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Sweden To Adopt Comparable Opposition Budget

by Ulrika Lomas,, Brussels

08 December 2014

The failure of Swedish lawmakers to pass the 2015 Budget will have a very limited impact on the nation's fiscal position, Fitch ratings has said, responding to the announcement of snap elections.

"The more turbulent political environment created by September's general election does not alter our assumption that Sweden's fiscal position will gradually improve and debt ratios fall," Fitch said.

Prime Minister Stefan Lofven, head of the Social Democrat-led minority coalition Government, which has been in office for two months, said on December 3 that elections would be held on March 22, 2015.

The announcement followed the defeat of the Government's Budget proposal in Parliament, after the anti-immigration Sweden Democrats instead voted in favor of the Budget proposals put forward by a coalition of opposition Parties, Alliance. The governing Coalition will remain in office until March, but must now implement the Alliance budget.

The differences between the two Budget proposals are small, Fitch said. The Government's proposed public expenditure increases were fully financed by tax increases (mainly reversals of tax cuts implemented by the previous Alliance Government). Expenditure (and the reduction in tax breaks) will be smaller under Alliance's proposals, therefore having a negligible impact on the fiscal outcome.

"Policy uncertainty has clearly increased following the rise of the Sweden Democrats, but the Government and the mainstream opposition's budget proposals are both fiscally neutral in broad terms," Fitch said. "This confirms our view that political support for Sweden's fiscal policy framework, including its target of a surplus of one percent of gross domestic product (GDP) over the business cycle, remains broad even though there are significant differences of opinion on how to achieve consolidation, and on absolute levels of tax and spending."

The ratings agency said it envisages continuing fiscal consolidation, which combined with steady GDP growth suggests that the fiscal position will gradually improve until the budget balances, with debt ratios falling. It pointed out that Sweden's strong existing fiscal metrics and policy framework mean its public finances remain a ratings strength, despite the greater political uncertainty.

TAGS: environment | tax | economics | business | fiscal policy | budget | Sweden

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