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`I Am Sticking With The Welfare State' (Int'l Edition)


Business Week International Finance: SWEDEN

`I AM STICKING WITH THE WELFARE STATE' (int'l edition)

It's after 6 p.m. in New York, and he's six time zones away from Stockholm, but Swedish Finance Minister Guran Persson is still going strong without a hint of jet lag. With markets around the world wondering whether the recently elected Socialist government of Prime Minister Ingvar Carlsson can shrink Sweden's huge budget deficit and national debt, Persson has spent the day detailing his plans for $3 billion in spending cuts and tax hikes to J.P. Morgan, Salomon Brothers, and Goldman Sachs, among others. A lifelong Socialist, Persson, 46, is now becoming a globe-trotting pro at reassuring foreigners, who own $18 billion in Swedish government debt. Two weeks before, Persson faced investors in London. His road show travels next to Frankfurt, Zurich, Paris, and Tokyo. Before moving on, he sat down to chat about Sweden's economy with Senior Writer William Glasgall, Europe Editor Christopher Power, and International Affairs Editor Stanley Reed.

Q: Sweden's budget deficit is now 11% of gross domestic product. You have proposed a "reinforcement" program that will slash social-welfare spending and raise taxes. How will it work?

A: The reinforcement program totals roughly 7.5% of GDP--3% in 1995, 2.5% in 1996, and 1% each year in 1997 and '98. Sweden has a strong real economy. Our problem is weak public finances. This program consists of 50% in tax increases and 50% in [spending] cuts. Those cuts are to be made in the welfare system. The tax increases are to be made on high-income earners and on capital gains. We also are raising the fees that everyone who has an income must pay to the social security system.

I have been criticized for liking tax increases too much. I don't accept that. For Sweden to have a program of this size, I must see to it that there is a fair distribution of the burden. If I only focus on spending cuts, I will have an impact on those who are poorest in society. So I also must raise taxes on those who are not so dependent on the welfare society. Those with high incomes, like me, will have higher taxes. I will pay about $300 more in taxes each month.

Q: Are you trying to transform, remake, or preserve the welfare state?

A: I am sticking with the welfare state. I am trying to reform it, to make it better. Our welfare system is something that's combined with work incentives. It's a fair deal. Over the last 10 years [and during the previous Conservative-led government], we complemented the system with new benefits that have not been paid for. My task is to take that away and go back to the core.

Q. Sweden's national debt is extremely high, some 95% of GDP. Long-term interest rates are 11%. How long will it take you to reduce the debt load?

A. It will be a long journey back, and don't ask me how many years. The direction is important. To bring down the debt, I can always do privatizations, but I look on that as the easy way out. I might privatize at the wrong price because I need to do it to reduce the debt.

Q. The CEOs of Volvo, L.M. Ericsson, and several other companies say you're not doing enough for the private sector. How do you respond?

A. A lot of those who are critics [of the Socialists] were also very closely connected to the Conservative government. They were their advisers, and you had a mess in Sweden of Reaganomic characteristics.

Q. But Sweden still lacks many midsize companies that could create growth.

A. This is something we are not happy about. We have an old structure of big, multinational companies. They have been dominating the market. Now, they're going abroad to look for new markets--and we need new companies in Sweden. But the most important thing is to have a government that's capable of handling the deficit problem. Without lower interest rates, you will not have solid growth among small and midsize companies. The former government talked about structural reforms, but 45,000 companies went bankrupt. We have to go back to basics to see that we have order in our own house. That means growth, and growth means new companies.


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