NEWS / Foreign Exchange

Sweden: The reform agenda remains intact

• Despite falling approval ratings, the government??™s preferences for (benign) structural reforms continue to shine through.
• However, some political considerations are predominant; in economic terms the reduction of marginal tax rates should probably rank higher than the abolition of the property tax etc..
• Compared to what has already been communicated we detect nothing new in the spring fiscal policy bill. Now, focus should be on future policy considerations. There has been some mentioning of further diminishing income taxes, and even (finally) the abolition of the top bracket tax rate (v?¤rnskatten).
• The main reforms and initiatives in the spring bill have already been communicated and should not surprise financial markets. In spite of this, the Ministry of Finance??™s repo rate forecast has attracted considerable attention from both media and financial markets.
• The difference between the forecasts from the Ministry of Finance (MoF) and the Riksbank stems more from competing views on the workings of the Swedish economy than from different views on the economic outlook.
• This implies that forecasts cannot easily be compared. Not only do the starting points differ, with a considerably higher resource utilisation in MoF??™s calculations, but also are the views on the interaction between growth, labour market and inflation very different indeed. The Riksbank advocates a view where structural forces have a dampening effect on inflation over the coming few years.