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Slightly cautious Swedish budget bill for 2023

Olle Holmgren, Daniel Bergvall and Jens Magnusson

The net effect of reforms in the Swedish government’s budget bill, presented 8 November, sums up to approximately 40 billion kronor (0.7 per cent of GDP). This excludes the 55 billion kronor subsidy for high electricity prices that the government presented at the end of October. Here SEB’s economist provide a quick overview of the bill.

The list of reforms includes no major surprises and have a focus on core government services rather than transfers to households. On the margin, although the budget is largely fiscal neutral, we see it as being on the cautious side. The finance minister has on several occasions stressed the need to prepare for the worst and that high inflation means that this is not the time to spend. We will not be surprised though if more is measures are presented in the beginning of 2023 if the economy weakens further.

The most awaited and largest reform, the subsidy of electricity prices (55 billion kronor) will be treated as a repayment of fees paid to government utility company, Svenska Kraftnät. The reform list includes more funds to several areas that are part of core government services like defence, police, the court system and grants local governments. In terms of more general support to households, the main items are lower tax on fuels and that the higher levels in the unemployment insurance that were introduced during the pandemic will be made permanent. Part of the increased spending is funded by lower spending on foreign aid, migration, and a removal of the subsidy for electric vehicle purchases.

With a net cost on government finances of 40 billion kronor for all reforms, we see the budget as fiscally neutral. Given the overall strong finances and the worsening economic outlook one might have expected a more expansive budget and the budget can therefore be perceived as slightly on the cautious side.

There are several reasons for this though. 1) The finance minister has on several occasions noted the need for strong government finances if things turn to the (even) worse. 2) With already high inflation, the finance minister has also stressed that now is not the time for a broad stimulus to households. The government most likely also has a fear of repeating the UK mistakes a few weeks ago. 3) The government has been in office only 3 weeks which is a short time to put a budget together. Several reforms in the government+Sweden Democrats agreement (the Tidö agreement) need time to be prepared and will be presented in later budgets. As these reforms need funding, the government does not want to spend all now.

Tax cuts for households and larger tax cuts on energy that were promised ahead of the election were not included in the budget and the 55 billion kronor in electricity subsidy is only half as large as the support that was indicated by the former government. Furthermore, the proposed tax cut on motor fuels (costing 7 billion kronor) will be offset by a CPI indexation of fuel taxes, which means that fuel prices for households will be largely unchanged. According to the governments estimates the fiscal stance in the budget is neutral. Fiscal policy calculations are highly uncertain but the reforms in the budget and especially the energy support are significantly smaller than we expected.