Government launches crisis package to tackle economic recession

In response to mounting pressure to react to the economic recession and downturn in the labour market, the Swedish government finally presented a crisis package in December 2008. The action plan seeks to stimulate employment and ease the effects of the recession. However, it generated widespread criticism, despite some positive responses. Nevertheless, according to the government, the EU Commission claims that Sweden’s Budget Bill is the most extensive in Europe.

Call for action

Trade unions in Sweden have been particularly critical of the government, demanding additional efforts and actions in the Budget Bill for 2009 in order to react to the increasing turbulence in the labour market (SE0810029I). During the autumn of 2008, the trade unions and employer organisations put forward their own crisis plans with suggestions on how to handle the current economic situation.

In December 2008, another key actor, the Central Bank of Sweden (Sveriges Riksbank), became the first of many banks in Europe to make a large cut in its repo rate (short for repurchase rate, also known as the official bank rate) by 1.75 percentage points down to 2%. The repo rate is the rate of interest at which banks can borrow or deposit funds at the Riksbank for a period of seven days. Following this move, huge pressure was mounted on the government to respond to the economic crisis. As the Swedish newspaper Dagens Industri emphasised in an article (in Swedish): ‘the government now has been passed the torch to react and act.’

Government response to economic crisis

In December, the government held a press conference to announce its new action plan. The plan has been developed in cooperation with the Swedish Public Employment Service (Arbetsförmedlingen) and the counties’ regional coordinators (see article (in Swedish)). The main purpose of the plan, according to the Minister for Employment, Sven Otto Littorin, is to help unemployed people find jobs and to counteract unemployment.

The crisis package contains a number of proposals, including recommendations to:

  • stimulate new forms of work placement, traineeships and occupational training for adults and increase the number of available places (8,600 in three years) to meet the needs of the labour market and to allow for individual coaching for unemployed people;
  • increase the student grant for people over 25 years of age from 30% to 80% of the total study allowance;
  • reduce employment tax by half for the hiring of people who are long-term unemployed – the government envisages increased employment for people who have been out of work for over a year in the region of 4,700 new jobs in 2009, 6,000 in 2010 and 4,700 in 2011;
  • stimulate infrastructure by investing an extra SEK 1 billion (about €93.3 million as at 6 January 2009) in the maintenance of railways and roads during the period 2009–2011 – this would be in addition to the investment envisaged in the Budget Bill for 2009–2011, where SEK 10 billion (€934 million) is to be earmarked for railways and roads;
  • boost the construction sector by reducing tax on restoration, construction and maintenance work on private houses – this tax reduction (ROT-avdrag) would amount to 50% of the costs up to a maximum threshold of SEK 100,000 (€9,338), which is equivalent to a maximum tax reduction worth SEK 50,000 (€4,671) for each individual in a year. The government hopes that such a measure will increase employment in the construction sector by 7,000 new jobs in 2009 and 3,500 jobs in 2010.

Sweden at forefront in handing crisis

Sweden’s Prime Minister, Fredrik Reinfeldt, claimed at the government press conference that the country is now at the forefront in Europe in handling the economic crisis. Mr Reinfeldt highlighted that with these investments – which altogether will amount to SEK 23 billion (€2.1 billion) for the period 2009–2011 – the total Budget Bill for 2009 will be close to 3% of Sweden’s gross national product (GNP). The government expects that the plan will affect about 165,000 people over the three-year period 2009–2011.

Social partners’ reactions to crisis package The government’s action plan generated widespread criticisms from the country’s major actors, which claimed that the package is not sufficient for reducing the effects of the economic recession. Such criticisms were put forward by the government opposition parties, along with trade union organisations such as the Swedish Confederation of Professional Employees (Tjänstemännens Centralorganisation, TCO), the Swedish Building Workers’ Union (Svenska Byggnadsarbetareförbundet, Byggnads), the employer organisation the Confederation of Swedish Enterprise (Svenskt Näringsliv), the National Institute of Economic Research (Konjunkturinstitutet, KI) and representatives from the country’s different banks.

The Swedish Municipal Workers’ Union (Svenska Kommunalarbetareförbundet, Kommunal) also expressed its disappointment with the fact that the public sector is being completely excluded from the package. It pointed to the need to raise the number of grants available to the municipalities as well as to lower the fee for the unemployment fund. While KI conceded that the action plan is a small step in the right direction, it called for greater investment and further measures to deal with the crisis.

In a press release (in Swedish), the President of the Union of Metalworkers (IF Metall), Stefan Löfven, stated that he agrees with the government’s proposals to increase occupational training, but criticised the package for the lack of measures directed towards industry, which he claims is a big mistake.

The Confederation of Swedish Enterprise welcomed the initiatives and the focus on the labour market rather than on stimulating consumption by reducing value-added taxes. Nevertheless, in its own crisis plan (in Swedish), the confederation highlighted the need for an active financial policy combined with an even more extensive economic-political action plan seeking to keep people in employment.

Thomas Brunk, Oxford Research

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