VZCZCXRO7332
RR RUEHIK
DE RUEHSM #0714/01 3171226
ZNR UUUUU ZZH
R 131226Z NOV 09
FM AMEMBASSY STOCKHOLM
TO RUEHC/SECSTATE WASHDC 4902
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHNY/AMEMBASSY OSLO 2546
RUEHRA/AMEMBASSY RIGA 0873
RUEHTL/AMEMBASSY TALLINN 0006
RUEHVL/AMEMBASSY VILNIUS 2020
RUEATRS/DEPT OF TREASURY WASH DC

UNCLAS SECTION 01 OF 02 STOCKHOLM 000714 
 
SIPDIS 
 
TREASURY FOR DAVID WRIGHT 
 
E.O. 12958: N/A 
TAGS: EFIN ECON SW
SUBJECT: GOVERNMENT OF SWEDEN STIMULATES THE ECONOMY, AND VOTERS, 
WITH 2010 BUDGET BILL 
 
REF: A) STOCKHOLM 1852; B) STOCKHOLM 2001; C) STOCKHOLM 2024; D) 
STOCKHOLM 2107 
 
STOCKHOLM 00000714  001.2 OF 002 
 
 
¶1.  (U) Summary: On September 21, the Swedish Government presented 
its Budget Bill for 2010 to Parliament. The Budget is geared to both 
combat the economic recession, and garner votes in 2010 national 
elections.  According to the Swedish Government, the SEK 32 billion 
(USD 4.6 billion) in new  spending will serve five goals: 1. stem 
the fall in employment; 2. prevent unemployment from becoming 
persistent; 3. defend core welfare activities; 4. encourage more 
business creation and business growth; and 5. protect the 
environment. End summary. 
 
The Swedish budget process 
-------------------------- 
¶2.  (U) The September "Budget Bill" proposes SEK 32 billion (1 
percent of GDP) in additional spending beyond what was planned in 
the Spring Fiscal Policy bill. Twice a year, in April and September, 
the Swedish Minister for Finance delivers the Government's spending 
plans to the Parliament for approval. These proposals are known as 
the "Spring Fiscal Policy Bill" and the "Budget Bill," which form 
the two stages of a process leading to the Government's proposed 
budget for central government spending.  The Spring Fiscal Policy 
Bill contains the Government's proposed broad guidelines for 
economic and budget policy over the next few years.  The September 
Budget Bill contains more detailed plans that have been fashioned 
into a budget for the next year.  This budget provides detailed 
proposals on allocation of government expenditures and revenue to 
different areas.  The budget bill will be voted on in Parliament in 
December after the opposition has presented its alternative budgets 
and the Parliament has decided on a spending cap. 
 
Economic outlook 
---------------- 
¶3.  (U) The sharp downturn in the global business cycle has hit the 
export-dependent Swedish economy hard.  This year the Government 
expects GDP to fall by 4.9 percent on an annual basis, which would 
make this the weakest year since the Second World War.  Unemployment 
is expected to reach 10.7% in 2010, before starting to decline in 
the beginning of 2011.  The response in the Budget Bill is to 
allocate funding to improve the functioning the government's labor 
market services, as well as additional funding to universities and 
students. 
 
Public finances 
--------------- 
¶4.  (U) Thanks to economic growth and conservative fiscal policy, 
Sweden had a surplus heading into the global economic crisis, so the 
deficits caused by the government's fiscal stimulus spending are 
moderate.  Sweden is among the countries with the smallest public 
debt, and enjoys a high ranking by the EU Commission for the 
long-term sustainability of public finances.  A deficit in the 
public sector as a whole is expected for all the years 2009-2012. 
The general government budget deficit is estimated to be -2.2 per 
cent of GDP in 2009 and -3.0 per cent in 2010.  The deficit will 
gradually decline in 2011 and 2012. 
 
Expenditure ceiling 
----- ---- -------- 
¶5.  (U) Multi-year expenditure ceilings represent an important 
budget policy commitment of the Government and Parliament, and have 
strengthened the credibility of economic policy. The expenditure 
ceiling has been met each year since it was introduced in 1997, 
although politicians (in Sweden and all countries) are creative at 
moving expenditures from one year to another if needed to stay 
within a ceiling. For several years, the expenditure ceilings have 
decreased or been constant as a percentage of GDP.  As a consequence 
of weak or declining GDP growth, the expenditure ceiling as a 
percentage of GDP is higher in each of the years 2009-2011 than in 
2007, although the nominal annual rate of increase is in line with 
or somewhat lower than during the last five-year period. 
 
Tax credit 
---------- 
¶6.  (U) One of the government's claims to be successfully steering 
Sweden through the economic crisis are government measures to "make 
work pay," i.e. to allow working people, especially lower wage 
earners, to keep more of their pay.  Finance Minister Anders Borg 
has told Embassy officers of the importance of increasing the 
benefits from employment in order to encourage workers to stay in 
the labor force. The "in-work tax credit" remains a key part of the 
government's policy. The government initially introduced an in-work 
tax credit in three steps. The Budget Bill proposes that a fourth 
step enter into force on 1 January 2010, and that the in-work tax 
 
STOCKHOLM 00000714  002.2 OF 002 
 
 
credit be expanded by SEK 10 billion. If this is done, the tax on 
earned income will have been reduced by a total of about SEK 71 
billion between 2006 and 2010.  The in-work tax credit is expected 
to account for 75,000 new, permanent jobs. 
 
Responding to the crisis with new spending 
------ ---------- --------- ------ ------- 
¶7.  (U) In the Budget Bill, the Government will allocate SEK 32 
billion (USD 4.6 billion) in new spending for 2010 and SEK 24 
billion for 2011, in addition to spending already approved or 
announced. The government is balancing stimulus measures to get 
Sweden out of the recession with measures to gain additional votes 
ahead of the election. Recipients of increased spending therefore 
include pensioners, workers, students, municipalities etc., making 
sure that everyone gets a bite at the apple.  However, not all are 
happy with the budget; the government has received substantial 
criticism from the opposition for reducing taxes while running up a 
budget deficit. 
 
Intended effects 
----------------- 
¶8.  (U) The tax cuts proposed will increase household disposable 
income and help private consumption recover in 2010. According to 
the government, the disposable income would increase by 0.4 per cent 
next year without these measures.  With the proposed measures, it is 
expected to increase by 1.2 per cent. 
 
BARZUN