B Y 2 0 0 0

H A LV I N G

A programme for

UNEMPLOYMENT

O P E N

SWEDISH GOVERNMENT JUNE 1996

1

Contents

■

Preface by Prime Minister Göran Persson

3

GOVERNMENT BILL 1995/96:207

An economic policy for halving open

unemployment by 2000

■

Summary

5

– Measures to increase employment

5

– The goal of halving open unemployment

7

– Ongoing follow-up

7

■

A strategy for halving unemployment

8

■

The economic outlook

21

■

Employment and unemployment

24

■

Sound public finances and stable prices

27

■

Tax policy

29

■

Education and competence

31

■

Labour market policy

35

■

The effects on public finances

39

■

Distributional effects

45

Published by the Prime Minister’s Office in June 1996. Additional copies may

be ordered from tel (+46)8-405 48 33 or fax (+46)8-24 64 19.

Graphic design: Art-O-Matic AB. Printed by Åkessons Tryckeri AB, Emmaboda.

3

The Government’s most important task is to combat unem-

ployment. Our task is to halve open unemployment to 4

per cent by 2000. This is a very ambitious goal. It will be

difficult, but not impossible.

The Government and the Centre Party have worked

together on economic policy since spring 1995. This co-

operation has been of decisive importance for political

stability and has made a strong contribution to falling rates

of interest and a stronger krona. It is an essential prerequisite for combatting

unemployment.

The cooperation between the Government and the Centre Party will

now be followed up in early Summer 1996 by an economic policy to halve

open unemployment by 2000.

On 11 June the Government presented a broad, offensive programme

for the fight against unemployment. This consists of concrete measures to

promote growth and employment. The programme consists of four corner-

stones:

■

Massive investment in education. Regular education will be expanded by

100,000 adult education places primarily intended for the unemployed

and persons with a low level of education. Higher education will be expand-

ed by 30,000 places.

■

A radical change in labour market policy. Labour market policy will be

decentralised and the role of the municipalities greatly reinforced. The

role of unemployment insurance as cover for adjustment will be made

clearer. The great variety of different grants will be diminished. 40,000

older long-term employed will be offered employment in the public sector.

■

Preface by Prime Minister

Göran Persson

4

■

Stimulants to enterprises. Payroll taxes will be reduced. Relief from double

taxation will be introduced for small and medium-sized enterprises. Sales

taxes on motor vehicles will be abolished and replaced by a higher vehicle

tax. Stamp duty will be temporarily reduced to stimulate the property

market and the construction sector.

■

Investments for the future. Three billion kronor programmes will be intro-

duced for adaptation to the recycling principle, the development of small

business, and Baltic Sea cooperation.

All proposals in the programme for increased employment and growth are

fully financed. The budget consolidation policy will be maintained.

Altogether, this is a programme which will press down open unemploy-

ment. But it is not sufficient to achieve the goal of a halving of open unem-

ployment by 2000. The Government will therefore monitor developments

on the labour market in relation to the employment goal with checkpoints

every six months beginning from spring 1997. The Government will combat

unemployment as resolutely as it has reduced the budget deficit

The struggle for full employment is in the final analysis a struggle for

cohesion of the nation. The Government’s goal of halving open unemploy-

ment by 2000 requires a national mustering of strength. The Government

therefore proposes that the Riksdag gives its support to this goal.

Halving open unemployment by the turn of the century is the Govern-

ment’s greatest challenge. It requires hard work and taking of great responsi-

bility. It requires leadership and offensive action. And it requires cohesion and

cooperation. Between the political parties, between different interests in soci-

ety and between the individual citizens of our country.

Göran Persson

Prime Minister

GOVERNMENT BILL 1995/96:207

An economic policy for halving open

unemployment by 2000

Summary

Measures to increase employment

The aims of economic policy are healthy growth, full employment and

stable prices. Sound central government finances are a prerequisite for

a sustainable reduction of unemployment. The goal is to halve open

unemployment from 8 per cent in 1994 to 4 per cent by 2000. As a

contribution to meeting this goal, the Government has now presented

and concretised a number of additional measures to promote growth

and employment. All proposals are fully-financed. The expenditure

ceiling will be maintained.

• Regular education will be expanded by 100,000 adult education

places in order to give in the first place unemployed persons with

a low level of education a chance to improve their proficiency and

thus their prospects on the labour market.

•

Higher education will be expanded by 30,000 places. This expan-

sion will take place throughout the country, with an especial focus

on Malmö, Sundsvall-Härnösand-Östersund, Bergslagen and South-

eastern Sweden. The Government is now providing details of how

these 30,000 places will be allocated. At least half of the places will

be for science and technology.

•

A 1-billion kronor programme will be implemented for investment

for sustainable development and adaptation to the recycling prin-

ciple.

5

•

A 1-billion kronor programme will be implemented for the deve-

lopment, renewal and expansion of small-sized enterprises.

•

A 1-billion kronor fund will be set up for Baltic Sea Co-operation,

focused, inter alia, on strengthening the development of the

business sector. Additional resources will be made available to the

Nordic Investment Bank.

