Response to interpellation 2023/24:121 on the budget's effect on inflation and the economy
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
M considers the budget to be restrained, well-balanced, and neutral so as not to fuel inflation or complicate the Riksbank's work 1 2. M argues that priorities must be made and that 40 percent of the reform space is used for welfare 2. M assesses that inflation will fall and that the economy will turn around during 2025 3. M argues that there is a job to do in reducing expenditures without affecting healthcare, schools, and elderly care 3. M emphasizes the importance of holding back and not being expansive in order to dampen inflation 4 3. S considers the government's investments in welfare to be insufficient and that the expected cuts risk worsening the recession 5 6. S argues that one can take responsibility for both inflation and welfare at the same time 5 6.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Eva Lindh has asked me how I assess the budget's impact on inflation and the economy, and how it interacts with the economic conditions for the welfare system.
We find ourselves in a difficult economic situation. Inflation has begun to decrease but is still too high, and Sweden is judged to be in a recession. The high inflation harms Sweden's economy and must be combated by both monetary policy and fiscal policy.
The government has therefore presented a restrained and well-balanced budget that takes responsibility for the economy and is in line with the surplus target. This means that the fiscal policy's effect on demand is neutral and that we are not fueling inflation or hindering the Riksbank's fight against inflation.
Our budget contains many large reforms and investments, but we have had to prioritize the most important things in order to be able to finance what we do in line with the surplus goal. Within this framework, we are implementing important structural reforms while simultaneously supporting households and welfare.
Eva Lindh (S)
Madam Speaker! I thank the Minister for Finance for the answer.
The economic situation is weakening, and the Swedish economy is judged to be in a recession in 2023. When the Finance Minister presented the government's budget for 2024, she announced that the focus would be on restraint and inflation. Given that inflation has bitten harder in Sweden than in other countries, it is a reasonable focus to combat it.
At the same time, a Finance Minister should focus on the recession and what is needed to avoid worsening it. Many economists, for example, do not share the view that investments in welfare are inflationary in themselves and warn that the layoffs now expected in regions and municipalities instead risk worsening the recession.
That is why I asked the Minister for Finance how she assesses the budget's impact on inflation and the economy, and how it interacts with the economic conditions for the welfare system.
Madam Speaker! Welfare faces major economic challenges. The high inflation increases the costs for municipalities and regions. In the same way that inflation erodes households' finances, it also erodes the municipal sector's. At the same time, tax revenues risk decreasing as unemployment is expected to increase when Sweden is in a recession.
Higher costs for heating, transport and premises rents, as well as interest rate hikes, mean that Sweden's municipalities and regions are in a tough position. Our assessment is that the government compensates for only a fraction of these cost increases and that municipalities and regions therefore have less money for welfare going forward than they have had previously, which means they face extensive cuts. Above all, the regions are warning of extensive savings measures, such as the closure of entire hospital departments and extensive layoffs of healthcare personnel.
Inflation must be combated. It is important to establish that. The question is only how and what actually affects inflation. In our budget, we have shown that one can take responsibility for both inflation and the recession and, above all, for ensuring that welfare does not deteriorate during the coming years.
Several times, the Minister for Finance and other cabinet ministers have, in their responses, referred to inflation as an argument for not investing more in welfare. We believe that the investments are insufficient, and therefore it is interesting and good to have this debate on how inflation affects, what is important, and how we manage the recession.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! I thank Eva Lindh for a very good interpellation on an important issue, as everyone is affected more or less by inflation.
Inflation is a poison and the root of many of the problems we see in the economy. It pressures many households' finances, and the margins are small. Just as Eva Lindh mentions, it also pressures welfare because costs are increasing, and above all, the regions are additionally pressured by high pension costs which have become even higher due to inflation. Everything is affected by inflation.
The budget that the government and the Sweden Democrats tabled before the Riksdag earlier this autumn is a well-balanced budget, insofar as it is not expansionary and does not drive up inflation despite the recession. It is neutral, which means that the fiscal policy will not lead to the Riksbank needing to raise interest rates due to irresponsible economic policy. It is good that the Social Democrats also share this view.
