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Swedish finance minister: voters may have to accept falling real wages

Sweden's finance minister had told The Local that this year's election will largely be about rising costs, but that his party is not planning to intervene to prop up real incomes and so worsen inflation.

Swedish finance minister: voters may have to accept falling real wages
Swedish Finance Minister Mikael Damberg at the Swedbank seminar on Swedens economic situation. Photo: Richard Orange

Speaking at a seminar on Sweden’s economic situation hosted by Swedbank, Mikael Damberg agreed that the coming campaign would be a so-called plånboksval, or “pocketbook election”, where rising costs and falling spending power are the dominant issue, but he said he thought this would benefit rather than harm the Social Democrats. 

“Economic issues will be very important,” he told The Local, “and I think people will think about who will be best in charge of the public finances, and who has been in government and handled tough situations, and I think that Magdalena Andersson, as the Prime Minister with seven years as Minister of Finance, is the right woman to lead Sweden in these difficult times.”

His worry, he said, was that Sweden’s political parties would respond to inflation levels of close to eight percent by promising voters subsidies and cash transfers to make up for rising prices, which if implemented would then risk fuelling an inflationary spiral. 

“It might be |a problem] if the parties draw the wrong conclusion, and think that they can spend a lot of money right now. Because if they spend too much money, too broadly, not focusing on vulnerable groups, then inflation will go up, and interest rates will go even higher. And that would actually worsen the situation in the wallet for ordinary people.” 

Instead, Damberg said that people living in Sweden would ideally simply tighten their belts and tolerate a period of falling real incomes. 

“For 25 years in Sweden, we have had real wage increases for ordinary workers, and that’s kind of unique on an international perspective. So this year, there will be a drop in real wages because of inflation,” he said.

He said that he hoped that in next year’s negotiations between unions and employers over new collective bargaining agreements, unions were as responsible as they have been historically, and avoided calling for inflationary pay hikes. 

“It’s tough. The war has made us all less rich, and some groups will be affected very much. But I think, there’s no point in getting wage increases if it pushes inflation higher. The trick here is to get wage increase that are for real, and not just on paper.” 

In the seminar, he said that there was a danger that the huge emergency spending packages Sweden, like other countries, had put in place to soften the impact of the Covid-19 pandemic would set a precedent, leading voters and politicians to think it was possible for governments to spend their way out of the coming economic difficulties in a similar way. 

His intention, he said, if he was reappointed finance minister after the election, would be to keep the tax rate roughly level with where it is now, neither raising nor lowering taxes, in the hope that Sweden’s state finances go into a small surplus next year. 

He said it had been right this year to pass measures to increase the incomes of the poorest families and the poorest pensioners, and that his party would still seek to give aid targeted those least able to cope with rising prices. 

“Politics has a role,” he said. “But you need to be careful not to create too big a role, because if you think that politics can do everything, then we will start fuelling inflation. It’s a lot harder now than it was in the pandemic.” 

Shortly before the seminar, Ulf Kristersson, leader of the opposition Moderate Party, made a speech in which he accused the government of bringing in 46 new taxes over the last four years, and together in a “left-wing cartel” with other parties of planning a series of tax hikes, including a property tax, a tax on savings, a wealth tax, a tax on the highest incomes, and a reduced tax break on cleaners and other households services.

“I think they’re a bit desperate, because they’re not doing that well in the polls,” Damberg said. “So one way [of improving the situation] is to try to frighten voters. But I think our record speaks for itself, and I think Magdalena Andersson has got a lot of credibility when it comes to handling Swedish economy.” 

“She has not introduced a property tax, and she has not in the last period in government increased the tax burden on ordinary people. If you look at the tax burden in Sweden over the last period, it’s gone down, not up.”

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Are Sweden’s Social Democrats ready to go as far as Denmark’s?

Prime minister Magdalena Andersson is caught between a rock and a hard place, argues David Crouch. To hold her bloc together, she must eschew the politics that brought the Social Democrats success in Denmark

Are Sweden’s Social Democrats ready to go as far as Denmark’s?

As Sweden’s election campaign trundles towards its culmination on September 11th, the country’s political gamblers are making their last throws of the dice. Recent weeks have shown clearly that the ruling Social Democrats are betting on voters who believe that immigration is to blame for violent crime.

Last weekend, prime minister Magdalena Andersson announced new punishments for gang-related offences, including much longer prison terms and a free hand for police to ransack people’s homes and cars in search of weapons and drugs, even if they themselves were not suspects. She linked the moves explicitly to ethnicity: “Too much migration and too little integration has led to parallel societies where criminal gangs could take root and grow,” she said.

The next day, integration and migration minister Anders Ygeman declared that municipalities would be forced to ensure that the three-year-old children of recent immigrants go to kindergarten, to tackle the segregation that is “tearing apart our country”. Earlier, Ygeman made headlines with by suggesting that no area should have more than fifty percent “non-Nordic” population.