•

Payroll taxes will be reduced by five per cent for the first SEK

600,000 of the wage bill.

•

Tax relief for double taxation will be introduced focused on small

and medium-sized undertakings.

•

Sales tax on motor vehicles is to be abolished to stimulate car sales.

Benefit taxation of company cars will be reduced and altered so

that it will be based on the distance driven privately.

•

Stamp duty will be reduced to a third between 12 June 1996 and

31 December 1997 to stimulate the real estate market.

•

A review will be made of the prospects for expansion in the service

sector.

•

The employment offices will be strengthened while central resour-

ces will be cut back. The role of the municipalities will be reinfor-

ced. Use of labour market programme funds will be made more

flexible.

•

It is intended to increase unemployment benefit levels to 80 per

cent on 1 January 1998. The cost of this will be financed in full

by changes in the rules for unemployment benefit eligibility.

•

The role of unemployment insurance as an adaptation insurance

will be reinforced. A time limit should be introduced for unem-

ployment benefit as of 1 January 1997.

•

Clear, concrete individual plans of action are to be drawn up in

collaboration between the employment office and the job-seeker.

6

•

Unemployed persons between 25 and 55 years of age will be given

the opportunity to study for a year at compulsory or upper second-

ary school level with a special education grant at the level of

unemployment benefit. Employed persons may also receive this

education grant provided that they are replaced by long-term unem-

ployed registered at an employment office.

•

40,000 older long-term unemployed will be provided with employ-

ment in the municipalities, county councils and central govern-

ment with compensation at unemployment benefit level.

The goal of halving open unemployment

A nation

al mustering of strength is required to successfully combat

unemployment. Everyone must share this responsibility. It is therefore

of great importance that the Riksdag give its support to the goal of

halving open unemployment from 8 per cent in 1994 to 4 per cent by

2000. The Government therefore proposes that the Riksdag approve

the proposals made by the Government on halving open unemploy-

ment to 4 per cent by 2000.

Ongoing follow-up

The Government will review the success of the strategy presented in

this Bill for halving open unemployment. A follow-up will take place

twice yearly beginning in spring 1997. This will initiate a process com-

parable to that applied to the Convergence Programme.

7

8

■

A strategy for halving

unemployment

The task

The Government’s most important task is to combat unemployment. The

task is to halve open unemployment from 8 per cent in 1994 to 4 per cent by

2000. Unemployment undermines welfare by weakening the economy and

civic morale. Unemployment creates gaps and places both adults and children

under strain. The struggle for full employment is in the final analysis a struggle

for national cohesion.

The Government and the Centre Party have worked together on econ-

omic policy since spring 1995. This cooperation has been of decisive import-

ance for political stability and has contributed to falling interest rates and a

stronger krona. This cooperation is now being developed further by an econ-

omic policy to halve open unemployment by 2000.

The goal of halving open unemployment is very ambitious. Over

500,000 jobs were lost during the deep recession at the beginning of the 1990s.

All European experience points to the difficulty of bringing down unemploy-

ment once it has reached a high level. It is a difficult task but not impossible.

However, creating work for the unemployed is not sufficient in itself. Jobs

must also be created for the latent unemployed who will again seek work once

the prospects for finding employment improve. Over and above this there is

the normal annual increase of the workforce. Sweden will therefore need a

number of years with a good improvement in employment to succeed in the

struggle against unemployment.

What has been achieved?

The economic policy pursued has been successful. The picture outlined in

the Spring Fiscal Policy Bill (Government Bill 1995/96:150) indicates that

developments have been positive in a number of respects during the first two

years of the period of office:

•

GDP increased by 3 per cent in 1995 and is expected to increase by 1.4

per cent in 1996.

9

•

The number employed increased by 61,000 persons in 1995 and a further

increase of 16,000 is forecast for 1996.

•

Open unemployment fell by 8,000 persons in 1995 and is expected to

fall by an additional 20,000 in 1996.

•

Inflation is expected to fall from 2.6 per cent in 1995 to 1.9 per cent in

1996. Inflation is now lower than it has been for decades.

•

There was a record surplus on the balance on current account of SEK 35

billion in 1995 and a surplus of SEK 31 billion is forecast for 1996.

Sound central government finances and stable prices are fundamental for

the Government’s strategy to halve unemployment. Consolidation of public

finances is a prerequisite for a sustainable fight against unemployment. The

aim is to stabilise central government debt in relation to GDP in 1996, to re-

duce the general government deficit to less than 3 per cent of GDP by 1997

and to bring public finances into balance by 1998. The expenditure ceiling will

be retained.

Continuing the consolidation of public finances is a prerequisite

for being able to press interest rates down and to restore the strength of our

country’s economy. The economic policies pursued have also been successful

in these respects during the first two years:

•

The general government financial deficit has been reduced from 10.8 per

cent of GDP in 1994 to 8.1 per cent in 1995 and is expected to fall to

5.1 per cent in 1996.

•

Interest on five-year government bonds has fallen from around 11 per

cent in April 1995 to around 7.5 per cent at the beginning of June 1996.

