Sweden - Politics, government, and taxation

Like its Nordic neighbors Norway and Denmark, Sweden is a constitutional monarchy. It is essentially a mature, multi-party parliamentary democracy, governed under a 1975 constitution that removed the last vestiges of royal power, included an extensive bill of rights, and declared that all power emanated from the people. Executive power is vested in the Cabinet, elected by parliament and consisting of the prime minister, the head of government, and 20 cabinet ministers. The monarch remains officially the head of state, an exclusively ceremonial post, but is no longer the commander-in-chief of the armed forces and does not chair the cabinet meetings. Succession to the throne was opened to women in 1980. Legislative power is vested in a unicameral parliament (Riksdag) with 349 seats whose members are elected for 4-year terms on a proportional basis by universal suffrage. After elections in September 1998, the seats were distributed as follows: Social Democrats (131), Moderates (82), the Left Party (43), Christian Democrats (42), the Center Party (18), the Liberal Party (17), and the Greens (16).

The Social Democratic Party, which had been Sweden's ruling party since World War II, regained office in the 1994 elections. With its traditional ties to the trade-union movement, it has made reducing unemployment a top priority, and stands for a strong public sector . Blue-collar workers and public-sector employees form its base. The conservative Moderate Party demands minimum involvement by the government, lower taxes, public assistance for private industry and business, and a strong defense. The Left Party has socialist and communist traditions and normally supports the Social Democratic government, but it opposes EU membership fearing that European integration and regulations would jeopardize benefits for Swedish workers. The Christian Democratic Party supports a traditional values-based government, is strongly anti-abortion, and pleads for greater support for families in order to fight youth problems, alcoholism, and crime. It demands more aid to developing countries and a more liberal immigration policy.

An important priority for Social Democratic prime minister Goran Persson and his party in 2000 was convincing the Swedish population of the benefits of the EMU. The party had officially adopted a pro-membership policy, but its argument that Sweden had to join the single currency on purely economic grounds sounded less convincing in late 2000, as the country's economy was growing faster than those who had joined the EMU in 1999. Other factors also discouraged a national consensus in favor of the EMU: Sweden's tradition of restricting alcohol use by administrative means conflicted with the EU's trade liberalization rules, and the EU's unhappiness with the intended merger between the 2 large Swedish truck makers, Volvo and Scania.

Denmark's decision to stay out of the EMU membership also weakened popular support for a similar move in Sweden. Many ordinary Swedes are suspicious about further European integration and worry about its impact on their generally healthy economy and its traditional welfare programs, as are the Danes. Businesspeople in Sweden, on the other hand, are unified in support of EMU membership, citing the benefits of a stable exchange rate for their trade with the euro zone (countries that have adopted the euro currency), which accounts for more than half of Swedish trade. They fear EMU would also force Sweden to harmonize its legislation, putting national business on an equal footing with its EU competitors.

Labor market regulations remain of particular concern for the government in the EMU debate. The current wage bargaining system sets the wages for a fixed period of 2 years. Consequently, a large part of the Swedish companies are bound by rigid wage costs over that period. In the event of an international economic slowdown and decreasing foreign sales, the export-driven Swedish industry would suffer from these high fixed wage costs. In similar situations in the past, its price competitiveness abroad has been restored by a depreciation of the krona. If Sweden joins EMU, however, such depreciation would be ruled out (all monetary issues will be decided upon by the European Central Bank), and a more flexible system of wage fixing would be needed to avoid massive layoffs in times of low foreign demand. But Sweden's traditional commitment to wage stability and solidarity and its opposition to layoffs form the heart of the country's economic model. EMU membership is supported by trade-union leadership, but less so by its rank-and-file members (typical workers).

The government's role in the Swedish economy is larger than in other industrialized countries such as the United States. The state owns shares in an array of important industries, such as commercial banks, credit institutions, telecommunications, information technology, broadcasting, postal services, nuclear and hydroelectric power production, air transport, railroads, mining companies, drug chains, pharmaceuticals, and the defense industry. It provides also extensive educational, health, oldage, disability, unemployment, and other social services. The Swedish government is planning a new program aimed at establishing more market discipline and improving the performance of state-owned firms by publishing their quarterly reports as a manifestation of accountability.

Sweden's corporate tax rate is 28 percent, levied on the company's worldwide income. Value-added tax (VAT) applies to the sale of goods and most services; its basic rate is 25 percent of the pre-tax price for all goods (12 percent on food items since 1996). Although corporate taxes are low by western European standards, individual ones, although progressive, are reckoned quite high and the IMF advocates lowering them if the country is to continue its steady growth.

Sweden has an external debt of US$66.5 billion (1994) which is considered proportionate, and is a major economic aid donor with US$1.7 billion in direct aid (1997). The country has a significant foreign trade surplus (more than US$17 billion in 1999) due to its large and robust export sector.