(Bloomberg) -- Sweden’s government submitted a budget bill with tax cuts that are aimed at fueling an economic recovery, following two years of price hikes and interest-rate increases that have hit consumers and businesses.
After declaring victory in the fight against inflation, Prime Minister Ulf Kristersson’s cabinet has shifted from a policy that sought to avoid fueling further price increases to a spending ramp-up aimed at supporting households and spurring growth.
On Thursday, the center-right government announced a 2025 plan that entails 1.4 trillion kronor ($141 billion) in spending. “Despite a projected public-sector deficit of 1.3% of gross domestic product, debt as a percentage of gross domestic product is expected to remain at 33%.”
“We are still in a weak economy,” Finance Minister Elisabeth Svantesson said at a news conference in Stockholm. “I see light in the tunnel but it’s important to remember that the situation is uncertain.”
More than 40% of the new measures for 2025 that will be financed through borrowing are tax cuts, including tax breaks for wage-earners, making some savings in stocks and mutual funds tax exempt and abolishing a levy on air fares.
Opposition leaders slammed the government for prioritizing initiatives that benefit people who are already well off, at the expense of more investment in welfare systems and support to households that are struggling to make ends meet.
“Ordinary people are not the focus for Elisabeth Svantesson’s budget,” the Social Democrats’ economic policy spokesman Mikael Damberg said at a news conference in parliament. “Instead she chooses to saddle the population with debt in order to lower taxes for the most wealthy people.”
The positive effect of next year’s tax cuts will be more than three times larger for households in the top two income brackets than for the lowest earners, according to the budget bill.
Svantesson defended her proposals, saying Sweden’s high marginal tax rate on high incomes is an obstacle for long-term growth.
“You can do multiple things at the same time,” she said. “We want to support households and boost growth in the short as well as the long term.”
The plan comes as hopes have increased that the Swedish economy could emerge from two years of stagnation as the country’s central bank, the Riksbank, has started cutting rates and sees scope to reduce borrowing costs further in the coming months.
(Adds comments from finance minister and opposition spokesman from 4th paragraph.)
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