Ministry of Finance Sweden
How Competitive is the Social Market Economy?
May 19, 2011
Swedish Minister for Finance Anders Borg
Ministry of Finance Sweden
Agenda
• Europe’s different social models and their performance
• The Swedish case• The challenges ahead
Ministry of Finance Sweden
Europe’s different models
• Four distinct models (André Sapir’s typology)– Nordic: Sweden, Denmark, Finland,
Netherlands– Rhineland/continental: Germany,
France, Austria, Belgium, Luxembourg– Anglo-Saxon: Ireland, UK– Mediterranean/Southern European:
Portugal, Greece, Italy, Spain
Ministry of Finance Sweden
Sapir’s study updated: Nordic model still performs best on equality and efficiencyEmployment rates and probability of escaping poverty in European Social Systems 2009, %. Source: Eurostat
AT
DEFI
FR
DE
GR
IRE
IT
NL
PT
SP
SE
UK
Cont
Med
BE LUX
Nordic
Anglo
EU
78
80
82
84
86
88
90
92
50 55 60 65 70 75 80
Employment rate
1 -
po
ve
rty
ra
te
Ministry of Finance Sweden
Strongest public finances in Nordic modelNet lending and gross debt 2010, % of GDP. Source: Eurostat
ES
LUSE
FI
NordicDK
UK
NLAT
Cont
EU15FR
DE
Anglo
IE
EL
IT
Med
BE
PT
-35
-30
-25
-20
-15
-10
-5
0
0 20 40 60 80 100 120 140 160
Consolidated gross debt
Net
lend
ing
Ministry of Finance Sweden
Smallest income inequalities in Nordic modelIncome distribution measures: Gini-coefficient and 1-poverty rate. Source: Eurostat
AT
BE
DEFI
FR
DE
GR
IT
LUX
NL
SP
SE
UK
Cont
Med
IRE
Nordic
Anglo EU
78
80
82
84
86
88
90
92
24 25 26 27 28 29 30 31 32 33 34
Ginikoefficient
1 -
po
ve
rty
ra
te
Percentage
Ministry of Finance Sweden
Labour market performanceUnemployment and employment in 2010, %. Source: Eurostat
Employment rate in 2010
40 45 50 55 60 65 70 75
Unem
plo
ym
ent
in 2
010
2,5
5,0
7,5
10,0
12,5
15,0
17,5
20,0
22,5
BE
DK
UK
FR
IT
Med
SE
IE
Anglo
AT
LU
Cont
Nordic
ES
FI
GR
DE
PT
NL
..
.
.
.
Ministry of Finance Sweden
Agenda
• Europe’s different social models and their performance
• The Swedish case• The challenges ahead
Ministry of Finance Sweden
A strong fiscal performance since the deep recesseion of the early 1990sSwedish net lending, % of GDP
-12
-10
-8
-6
-4
-2
0
2
4
6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Ministry of Finance Sweden
Strong growthReal GDP-growth. Sources: Eurostat, Bureau of Economic Analysis.
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
pe
rce
nta
ge c
ha
nge
-Yo
Y
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
pe
rce
nta
ge c
ha
nge
-Yo
Y
-7,5
-5,0
-2,5
0,0
2,5
5,0
7,5
Sweden
Eurozone
United States
Sweden
Eurozone
United States
Sweden
Eurozone
United States
Ministry of Finance Sweden
Swedish employment increasing morePercentage change compared with same quarter of previous year. Sources: Statistics Sweden, U. S. Bureau of Labor Statistics, Eurostat.
-5
-4
-3
-2
-1
0
1
2
3
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Sweden United States Eurozone
Ministry of Finance Sweden
The success of the Swedish model 2.0
• Commitment to sound public finances– Fiscal policy framework, surplus going into down-turn
• Making work pay again– Earned-Income Tax Credits, reformed benefits-
systems• Pro-growth structural reforms
– De-regulation, state-owned companies sold, competition introduced in health care and education
– Reforms to the pension system, abolished wealth and inheritance taxes
• Education and helping weaker groups’ employment prospects– Improving educational outcomes, ALMP, vocational
training, cutting employer fees for weaker groups
Ministry of Finance Sweden
Actions to get more people into work
Further structural measures in the labour market to increase employment
and limit long-term unemployment
• Increased labour supply– Work-first principle– Tax cuts on labour income
• Well-functioning educational system– Apprenticeships– Reformed upper secondary school– Measures to increase teacher quality
• Better functioning labour market– More efficient Public Employment Service– Active labour market policies
• Increase demand for weaker groups– Minor adjustments in employment protection– Lower VAT in the service sector
Ministry of Finance Sweden
Reduced marginal and average tax rates in Sweden
0%
10%
20%
30%
40%
50%
60%
0 50 000 100 000 150 000 200 000 250 000 300 000 350 000 400 000 450 000
Earned income
Mar
gin
al t
ax r
ate
MTR w/o EITC + threshold
MTR w. EITC + threshold
Ministry of Finance Sweden
Reduced marginal tax wedge on labourMarginal tax wedge on labour, as percentage of total labour compensation, at 100% of average worker earnings, single person without children. OECD Going for Growth 2011.
Ministry of Finance Sweden
Swedish reforms to unemployment benefitsNet income replacement rates for unemployment (first year), % of earnings. OECD Going for Growth, 2011.
Ministry of Finance Sweden
Swedish reforms to disability and sick benefits have paid offNumber of weeks lost due to sick leave. OECD Going for Growth 2011.
Ministry of Finance Sweden
Fewer people outside the labour marketShare of the population 20-64 years in various benefit schemes, 1970-2015 (forecast 2011-2015).
0
5
10
15
20
25
30
70 75 80 85 90 95 00 05 10 15
Unempoyment benefitsLabour market measuresSubsistence allowanceSickness benefit and sick paySickness and activity compensation
Ministry of Finance Sweden
Strong fiscal policy frameworksin the Nordic modelStandardised fiscal rules index, 2008. Source: EU Commission.
-1,5
-1,0
-0,5
0,0
0,5
1,0
1,5
2,0
2,5
BE DE LU FR AT DK NL FI SE EL ES PT IT IE UK
Cont. avg. = 0,8
Nordic avg. = 1,4
Med. avg. = 0,2
Anglo avg. = 0,8
Ministry of Finance Sweden
Agenda
• Europe’s different social models and their performance
• The Swedish case• The challenges ahead
Ministry of Finance Sweden
Persistent and large deficits will complicate future expansionary fiscal policyCyclically adjusted budget balance 2016, as a share of potential GDP, %
Källa: IMF Fiscal Monitor, 2011
Average advanced economies
-8
-6
-4
-2
0
2
4
Japan
Unit
ed
Sta
tes
Spain
Port
ugal
Belg
ium
Advance
d
Irela
nd
Italy
Aust
ria
Gre
ece
France
Unit
ed
Kin
gdom
Germ
any
Neth
erl
ands
Sw
eden
2016
Ministry of Finance Sweden
Large future financing needs Maturing debt and budget deficit 2011, % of GDP
-10
0
10
20
30
40
50
60
J apa
n
Gree
ce
United
States
Weig
hted
Ave
rage
Italy
Belgi
um
Portu
gal
Fran
ceSp
ain
Irelan
d
Cana
da
United
Kingd
om
Germ
any
Finla
nd
Swed
en
Austr
alia
Förfallande skulder Budgetunderskott Totalt finansieringsbehovKälla: IMF Fiscal Monitor, 2011
Average advanced economies
Ministry of Finance Sweden
Dramatic increases in health care costsForecast increase of public health care expenditure 2011-2030, % of GDP. Source: IMF Fiscal Monitor, 2011.
Ministry of Finance Sweden
Europe’s educational systems must improve considerablyPISA score in reading, 2009
450
460
470
480
490
500
510
520
530
540
550
Med
Cont
EU-15
OECDAng
lo
Sweden
Nordic
Austra
lia
New Zea
land
Singap
ore
Hongko
ng
South
Kore
a
Ministry of Finance Sweden
Poor labour market performanceHarmonized unemployment, % of labour force. March 2011, except EE, GR, LT, LV, RO (Dec 2010) and UK (Jan 2011). Source: Eurostat.
es
lt lv
ieee gr sk
hubg pt
pl EU27 fr
it fi si dk be se uk ro cy czde mt
lu at nl
0
5
10
15
20
25
Ministry of Finance Sweden
Increased competition: China’s share of world trade now greater than the US and Germany Share of world trade of goods, %. Source: WTO
0
5
10
15
20
25
1948 1958 1968 1978 1988 1998 2008
USA France
Germany Sweden
China
Ministry of Finance Sweden
Conclusions
• The Nordic model still seems to perform the best– Stronger public finances, stronger labour market,
lower inequality• Performance depends on a number of
institutional factors– Education, fiscal policy frameworks, innovation,
transparency• Sweden’s development helped by structural
reforms• Key future challenges for all social and economic
models