When the Swedish government recently presented its budget for the 2025 fiscal year, it sparked a debate of a kind I have not seen in the country since at least the early 1990s. Voices from all over the political spectrum criticize the government’s budget for being fiscally misdirected.
Andreas Cervenka, a commentator for the daily tabloid Aftonbladet, has given a good summary of the debate. He notes that it is unusual, to say the least, that economists with the big banks and industry-funded think tanks “go arm in arm with” the former communist party on any political issue. Yet according to Cervenka, this was exactly what happened after a decision in the Riksdag (the Swedish parliament) to modify the Swedish government’s fiscal policy doctrine.
In a nutshell, the doctrine says that the government’s priority shall be balancing the budget at all times; the modification that Cervenka refers to is a shift in focus from annual budget surpluses to budget balancing over a business cycle.
It is not the nature of the shift itself that has caused a debate—it is the fact that the Swedish government continues to emphasize budget balancing over all other possible fiscal policy goals. Many of the voices raised in criticism of this policy doctrine, such as that of Andreas Wallström, chief economic forecaster with Swedbank, would like to see a stream of targeted budget deficits to allow for a more active fiscal policy.
I welcome this debate. Back in the 1990s when I was working to initiate a debate over the very fiscal policy framework that is now being criticized, I ran into an absolute wall of silence. It was downright impossible to initiate any public conversation on the annual balance requirements and how they were enforced.
The long-term effects of the strict pursuit of annual budget surpluses have over time eroded the stability, even the very operability, of government-funded systems in the Swedish economy and society. Before I get to the details of the rapidly emerging systemic dysfunction, a quick word about why the Swedish government is not going to change its mind on fiscal policy any time soon.
The politicians who lead the Swedish government are caught between a rock and a hard place.
On the one hand, they live by a fiscal policy theory (to use the word generously) that has been elevated to confessional doctrine in their circles. With Finance Minister Elisabeth Svantesson at the helm, the Swedish political leadership eats, breathes, and goes to bed with a macroeconomic catechism where the overarching goal of fiscal policy is to maintain a surplus, regardless of the consequences.
On the other hand, the entire country is virtually screaming in pain over the stranglehold that this budget-balancing policy has on the economy. News reports are aplenty of crumbling systems:
- A vital expansion of the national railroad network through the northern city of Umeå led to the construction of a new railway station, but a year later, the government agency responsible for railroad tracks still has not built any; local politicians, who have also invested city money in the new facility, hope to see some train tracks added in the next two years;
- Train services in southern Sweden are now so unreliable that the IKEA World Headquarters in Älmhult will have to operate its own buses to give thousands of commuting employees a reliable connection to and from work;
- The Försäkringskassan, the national income security agency, is increasingly unable to maintain payment promises in its many social benefit programs. Despite its serious consequences for those who don’t get their money as promised, this crisis is almost exclusively reported by off-the-beat blogs and buried deep in the agency’s own reports;
- The national police is so inefficient that it only solves 19% of all felonies reported.
To this list can be added a continuous stream of reports on shortfalls—often with serious individual consequences—within the tax-funded health care system, as well as deeply invasive cuts in school funding.
Every one of these examples directly or indirectly reports the consequences of holding back government spending. By taking responsibility for everything from infrastructure to health care to education to the income security of its citizens, the Swedish government has made promises not only in principle, but also in practice. This means delivering a product (law enforcement; railroads and train services) or a benefit (health care; cash for being home sick from work), the quality of which is determined by its purpose—not by the ability of the government to pay for it.
To take one example, if the government promises to replace a person’s income when that person is home with a sick child, then the replacement has to come at a specified, predictable rate related to a person’s income, and it has to be paid out in time. The reason for this is simple: when the government makes its promise, people plan their lives based on that promise. If the government changes the premises of that promise, such as not paying out the money in time, then the individual’s financial planning—which was based on the notion that the money would be paid out when he needed it—will be disrupted.
This has serious consequences for low-income workers whose cash margins are small or non-existent. Similarly serious consequences are felt from the government’s inability to provide timely health care or predictable, reliable public transportation—though when the trains do not operate and police cannot solve most crimes, the consequences inevitably spread upward through the income layers.
The systemic implosion underway in Sweden originates from the balanced-budget-first fiscal policy doctrine that has governed the country for more than four decades. So long as there were margins in the government systems, as there were in the 1980s, the outcome of this doctrine was actually positive: it led to enhanced efficiency in over-staffed, over-funded government bureaucracies.
Over time, though, the unending requirements for budget cuts stripped away the ‘pork’ from government appropriations. As the austerity demands tightened during the 1990s, it became increasingly difficult for tax-funded hospitals and other outfits to reconcile budget cuts with maintained quality in the services and benefits they provided.
In the past 20 years, budget tightening has gone from making it more difficult to obtain support from the government to jeopardizing the very nature of the product or benefit that each agency provides. Reinforcing this process is the recruitment of a new cadre of directors and managers within the public sector, a cadre whose foremost goal—per the government that is their employer—is to make a slightly tighter budget work each year.
These budget cuts have now eaten their way into so many vital systems in the Swedish economy that, unless something changes radically, the country is heading for a systemic implosion.
