The Financial Policy Council is sounding the alarm about the government’s election budget

Lars Heikensten makes his way through the revolving doors of the Ministry of Finance on Jakobsgatan in Stockholm.

It is the sixth and final time that he will present his annual report as chairman of the Fiscal Policy Council. And this year the verdict on the government’s economic policy is harsh. According to Lars Heikensten, this is the most serious criticism that the review board has expressed since it was founded.

– This kind of short-term measures, where you postpone costs and don’t offset different expenses against each other, is exactly what the fiscal policy framework is designed to prevent, he says.

This is about the electoral budget that the government is presenting to Swedish voters this year. The scope is historical.

Defense investments and support for Ukraine, along with several tax cuts, add up to the largest deficit in Sweden’s public finances in 30 years, excluding the pandemic.

The state is expected to have to borrow SEK 170 billion.

– The deficit is too big. It will greatly limit the scope for future governments, says Lars Heikensten.

His harshest warning applies at a fundamental level.

– Now we’re on a sliding scale. It’s important to take it seriously.

After the crisis of the 1990s, there was great agreement between the parties on the financial policy framework – with spending caps, surplus targets and clear rules for the state budget. There must be order and order, even with the new balance sheet target agreed upon by the parties in 2024.

However, a new complication is that the government, with the support of opposition parties, later introduced a loophole in the law that will apply for the next ten years. Defense spending and aid to Ukraine are excluded. The state is allowed to take out 300 billion loans “outside” the framework.

“That throws the whole system out of balance,” says Lars Heikensten.

– Here they propose a rather strict framework and then seriously violate the principles. The question then arises as to what role the fiscal policy framework actually plays. What’s left?

Finance Minister Elisabeth Svantesson (M) has resisted similar objections in the past. She says that upgrading defense is an existential question and that there have been deviations from the framework conditions in the past, for example during the pandemic.

Lars Heikensten doesn’t believe the arguments. Sweden’s rearmament is not about a sudden and temporary increase in costs, but rather about gradually increasing defense spending.

– Now the government is instead burdening future generations with higher costs because they will have to pay twice as much for defense, he says, continuing:

– The government claims that it is impossible to finance this in any other way. But the budget shows that this is not true. There is money available for reduced food sales tax and a payroll tax credit. It is a political decision to postpone the costs.

Currently Sweden National debt is among the lowest in Europe.

– This budget will not lead to a state financial crisis. But the memory of the 1990s crisis plays less and less of a role. And I believe that it is generally becoming more and more difficult to implement good policies in the Reichstag. There are many tendencies to choose the easiest paths, says Lars Heikensten, but at the same time warns that future governments will have problems getting their budgets together.

At a press conference last Friday, Finance Minister Elisabeth Svantesson herself stated:

– A large part of the future scope for reform has already been pledged.

Read more:

Carl Johan from Seth: How to borrow SEK 300 billion

Svantesson: No unfunded reforms next year