•

From the beginning of the year the Riksbank has reduced the repo rate

from approximately 8.9 per cent to 6.3 per cent at the beginning of June.

•

The Swedish krona has strengthened by over 15 per cent in relation to

the ecu-index since April 1995.

Since the Spring Fiscal Policy Bill was presented in April 1996, there are signs

that the development of the economy has been slightly weaker than forecast.

Public finances seem, however, to have firmed somewhat. A particular

10

problem is that employment has not increased as positively nor has unem-

ployment fallen at the expected rate. The reduction that has taken place in

the number of employed persons in recent months is disturbing. This trend

is related to the deeper, long drawn-out slackening of the level of economic

activity internationally, especially in the EU core countries.

Further efforts are needed

In the Spring Fiscal Policy Bill it was estimated that open unemployment

would fall by around 30,000 persons between 1994 and 1996. It would then

amount to 7.2 per cent this year. The task is accordingly to reduce open unem-

ployment by a further 3.2 per cent, which is equivalent to approximately

140,000 persons.

In the Spring Fiscal Policy Bill it was further expected that open unem-

ployment would fall from 7.2 per cent in 1996 to 5.7 per cent by 2000. This

is equivalent to a reduction of unemployment by over 60,000 persons. These

estimates are based on a growth of 2–2.5 per cent per year up to the turn of

the century and include the effect of the extensive investment in education.

The measures now presented are estimated to reduce unemployment in the

next few years by approximately a further 40,000 people. At the same time,

the trend so far this year has been slightly weaker with respect to employment

and unemployment than forecast in the Spring Fiscal Policy Bill. The overall

effect of the new conditions and measures is difficult to assess. It is, however,

clear that economic growth must be higher and that the Swedish economy

must function better to achieve the goal that has been set up. This will requi-

re continued efforts and the support of all parties for the task.

To create a good basis for long-term sustainable development and in-

crease in employment, a holistic approach to economic policy is required. A

basic prerequisite is to put public finances back on to a sound basis and to

maintain price stability. Furthermore, measures are required to promote long-

term growth. This applies both to measures that strengthen the competence

of the individual and measures to improve the functioning of the economy.

Finally, measures are also required in the present situation that stimulate pro-

duction relatively quickly.

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Life-long learning

To meet the challenges of the future, a higher level of proficiency and

competence is required.

Sweden’s foremost means of competition must be

a well-educated, qualified and well-paid labour force

– not a low-productive,

poorly-paid labour force. This moreover requires a stronger increase in

competence in working life and a better use of existing competence. It also

requires that training continues throughout life, and not just while young.

In the Spring Fiscal Policy Bill the Government underlined that the edu-

cational system must be improved and expanded. All young people must be

offered a good education that lays the basis for life-long learning. Unemploy-

ed with a low level of education shall be given the opportunity of improving

their knowledge and thereby their prospects on the labour market. The regular

education system will therefore be expanded by 100,000 adult education

places over a five-year period at the same time as a special educational grant

at the level of unemployment benefit will be introduced. This investment in

education is primarily intended for unemployed persons with a lower level of

education than three years at upper secondary school. It is also directed at

employees who have no or only partial upper secondary education. The

Government proposes moreover to increase the number of places at universi-

ties and other institutions of higher education by 30,000. This will take place

successively from autumn term 1999. This massive investment in education

will cost approximately SEK 9.6 billion per year when it is fully implement-

ed and will be financed primarily by increased energy taxes and savings in the

field of labour market policy.

Strong enterprises

Good conditions for enterprises and entrepreneurship are also essential to

meet the challenges of the future. New jobs must be created primarily in the

private sector. Tax and industrial policy shall contribute to good general

conditions for entrepreneurship in Sweden. A strong pressure for change and

a good climate for enterprises and entrepreneurs will strengthen Sweden’s

long-term competitive ability.

Sweden has for a long time had a tax system

that favours entrepreneurship. In this Bill

the Government makes proposals

for tax relief that further improves these conditions.

The payroll tax will be reduced from 1 January 1997 by five percentage

12

points on the first SEK 600,000 of the enterprise’s wage bill. This will especi-

ally stimulate smaller companies. Similar reduction will be introduced for the

self-employed. A permanent relief of double taxation is announced directed

at small and medium-sized enterprises. Furthermore, changes are announced

in interest distribution for sole traders to facilitate generation shifts. More-

over, intensified efforts will be made to simplify tax rules for sole traders. A

new simpler tax collection system – tax accounts – will be introduced to sim-

plify tax collection, especially for small businesses. Tax and benefit rules for

foreign experts and other key personnel are to be reviewed. Finally, the Govern-

ment has adopted decisions simplyfying customs export procedures.

Better conditions for small and medium-sized enterprises

A comprehensive renewal of the business sector is required if the country is

to overcome the employment crisis. Renewal must be based on investment

in new knowledge, better use of competence and new technology as well as

innovations.