These proposals from the Social Democrats are designed to appeal to voters averse to immigration. There is stiff competition for this demographic. There has been a chorus of “dog whistle” politics from Sweden’s centre-right parties, floating ostensibly rational (if harebrained) proposals that also “whistle” to this section of voters with a message that immigrants are the problem.

When Swedes go against their reputation for cuddly liberalism and get tough on immigration, the example of Denmark is never far away. “In the past, Denmark’s treatment of immigrants was an object of horror for Swedish political parties,” wrote political observer Ewa Stenberg in the liberal daily Dagens Nyheter last week. “Now it is an inspiration.”

For Sweden’s Social Democrats, Denmark’s radical approach to immigration seems particularly attractive, because for the past three years it has been championed by their Danish party namesake and its leader, prime minister Mette Frederiksen. By adopting the anti-immigrant demands of the far right – and adding some of her own – Frederiksen succeeded in winning back some of the Social Democrats’ traditional working class voters and engineered a collapse in the far-right vote. Could the same tactic work on this side of the Øresund Bridge?

Ygeman’s proposal to cap the number of “non-Nordic” people in Sweden’s problem areas is borrowed straight from the Danish playbook. Frederiksen’s government has made the proportion of “non-Westerners” the main criterion for whether a residential area should end up on the country’s list of vulnerable areas, often called the “ghetto list”. By 2030, no such area should have more than 30 percent of residents with a non-Western background. This also involves demolishing homes in these areas and building new, more expensive ones, to attract a better class of resident.

The policy has gone hand in hand with slamming the door shut on asylum seekers, so that Denmark received only 600 last year – the lowest number since 1992. Parliament last year passed a law allowing the processing of asylum seekers to be outsourced altogether to a third country, likely in Africa.

Whether or not one agrees with the Danish Social Democrats, there are some substantial reasons to suggest that their approach would not work in Sweden.

First, the Danish approach wasn’t an unqualified electoral success for the Social Democrats. Although they took votes from the far-right Danish People’s Party (DF), their 2019 total actually went down a little as they lost the support of voters unhappy with the new stance on immigration. However, these votes went to the Social Democrats’ coalition partners, enabling Frederiksen to lead the new government.

Second, there were specifically Danish circumstances that were favourable to the Social Democrats. The Danish People’s Party had been propping up an unpopular Liberal minority government, denting its own popularity, while it was also being undermined by rival right-wing populist parties.

Within Denmark’s Social Democrats themselves the ground had been prepared for a rightward lurch on immigration, which is unlikely to be the case in Sweden. Some Swedish opinion formers, such as Payam Moula, editor-in-chief of the periodical Tiden, have tried to claim that Denmark is the way forward for Social Democracy, but they have encountered stubborn opposition.

Third, Frederiksen’s coalition partners had a long history of governing in coalition with the Social Democrats, they were accustomed to it. This is far from the case in Sweden, where two parties that currently constitute the fragile centre-left “bloc” – the Centre Party and the Left Party – have little or no history of governing together with the Social Democrats. Indeed, there is considerable animosity between them; the Centre Party says flatly that it won’t support a Social Democrat-led coalition government with Left Party ministers.

This brings us to a key difference between Denmark and Sweden. Frederiksen’s Social Democrats recognised that polarisation was taking place at both ends of the political spectrum, and they lured Danish People’s Party voters with major investment in welfare, especially pensions. In other words, Frederiksen didn’t only shift to the right on immigration, she shifted left on welfare. It was the political equivalent of doing the splits.

In Sweden, left-wing welfare policies would be anathema to the Centre Party, upon whose support any chances of a centre-let coalition victory depend. The Centre Party’s leader, Annie Lööf, is implacably opposed to the far-right Sweden Democrats, but economically and socially liberal. Indeed, she caused a government crisis in November because the Social Democrats did a deal with the Left to raise pensions.

Finally, there is the question in Sweden of whether stealing the far right’s clothes makes any difference anyway. Whenever the Social Democrats try to out-do the far right with anti-immigrant bluster, it only seems to embolden them. “Every time the Social Democrats get nearer to the Sweden Democrats, the Sweden Democrats just take a step even further to the right,” says political scientist Ulf Bjereld, an outspoken critic of the Danish approach.

In apparent confirmation of Bjereld’s analysis, Magdalena Andersson’s tub-thumping speech on gang crime at the weekend was swiftly overshadowed by the storm around a Sweden Democrat tweet inviting immigrants to board “the repatriation express” (återvandringståget) – a metro train covered in the party’s logo. Suddenly the debate was no longer about harder penalties, but about sending immigrants back home – a central Sweden Democrat demand.

Magdalena Andersson is caught between a rock and a hard place. To hold her flimsy bloc together and have any chance of victory on September 11, she must eschew the politics that brought the Social Democrats success in Denmark.

David Crouch is the author of Almost Perfekt: How Sweden Works and What Can We Learn From It. He is a freelance journalist and a lecturer in journalism at Gothenburg University.