of SEK 5000. The real estate tax rate for multi-dwelling buildings will be lowered from 0.5 to 0.4 per cent from 2007 and from the same year taxation of standard imputed income for tenant-owner associations will be discontinued.
Stopping the green tax shift and the nuclear power phase-out
The green tax shift will be discontinued. Priority will be given to developing effective policy instruments.
The premature phasing out of nuclear power will be discontinued. The Government will not grant renewed operating licences to the two reactors that have been closed.
Cutting the number of government agencies will bring efficiency gains
The efficiency of the public sector must improve. As part of this work, a number of agencies will begin to be phased out in 2007. They will include the Swedish Integration Board, the National Institute for Working Life and the Swedish Animal Welfare Agency. The Swedish Work Environment Authority will be slimmed down substantially.
Strengthening of international action
Sweden will increase its international involvement in defence and security areas. Appropriations for international action will therefore increase by SEK 600 million in 2007, by a further SEK 100 million in 2008 and a further SEK 650 million in 2009.
Stable central government finances lay the foundation
Stable central government finances lay the foundation for healthy long-term economic growth. The overall target of a surplus for general government net borrowing of 2 per cent of GDP on average over an economic cycle remains in place and the expenditure ceiling will be met. The Government's ambition, moreover, is that the central government expenditure ceiling, expressed as a percentage of GDP, should decline somewhat over the next few years.
The budgeting margins for 2006-2008 will be strengthened compared with the 2006 Spring Fiscal Policy Bill, as a result of the proposed reforms.
The Government considers that the state should reduce its corporate holdings and the assessment is that a sales volume of SEK 50 billion per year during the next three years is a reasonable forecast. The receipts will be used to pay off central government debt.
Tax reductions and initiatives for activities must be financed in a responsible manner. Accordingly, the Government proposes certain tax increases and changes in fees and contributions.
The regional basic income tax allowance will be cancelled.
The special reduction of social security contributions on payrolls up to a certain level and the reduction of employers' contributions for one-person companies taking on staff will be cancelled.
The tax deductions for trade union membership fees and contributions to unemployment insurance funds will be cancelled.
Home computers leased from employers will be taxed as a fringe benefit and the non-deductible amount for expenses for travel to and from work and for other expenses will be raised.
The tobacco taxes on cigarettes, snuff, chewing and rolling tobacco will be raised.
As a consequence of the cancellation of employers' co-financing in sickness insurance, the sickness insurance contribution will be raised.
Head of Planning to Anders Borg
work +46 8 405 10 00
work +46 8 405 48 39
email to Hans Lindblad, via the Senior registry clerk