The Government is therefore allocating SEK 1 billion to the

programme for the development, renewal and expansion of small-sized under-

takings. This programme, which has a clear small business profile, is intend-

ed to make it easier for Sweden to develop a knowledge-based society, to make

it easier to be an entrepreneur and to initiate the adaptation to sustainable

development. Among other things, the programme includes the establish-

ment of a delegation for simplified conditions for small businesses with the

task of making proposals that can stimulate new establishment and make

possible simplification of regulations affecting small businesses. In addition to

the programme directed at small-sized undertakings, the Government intends

to initiate a broad cooperation in the counties for effective industrial and

regional policies focused on small businesses.

Competition must be effective if Sweden is to remain a nation with a

strong economy and a high standard of living.

A high competitive pressure

pushes forward structural transformation so that resources are transferred from

low to high-productive activities. It also motivates companies to successively

develop and improve their production technology. Our EU membership has

to some extent changed the preconditions for Swedish businesses.

To further

increase competition in the Swedish economy, the Government wishes to

contribute to even more Swedish companies being put to the test in an inter-

13

national environment more open to competition. This will be achieved by

improving the ability of Swedish companies to enter new markets, not least

in the Baltic Sea area, and by facilitating foreign investment in Sweden.

The services sector fills an increasingly important function in the econ-

omy. This sector is highly differentiated and contains low and high-wage

professions. Sales of consumer services, i.e. services directed at households,

purchased by private individuals have, however, been reduced as wage diffe-

rentials have declined and with the expansion of the public sector, inter alia,

the expansion of child care and care of the elderly.

A review of the system of rules is motivated in the light of the high unem-

ployment and the fact that the provision of less-qualified services previously

acted as an introduction to the labour market. The Government will insti-

tute a review of the rules for commissioning of services and analyse the role

that purchase of services by private persons can have for the economy and

propose changes of rules to stimulate supply and demand for services direct-

ed at households.

An efficient labour market

Labour market policy has a key role in economic policy. It is to promote

growth and employment by increasing flexibility in the labour market,

counteracting inflationary bottlenecks, strengthening the competence of the

labour force and preventing permanent exclusion of individuals from working

life.

Active labour market policy has traditionally been based on the work

first principle, i.e. activity rather than passivity. In recent years it has become

increasingly evident that increased competence must be a key element of the

strategy to get the employed back in regular work. The Government is now

going the whole way. The work first principle is to be developed into the work

and competence first principle.

Labour market policy is to be renewed.

The local employment offices

will be strengthened at the same time as central resources will be cut back.

The municipalities will be given a clearer role.

The use of labour market pro-

gramme funds will become more flexible and individual-oriented. Concrete,

realistic plans of action will be established by the individual and the employ-

ment office together. The purpose is to rapidly help the job seeker to return

to the ordinary labour market at the same time as the responsibility of the

14

individual and the employment office is made clearer. Regular education is

not to take place within the framework of the labour market programme,

with the exception of non-Nordic immigrants who have been unemployed

and registered at the Employment Office for at least two years and in some

cases disabled persons. Women who have been unemployed for a longer period

will be offered initial self-employment grants for an extended period. Decen-

tralisation and control by objectives will increase at the same time as follow-

up and evaluation of policies is intensified.

The role of unemployment insurance as cover for adaptation is to be

reinforced.

This will contribute to security for employees at the same time as

it will facilitate the necessary adjustment for a person who has lost his or her

job. It must be designed as an income replacement insurance. The intention

of unemployment insurance is that it should provide security for a relatively

short and active period of adaptation. The Government is therefore now spe-

cifying the duration of the period for which unemployment and measures

outside the ordinary labour market can be combined by introducing a time

limit.

The Government considers that the level of compensation should be

raised to 80 per cent from 1 January 1998. This increase will cost SEK 1.5

billion and will be fully financed by changes of rules in the unemployment

insurance system. In conjunction with this proposition, it is proposed to make

changes in the work eligibility conditions and the employment concept that

are estimated to reduce expenditure by SEK 0.5 billion from 1997. The

remaining savings of SEK 1 billion are to be implemented from 1998 and

will entail changes in unemployment insurance. Limiting the upward adjust-

ment of benefit due to wage agreements to a maximum of two per cent and

co-ordinating unemployment benefit with severance payments, holiday pay

and parental benefit will provide sufficient financing.

Wage formation must be improved

. The basic principle must be that

the development of wage costs in

Sweden is to be at a low European level

even at levels of unemployment substantially below those at present.

A simi-

lar view of wage development has been put forward by the Edin group, (a

group of economists from the trade unions and the employer organisations)

which is in agreement that wage increases in Sweden should not be exceed

those in other OECD countries in Europe.

Wage formation must take into

15

account the interests of the unemployed to a greater extent than at present.

In order for Sweden to overcome mass unemployment, a new contract

is needed for cooperation in the field of wage formation. In conjunction with

the Spring Fiscal Policy Bill, the Government invited the social partners to

present their view to the Government as to how wage formation should take

place in future. Wage formation must primarily be a matter for the social part-

ners. At the same time, the state is responsible for various systems of rules that

serve as a basis for wage formation. At these discussions which began on 28

May, it was agreed that the social partners would at the latest by 10 June 1996

present their views on wage formation and the prospects for a common

formulation of the necessary changes in the system of negotiation and wage

formation. The future actions of the Government depend on the responses

made by the partners.

Labour legislation needs to be amended. This is an important issue for

both wage-earners and employers.

Labour legislation must be formulated in

such a way as to serve its purpose and reflect a reasonable balance between

the need of wage-earners for protection against arbitrary and discriminatory

decisions and enterprises’ need to continuously adapt their organisation and

work force to changed circumstances and needs.

It should also be designed

in such a way as not to make it more difficult for businesses to start up and

expand. The 1995 Labour Law Commission did not succeed in reaching

agreement on reforming labour legislation. Discussions between the social

partners are now continuing with the assistance of mediators. The partners

shall report to the Government at the latest by 23 August 1996 on the changes

that they consider should be made to labour legislation.

Measures to quickly stimulate production

The slackening of the Swedish economy intensifies the need for measures that

quickly stimulate economic activity. The Government therefore announces

that the benefit value of company cars will be reduced as of 1 January 1997

at the same time as the cost to the beneficiary will depend on the distance

driven privately. This proposal will be financed by alterations in how the tax

bracket for state income tax is adjusted upwards. Moreover, sales tax for motor

vehicles is abolished, which will be financed by an increase in vehicle tax. In

this way a renewal of the vehicle fleet will be stimulated, which is desirable

16

both for the level of economic activity and to improve the environment.

Stamp duty on properties will be temporarily reduced to a third between

12 June 1996 and 31 December 1997. This will reduce the transaction cost

of real estate, which, together with the reduced level of interest, should

stimulate the property market. Further, the processing of building and plan

items at the Government Office will be accelerated to allow more construction

projects to start.

Regional and municipal development

Regional development is becoming increasingly important.

Growth must

benefit the country as a whole.

Each region bears its own growth potential,

which must be utilised for the overall development to be as positive as possi-

ble. Active central government support for regional development is required,

especially in the form of continued expansion of the small and medium-sized

institutions of higher education. At the same time, various actors at both local

and regional level must actively contribute to creating strong and dynamic

growth processes in their region. The Government intends to initiate a broad

collaboration in the counties to achieve an effective growth-oriented industrial

and regional policy. The intention is to mobilise a large number of actors in

the counties to achieve regional and local accumulation of forces for profiling

and growth.

Municipalities and county councils must also contribute to the goal of

halving unemployment. In accordance with an earlier agreement the Swedish

Association of Local Authorities and the Federation of County Councils have,

among other things, undertaken to strive to avoid tax increases by municipal-

ities and county councils in 1997 and 1998, and as far as possible to avoid

making regular staff redundant so that they join the ranks of the open employ-

ed. The Government undertakes, inter alia, to maintain central government

grants at a nominally unchanged level and to postpone the introduction of a

statutory requirement for balanced municipal finances to 1999 and to 2000

for county councils.

Older long-term employed will be offered employment at their existing

benefit level in the municipalities, county councils and central government in

1997 and 1998. There is a considerable need for supplementary inputs in

care, nursing and other areas that can be satisfied in this way. The goal is for

17

this programme to cover around 40,000 older long-term unemployed.

Further, expansion will take place in the role of the municipalities in labour

market policy.

A sustainable development

Environmental policy has a comprehensive role in the strategy for high

growth and increased employment.

Growth will be stimulated by our raising

just those demands for an adaptation of Swedish society that are required for

growth to take place in an ecologically sustainable way. Growth based on the

ruthless exploitation of nature is not sustainable in the long-term.

Sweden

should therefore be in the front line as regards developing and using

environmental technology. A society based on recycling creates new jobs and

new businesses. Sweden shall strive to be a leading country where growth

and ecology develop hand in hand.

The vision is to create the ecologically

sustainable society.

A one-billion kronor five-year environmental investment programme

will be implemented to stimulate the adaptation to recycling of the water and

sewage systems, residential areas and construction. Otherwise, investments

are required to reinforce the environmental profile in labour market policy,

industrial policy, etc. A waste tax is to be introduced in 1998.

The international financing institutions have made considerable invest-

ment in the field of the environment. This especially applies to the programme

of action to restore the ecological balance of the Baltic Sea. By its member-

ship of the EU, Sweden has become a joint owner of the European Invest-

ment Bank, EIB. Over SEK 30 billion of the bank’s total lending, was

allocated last year to various environmental improvement measures. Since

Sweden has become a member, the EIB has approved over SEK 500 million

of loans to environmental projects. Environmental projects also play an

important role for NIB, the Nordic Investment Bank. Around SEK 2.4 billion,

almost a third, of NIB’s Nordic loans in 1995 were for projects related to en-

vironmental investments. As part of the joint Nordic efforts in the field of

the environment, it is moreover proposed to establish an environmental loan

facility at NIB. This proposal entails a loan limit of approximately SEK 830

million to be used for environmental investment of Nordic interest in the

neighbouring area. As well as beneficial environmental effects, this proposal

18

would provide increased opportunities for Swedish enterprises to take part in

this type of project. The cost of Sweden’s participation consists of the necess-

ary reservations for the Swedish guarantee during the loan facility. The

Government is striving actively in the Nordic arena to make this proposal a

reality.

A new energy system is to be developed. The Government has initiated

discussions with the other parliamentary parties on energy policy. The Govern-

ment strives for a broad parliamentary majority around the issue of conver-

sion of the energy system.

International cooperation

The struggle against unemployment must also take place at a European level.

The summit meeting in Madrid between the EU heads of state and govern-

ment reiterated that

employment is the most important issue for the EU and

its member states.

The coordination between member states needs to be

reinforced. Measures that have been seen to be successful in one country can

be tested in other countries. In this context the Government has proposed

that the EU treaty be revised by the introduction of a special chapter on

employment.

Developments in the Baltic Sea area will be especially important for our

own growth and economic development for a long time to come. Increased

economic integration in the region can lead to a strong dynamic development

of the countries bordering the Baltic Sea and create an attractive environment

for production and other industrial activity. The summit meeting in Visby

aimed to vitalise the Baltic region and to increase trade and other links between

countries around the region.

The Prime Minister has given an account to the Riksdag as to how the

Government intends to further develop Swedish participation in Baltic co-

operation. Five areas were pointed out as being especially important: the export

industry, including food, energy, education and the environment, and the

payments system. Different energy systems need to be linked up. More Swedes

need to learn the languages spoken on the other side of the Baltic Sea, at the

same time as Sweden must invite more young people from our neighbouring

countries to study at Swedish universities and other institutions of higher edu-

cation. Considerable progress has been made to save the environment in and

19

around the Baltic Sea, but further initiatives need to be taken. The recently

developed democratic infrastructure must be reinforced, otherwise the condi-

tions for a dynamic business sector can radically deteriorate. In this way,

growth can be strengthened and unemployment reduced. To highlight the

importance of the Baltic Sea region for growth and employment in Sweden,

a billion kronor is to be allocated to a fund. The Government intends to make

some changes in existing rules with respect to the guarantee limits for export

and investment administered by the Swedish Exports Guarantee Board,

especially for the Baltic republics and Russia.

Ongoing follow-up

The Spring Fiscal Policy Bill presented forecasts for economic development

according to which open unemployment is to be reduced to 5.7 per cent by

2000. These estimates included the effects of the extensive investment in edu-

cation. However, there remained a gap of 1.7 per cent, around 70,000 per-

sons, which must be closed to achieve the goal of halving of open unemploy-

ment to 4 per cent by the year 2000. The Spring Fiscal Policy Bill also inclu-

ded a high-called growth scenario according to which open unemployment

would fall to 4 per cent by the turn of the century. Both alternatives are shown

in Diagram 1.

This Bill contains a number of measures to further strengthen growth

Diagram 1

Open unemploy-

ment according to

the Spring Fiscal

Policy Bill.

Per cent

Basic scenario

High growth scenario

1988

1990

1992

1994

1996

1998

2000

0

2

4

6

8

10

20

and reduce unemployment.

The proposals now presented by the Govern-

ment are expected to reduce open unemployment by approximately a further

40,000 persons in the next few years.

In the first place, this will be the result

of the measure which deals with providing employment for older long-term

unemployed in municipalities, county councils and central government. At

the same time, the development of employment and unemployment at the

beginning of 1996 has been somewhat weaker than previously assumed. The

overall effect of a somewhat weaker economy and the new measures are diffi-

cult to assess.

Further, a number of measures are presented with the aim of improving

the functioning of the economy. An efficient economy will be required as well

as favourable conditions in other respects to achieve the goal of halving open

unemployment. The estimates contained in the Spring Fiscal Policy Bill indi-

cated that GDP growth up to the turn of the century would need to be around

3 per cent if employment is to increase to the extent required to achieve the

goal. Wage formation especially must function efficiently if growth is to be

achieved without inflation increasing.

Another important prerequisite is increased confidence in economic

policy and economic development so that demand and investment increase.

Companies must have greater confidence in the Swedish economy and in the

rules of play on the labour market so that they invest more and increase

employment. Public confidence in the social insurance system must be

strengthened. Easily comprehensible, stable rules must apply for illness, unem-

ployment and pensions. Individuals who feel secure are also capable of taking

initiatives that promote development.

At the same time, there is considerable uncertainty with respect to econ-

omic trends. The level of international economic activity is at present falling

off. It cannot be ruled out that this phase will be deeper and last longer than

expected. Furthermore, there is uncertainty about the Swedish economy’s

ability to create jobs to the required extent. A national mobilisation is requir-

ed around the task of halving open unemployment by the end of the century.

The social partners not least must contribute to the discussions in progress

on wage formation and labour legislation leading to agreements that streng-

then the Swedish economy.

The Government will regularly follow up developments on the labour

21

market. A review in relation to the goal of a halving of unemployment by

2000 will be presented to the Riksdag every six months in connection with

the Spring Fiscal Policy Bill and the Budget Bill. This will take place from

spring 1997

. In that way a similar procedure will apply as for the convergen-

ce programme.

At the time of these reviews, further measures will be taken

if developments diverge in a negative way from the intended direction.

These

reviews will be related to the follow-up of the policy for work, social security

and development that was presented in the Government Bill on Economic

Policy to Strengthen Growth and Employment and in employment pro-

gramme for several years presented by Sweden and the other EU countries

each year.

In this way employment and unemployment are given the same

ambitious treatment as the EU convergence criteria.

A procedure of this kind strengthens the prospects for achieving the goal

of halving open unemployment by the turn of the century.

■

The economic outlook

International trends

Growth in the OECD area is expected to be slightly weaker this year than last

year. The Government’s assessment is that the present falling-off is temporary.

However, there are indications that the turnaround in the level of economic

activity may take place somewhat later than forecast.

The level of employ-

ment and growth in Sweden are therefore very dependent on the develop-

ment of the international economy.

It can thus not be ruled out that this

slackening off will be deeper and last longer than expected. Sweden is a small

and open economy and highly dependent on trade. A deep recession in the

rest of Europe, the USA or Asia would be a serious obstacle to halving unem-

ployment.

It is above all in Europe that growth is weaker than forecast. The OECD

and the EU Commission have both revised GDP growth downwards so that

they are now close to the assessment made by the Swedish government in the

22

Spring Fiscal Policy Bill. OECD estimates growth in OECD Europe at 1.6

per cent in 1996 and 2.7 per cent in 1997. The Commission’s forecast for

the EU countries is 1.5 per cent in 1996 and 2.4 per cent in 1997. The

corresponding assessment in the Spring Fiscal Policy Bill was 1.7 per cent in

1996 and 2.5 per cent in 1997.

Most analysts of cyclical fluctuations anticipate that the slackening of

activity in Europe will be mild and of short duration, and that growth will

accelerate again next year. A number of indicators point in that direction in

Germany. The United Kingdom and France both reported good growth for

the first quarter of 1996. A contributory reason for renewed growth is that

interest rates have fallen. Moreover, the rate of inflation is very low in most

EU countries, making the prospects for further interest rate cuts good.

The rate of growth has on the other hand begun to pick up again in the

United States. Private consumption and investment increased sharply in the

first quarter of 1996. Unemployment continues to fall despite there having

been no appreciable increase in employment. Furthermore, the Central and

South American economies have recovered after the problems that arose in con-

nection with the Mexico crisis in January 1995 and good growth is expected.

Growth has also accelerated in Japan. After several years of stagnation,

the Japanese economy has started to recover. Very low rates of interest com-

bined with financial policy stimulants have assisted this development. The

deficit in the balance on current account continues to fall. Growth in the

other Asian economies remains very good. The rate of growth in China is

expected to remain at around 10 per cent.

A number of East European countries are now in a phase of recovery

after the deep crisis following on from the collapse of the planned economy.

In 1996 the former Eastern block is expected to have a positive rate of growth

for the first time since 1989. The potential for continued increases in pro-

duction are very good, not least in the light of the marked decline in the level

of production in recent years. However, uncertainty exists throughout the

region as to the rate at which adaptation to the market will take place in future.

The Baltic republics, with the exception of Lithuania, continue to report a

high growth rate of 4–5 per cent. Russia experienced a negative growth rate

last year, but it is expected to increase to between 2 and 4 per cent this year.

23

The Swedish economy

The Spring Fiscal Policy Bill assessed growth at 1.4 per cent in 1996 and 2.0

per cent in 1997. There are indications that the trend in the Swedish econ-

omy is slightly weaker. It is difficult to make an assessment of the situation,

however, and statistics do not present an entirely clear picture.

The development of foreign trade was slightly weaker than expected in

the first quarter of 1996, which was probably due to weaker growth in Europe.

However, exports were stronger in April despite the recent strengthening of

the Swedish krona, which indicates that Swedish enterprises are retaining their

market shares. The balance of trade for April shows that exports increased by

5 per cent from the beginning of the year, which is more than the forecast for

the entire year in the Spring Fiscal Policy Bill. Statistics for particular months

must, however, be interpreted with considerable caution.

The outcome statistics indicate that private consumption has also in-

creased somewhat more weakly than forecast. According to Statistics Sweden,

retail sales for the first quarter of this year were 1.3 per cent below the level

for the corresponding period last year. Registration of new cars has also been

somewhat poorer than expected. The discrepancy here, however, is relatively

small, although it may be an indication that households are less willing to

consume than has previously been assumed. Neither is there any indication

in Statistics Sweden’s most recent investigation into purchasing intentions,

that households are about to increase their rate of consumption.

As far as gross investment is concerned, very little information has been

obtained since the Spring Fiscal Policy Bill. New housing construction was

slightly lower than expected in the first quarter. However, this was compensat-

ed for by a considerably larger number of reconstruction starts than previous-

ly anticipated. This has led to an upturn in housing construction. According

to the latest business tendency survey, the expansion of industrial production

is also continuing on a relatively large scale. In the light of this information

and the continued decline in interest rates, it is probable that investment

trends will continue to be positive.