But in a budget, one must of course prioritize, and 40 percent of our budget space we have allocated to the welfare sectors.
Municipalities and regions turn over approximately 1,300 billion every year. They have their own right of taxation. Right now, this year and next year, it is very tough in many municipalities and regions due to high inflation. We ensure that a large part of the deficit that municipalities and regions counted on when we set the budget is actually covered from the state side. But it is still very tough out there. We know, for example, that decreasing birth rates mean that schools all over Sweden face major challenges.
When it comes to the budget's impact on inflation, it is the whole that is absolutely most important. Then, of course, one can take out different parts and see how they affect inflation. I have said it before, and I say it again: It is also about whether the money comes out into the economy and affects demand. As I have said: Sometimes it sounds as if if you lower the tax it blows up inflation, but that other investments, public investments or other things, would not affect inflation. But the money that comes out into the economy and affects demand also affects inflation. It simply depends on that.
But that is not the main reason why we in the budget we have presented have used 40 percent of our reform space just for municipalities and regions, but it is because they need support. That being said: Households also need support. Therefore, we are lowering taxes for households.
We have enormous needs in Sweden to build up defense, police, the justice system, criminal justice, prisons and much more, which we have also made large investments in in the budget both by using the reform space and by reprioritizing. This includes, for example, starting to streamline the state administration and much more.
Eva Lindh (S)
Madam Speaker! As has been said, there are some things the Minister for Finance and I agree on. As two governing parties, the Moderates and the Social Democrats believe it is important to take responsibility for the economy and to have a long-term perspective in it. I share the view that inflation is important to combat, as it is a major problem for households, municipalities and regions and many others. I completely agree with that.
What sets us apart concerns priorities in the budget. Everyone in the government and the Sweden Democrats who speak about the economy say that it is incredibly important to fight inflation. That is correct, but I think it is problematic that one only refers to that when talking about why there won't be more investments in welfare. I also know that it is said that one is now investing 40 percent of the budget in welfare. But it is insufficient.
The money for municipalities and regions is called investments, but they are not indexed. Municipalities and regions do not receive enough to handle the increased expenses they have, and furthermore, they face major cuts. Then the consequences become very clear in a recession. We know that every fifth employee in the Swedish labor market works in the public sector. Now there will be cuts; there will be major cuts in many municipalities. In my home region, Östergötland, they say they have a deficit of 1.6 billion. It is 6 percent that they need to reduce. It will in some way mean fewer staff. These are people who will not work, and it affects the economy.
If the state does not provide sufficient resources, the costs of welfare are shifted onto municipalities and regions. If they are forced to raise taxes, it hits low- and middle-income earners, especially low-income earners, more than if the state were to raise the tax, which can be problematic.
A functioning welfare state is a prerequisite for us to be able to work, so it is part of ensuring that we can have more people who have the energy and are able to work full-time in Sweden. The Swedish model with a good welfare state has been good because it is an important part of high quality within the welfare state, both for the sake of the matter itself and because we are many, especially women, who can now participate in the labor market. If we deteriorate the welfare state, it may affect this, and we see that already now. One may not dare to trust that, for example, elderly care has the high quality that one wants to be able to trust that it has.
The supplements to the municipal sector are too small for cuts to be avoided. This becomes a problem when we are already in a recession. Once again, it is a matter of priorities. We Social Democrats have shown that one can both take responsibility for inflation and take responsibility for ensuring that we also have a strong welfare in the future.
Finansministern Elisabeth Svantesson (M)
Madam Speaker! Let us be a little honest here. The Social Democrats definitely want to curb inflation; I believe that too.
But now Eva Lindh is talking about priorities and financing in the budget. When one reads the Social Democrats' alternative budget, one sees that they want to finance this with, for example, a bank tax of 10 billion. It is a tax that would not even be possible to put in place by January 1 if the Social Democrats' budget were to win. That means there are budget holes of at least 10 billion in the Social Democrats' budget. That is manipulating the figures. It is not showing responsibility. One can have different opinions about throwing in a tax, but regardless of what one thinks about this tax, it would not be possible to implement from January 1.
We have a plan to get through a tough economic situation and an economic winter. The plan consists of three parts.
The first is to fight inflation while simultaneously supporting households and welfare. We do this in the budget that takes effect on January 1 next year, but also in the budget that applies for this year. It will not compensate for everything, because inflation hits at all levels and in all ways. It naturally also hits the state's finances. But above all: If we were to run enormous deficits and take out large loans to compensate, inflation would become higher, and the inflation crisis would persist.
The second part of the plan is about ensuring that, while we have this situation, more people enter the labor market and are equipped. It is about strengthening the work line – incredibly important for the welfare system to be able to handle all challenges in the years ahead.
The third part of the plan concerns structural reforms. Despite the fact that we have an inflation to fight here and now, one must be able to keep an eye on the longer term and see how Sweden will become a stronger country in 10, 20, and 30 years. It is about changes that facilitate entrepreneurship, about an education system that must function, about infrastructure, and about a functioning energy system.
This is the focus that I and the government have during this period. It is about pressing down inflation while simultaneously addressing other larger and long-term problems.
With that said, Madam Speaker, I appreciate the discussion on inflation. It is central and important. Many who listen to the debate or read the minutes afterwards might not have thought so much about inflation three years ago. It was just low and stable and stayed there for many years. When prices then suddenly start to rise and inflation is still too high, one feels: Oh, this hits me very hard!
I believe that the best thing we can do for all those people who both fight against and experience the effects of inflation in different ways - it could, for example, be high mortgage costs - is to dampen inflation. I am glad that we share this view, and I intend to continue as long as required. Inflation is heading down, but one still must have patience, hold on, and endure.
Eva Lindh (S)
Madam Speaker! I also believe that many people have not thought so much about inflation previously. But a large part of Sweden's population has truly felt it firsthand how it affects one when inflation is as high as it has been in Sweden. There is no doubt that it is important that we combat it.
My point is the same as what the Minister for Finance is touching upon: the longer perspective. Most assess that we are already in a recession. It concerns, for example, welfare. I take it as an example because it is an important issue that is close to my heart. When we do not have sufficient resources for welfare and when it will actually result in cuts, it is a major threat. It can worsen the recession very much. It is therefore not just about my strong enthusiasm for high quality in welfare, but also about this being a balancing act to look further ahead because this risks worsening the recession, a threat that I and several other assessors see.
I also think it is frustrating when inflation is used as an argument for not investing in welfare when it is actually about priorities. One can prioritize differently.
I am grateful that we have this debate. I also think it has been spirited. I have received answers on how the Finance Minister views this. But the last thing I wonder is: What are the assessments? How will the Finance Minister act if the recession worsens and it is seen that the large cuts actually affect the recession negatively?
Finansministern Elisabeth Svantesson (M)
Madam Speaker! The assessment is that inflation, if we do what we have now said we will do – hold firm, hold out and are not expansive – will go down significantly already during next year. There are, however, great uncertainties. A lot can happen. We have geopolitical tensions in the Middle East that could affect energy prices until the winter. One must really hold firm.
The assessment, however, is that inflation will come down and that the economy will turn during 2025. This means that it is this year and next year that our municipalities and regions will have it extra tough. That is also why the government is using 40 percent of the reform space specifically to strengthen municipalities and regions. It will still be tough for many, but there is also a job to do out there by saying: Okay, are there things that we can cut back on without it affecting healthcare, school, and elderly care?
My dear husband is a nurse and works in Region Örebro. There, the Social Democratic government has now decided to raise the tax by 75 öre, in addition to the fact that there is a hiring freeze. This tax increase will affect very many. I believe that there was a job to be done during the years both before and after the pandemic to avoid ending up in that situation.
We are, however, in agreement: Inflation must go down. I will follow the development extremely closely. Should the economy now go down even deeper for various reasons – it could be about geopolitics; it could be about Germany's economy being pulled down because China were to start hacking, which they are – we will have to return to this. There is a room for action if the economy worsens significantly.
The budget that was placed on the Riksdag's table was well-balanced at that time, and Eva Lindh can feel secure that I am following the developments very closely. As mentioned, there is room for maneuver if it is needed in the future.
With this, I would like to thank you for the debate and wish everyone a pleasant weekend when the time comes.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.