Bloomberg News

Sweden Warns U.S. Against Targeting Welfare With Tax Deficit

January 25, 2013

Fredrik Reinfeldt

Fredrik Reinfeldt, Sweden's prime minister, arrives for a session on day two of the World Economic Forum in Davos, Switzerland, on Thursday, Jan. 24, 2013. Photographer: Jason Alden/Bloomberg

The U.S. will never be able to afford the kind of welfare benefits enjoyed by Europeans unless it raises taxes, Swedish Prime Minister Fredrik Reinfeldt said.

“It’s not sustainable for a country to try to have European levels of expenditure with taxation levels like the United States has,” Reinfeldt said today in an interview with Bloomberg Television’s Francine Lacqua in Davos, Switzerland. “That’s not possible.”

Cradle-to-grave welfare doesn’t need to erode public finances provided a sustainable revenue policy is in place, Reinfeldt said. The largest Nordic economy, which has the second-highest tax burden of industrialized countries after Denmark, has reduced its debt load as a percentage of gross domestic product every year since 2009. The U.S. has the fourth- smallest tax burden relative to GDP, after Mexico, Chile and Turkey, according to figures provided by the Paris-based Organization for Economic Cooperation and Development.

In the U.S., lawmakers have struggled to strike a balance between spending and taxation, bringing Congress close to testing the nation’s debt ceiling a second time since 2011.

U.S. lawmakers voted this week to suspend the $16.4 trillion federal borrowing limit until May 19, removing for now the most contentious fiscal issue facing President Barack Obama. Republicans are trying to prompt the Democratic-controlled Senate to approve an annual budget, something it hasn’t done in four years, by withholding lawmakers’ pay if a spending package isn’t passed by April 15.

Global Pressure

“You have to take a decision on what path to follow,” Reinfeldt said. “That kind of deficit is not sustainable for any country and not for the United States either.”

Global investors say the state of the U.S. government’s finances is the greatest risk to the world economy and almost half are curbing their investments in response to continuing budget battles, according to a Bloomberg poll published this week. Thirty-six percent of respondents cited the U.S.’s fiscal woes as their biggest concern, compared with 29 percent who said Europe’s debt crisis was a bigger threat.

A failure in the U.S. to rein in its deficit “long term could put pressure on the world economy,” Reinfeldt said.

Comparing Deficits

The European Commission in November estimated that Sweden will post a budget deficit of 0.3 percent of GDP this year, compared with a 7.3 percent shortfall for the U.S. The 27-member European Union will post a deficit equivalent to 3.2 percent of GDP, the commission estimates.

Sweden emerged as a haven from Europe’s debt crisis and is using its budget strength to stimulate economic growth this year as exporters such as truckmaker Volvo AB suffer.

Reinfeldt’s government in September said it will spend about 0.7 percent of GDP on new initiatives this year including infrastructure, research and a corporate tax cut to 22 percent from 26.3 percent.

To contact the reporter on this story: Johan Carlstrom in Stockholm at jcarlstrom@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus