The Budget Bill (English summary, 1.1Mb PDF) [1] for 2009, presented by the Swedish government in September 2008, contains reforms concerning jobs and social welfare. The government is taking action in order to manage a weaker economic environment, permanently raise the level of employment and strengthen welfare. To increase social welfare funding, the government wants to encourage more people into the labour market. Towards this objective, the ‘in-work tax credit’ (/jobbskatteavdrag/) introduced in 2007 is a key element. In a first step, income tax was lowered by some SEK 40 billion (about €4 billion, as at 16 October 2008). In a second step, which was taken in 2008, the tax was reduced by another SEK 10 billion (€1.01 billion).[1] http://www.regeringen.se/content/1/c6/11/18/57/2ffcef5a.pdf
The Swedish government has presented reforms amounting to SEK 32 billion (€3.3 billion) in the Budget Bill for 2009. The changes aim to increase employment, reduce the effects of the downward economic trend and improve social welfare. Unemployment benefit funds will be reformed and the bill takes a further step in relation to the in-work tax credit (jobbskatteavdrag). The main actors involved in labour market policy have given a mixed reaction to the proposals.
Changes in unemployment benefit funds and tax cuts
The Budget Bill (English summary, 1.1Mb PDF) for 2009, presented by the Swedish government in September 2008, contains reforms concerning jobs and social welfare. The government is taking action in order to manage a weaker economic environment, permanently raise the level of employment and strengthen welfare. To increase social welfare funding, the government wants to encourage more people into the labour market. Towards this objective, the ‘in-work tax credit’ (jobbskatteavdrag) introduced in 2007 is a key element. In a first step, income tax was lowered by some SEK 40 billion (about €4 billion, as at 16 October 2008). In a second step, which was taken in 2008, the tax was reduced by another SEK 10 billion (€1.01 billion).
Overall, an important part of the Budget Bill is the reform programme for employers, employees and small businesses. Among the proposed changes are the following.
A third step will be implemented regarding the in-work tax credit. The lower threshold for state income tax will be raised by about SEK 18,000 (€1,840) a year. Income earners will receive an income tax deduction amounting to SEK 15 billion (€1.54 billion) in total – compared with SEK 10.8 billion (€1.15 billion) in 2008 (SE0710029I).
Increased social security for unemployed persons will be achieved through changes in the unemployment benefit funds. Membership contributions to these funds will be reduced by about SEK 50 (€5.10) a month for each member; this reduction will apply for most employed persons. New members will qualify for income benefits more rapidly, as the qualifying period will decrease from 12 to six months. After 1 July 2009, there will be no requirement of having worked before joining a fund (SE0702029I, SE0706039I).
Social contributions, including payroll taxes and social security contributions, will be lowered by one percentage point.
In 2007, the government reduced the total levy of social security contributions and payroll taxes for people aged 18 to 25 years. From 1 January 2009, this measure will be extended to include all persons younger than 26 years. Moreover, a further reduction in contributions will be made.
The corporate tax rate will be lowered from 28% to 26.3%.
Reactions from employer organisations
The Confederation of Swedish Enterprise (Svenskt Näringsliv) takes a positive view of the Budget Bill for 2009. The confederation’s Director General, Urban Bäckström, welcomes the fact that so much of the budget is being spent on tax cuts and on reducing social contributions. However, the Confederation of Swedish Enterprise wants the government to address the temporary austerity tax (värnskatt), which the confederation argues makes higher education less profitable.
For its part, the Federation of Private Enterprises (Företagarna) states that not enough proposals facilitate small companies. Instead, the Budget Bill favours large enterprises, in the opinion of the federation.
Reactions from trade unions
Meanwhile, the Swedish Confederation of Professional Associations (Sveriges Akademikers Centralorganisation, SACO) supports the reform of the unemployment benefit funds. SACO considers that a reduction of income taxes is good, but that it is a rather expensive way to increase employment. In its view, abolishing the temporary austerity tax is more important than decreasing the lower level of state income tax.
The Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO) states that it would be preferable if the government invested the budget surplus in safety reforms rather than in tax reductions when the economy is experiencing a downturn.
At the same time, the Swedish Trade Union Confederation (Landsorganisationen i Sverige, LO) contends that the cut in membership contributions in unemployment benefit funds is merely a cosmetic exercise. In order to increase the membership in unemployment benefit funds, a larger reduction is required, according to LO.
Unionen approves of the changes in the unemployment benefit funds, but believes that more must be done. Unionen is critical of the reduction in payroll taxes, due mainly to what it perceives as the limited effects on employment of previous reductions in such taxes.
Thomas Brunk, Oxford Research
Eurofound recommends citing this publication in the following way.
Eurofound (2008), Lower taxes for 2009 in bid to boost employment, article.
