No tax cuts for working Swedes

There won't be any additional cuts to the Swedish income tax as previously promise by the Reinfeldt government. The reason for this is disappointing growth figures. I would say that this is somewhat odd reasoning on the governments part since there is no better argument for lower taxes then low growth. A tax cut would boost demand in the economy, exactly what is needed when the economy is growing slowly. The main argument for cutting the income tax made by the government has been that it would increase employment. Something that surely will be more of a need for now when economy is slowing then it would have been otherwise.

If the Swedish economy's impressive growth spurt had continued this would have been a better argument against cutting taxes then in support of it. Then the danger would have been increased inflation and the creation of bubbles especially in the property market. Problems a tax cut would have made worse. If the inflation threat had been seen as serious, the Swedish Riksbank would have had to react by raising interest rates faster then it otherwise would, counteracting the positive effects of the tax cut.

These actions by the Swedish government seem to be in line with a pro-cyclical fiscal policy exacerbating the swings of the business cycle by boosting the economy in good times and strangling it in bad times.

The only defense for such a policy would be fiscal discipline, an unwillingness to spend beyond ones means. The consequences of which many of Sweden's European neighbors are suffering. But unlike them Sweden has no existing debt problem. It could easily run a budget deficit without this unnerving the markets. It does however have a budgetary rule of a 2% surplus, with the aim of continuously chipping away at Sweden's already manageable public debt. But this 2% goal is over the whole business cycle, giving the government room to help the economy during bad times given that they then show restraint during good times.