There are also other signs that indicate that growth is recovering. Indust-

ry has strong expectations of an inflow of orders. The continued good devel-

opment of central government finances increases faith in the future and

improves the prospects for low rates of interest.

24

The improved prospects for price stability and the decline of inflationa-

ry expectations made it possible for the Riksbank at the beginning of 1996

to initiate a reduction of instrumental rates – so far this year the repo rate has

fallen by around 2.6 percentage points. Interest rates on five-year government

bonds have fallen since 1 January by around 0.6 percentage points and the

corresponding interest differential in relation to German interest rates has

declined by approximately 1.0 percentage points. In the Spring Fiscal Policy

Bill, interest on a Swedish five-year bond at the end of 1996 was calculated

to have fallen to 7.5 per cent. The recent fall in the rate of interest increases

the probability of a further fall from this level. The Swedish krona has also

strengthened slightly more than previously assumed.

A lower rate of growth has a negative effect on public finances. At the

same time, recent information indicates that public finances have developed

better than previously forecast. Tax revenues have increased more rapidly than

expected. This has, inter alia, led the National Debt Office to make a down-

ward revision of its forecast for central government borrowing requirement

for 1996 by around SEK 15 billion to SEK 50–60 billion kronor in the light

of tax revenues for January–April 1996 being approximately SEK 10 billion

higher than the National Debt Office had previously estimated.

Taken as a whole, the assessment is still made that the public deficit will

be below 3 per cent of GDP in 1997 without further budget reinforcement

measures being required. It is also considered possible to meet the goal for

balance in public finances in 1998.

■

Employment and

unemployment

Over half a million jobs disappeared in the early 1990s. Of these around

410,000 were in the private sector and approximately 120,000 in the public

sector. The depth of the recession was due to the interaction of a number of

25

factors.

A rapid increase in the real rate of interest and a dramatic turnaround

in household saving led to a marked fall in domestic demand. At the same

time, the growth of Swedish exports was very poor at the beginning of 1990s

since the overheating of the Swedish economy towards the end of the 1980s

had undermined industry’s competitiveness.

The decline in the value of the Swedish krona in November 1992 led to a

strong increase in Swedish competitiveness. The first signs of recovery could

be detected in summer 1993 with a slight increase in exports and industrial

production. In 1994 Swedish export industry developed very well.

However,

the domestic market was still stagnant due to the high level of interest rates,

uncertainty about public finances and the weak development of household

income. Swedish export industry continued to be successful in 1995 while

the Swedish currency subsequently appreciated considerably as the economic

policies pursued gave results and confidence was restored in Sweden.

Between 1994 and 1996 employment in the private sector is estimated

to have increased by around 97,000 persons. At the same time, employment

is expected to decline by approximately 20,000 persons in the public sector.

In all, this means that the number employed will increase by around 77,000.

However, employment has declined in the first part of 1996 due to the falling-

off of economic activity.

Diagram 2

Total number

of employed and

labour supply

Number of persons, thousands

Labour supply

Total number

of employed

1980

1982

1984

1986

1988

1990

1992

1994

1996

3,800

4,000

4,200

4,400

4,600

.

26

Half of the fall in the number of hours worked between 1990 and 1993

has been regained in 1996. However, in the same period only just over a tenth

of the loss of jobs has been regained. The explanation lies, inter alia, in increas-

ed overtime and decreased absence due to illness.

There is a corresponding difference between the development of employ-

ment and unemployment. Despite an estimated increase in employment by

around 2 per cent from 1994 to 1996, unemployment is expected to fall by

only 0.8 percentage points. The difference is explained by increased labour

force participation. Many people who previously did not think it worthwhile

to look for work now make up part of the labour force. This is largely due to

better prospects of finding employment. Many of those who have been

studying or undergoing training – despite preferring to have an ordinary job

– are now back on the labour market. Altogether, it is estimated that the labour

force has increased by 50,000 persons from 1994 to 1996 therefore.

Since the middle of 1995, the number of newly-notified vacancies has

fallen below the number notified a year earlier. There were 26,000 vacancies

in April 1996, 5,000 fewer compared with the same period the previous year.

This decline has largely been in the manufacturing industry.

It is above all temporary work that has been sensitive for changes in the

demand for labour. When the increase in employment gained momentum in

1994, it was above all temporary jobs that increased. Permanent jobs also

Diagram 3

The number

of hours worked

in the Swedish

economy.

Million hours

Number of hours

worked, Million hours

1980

1982

1984

1986

1988

1990

1992

1994

1996

6,000

6,200

6,400

6,600

6,800

27

increased after some delay as the upturn stabilised.

The reduction in employ-

ment that is taking place today largely reflects a fall in the number of tempor-

ary jobs.

Unlike previous downturns, men were more affected than women at the

beginning of the 1990s. This was primarily due to the most marked fall in

employment taking place in manufacturing industry and the construction

sector. Since the economy has begun to recover, however, unemployment has

fallen more sharply among men than women. The reason for this is that men

traditionally work in the export industry while women work in undertakings

that are oriented towards the home market and in the public sector. The

number of unemployed men is still larger than the number of unemployed

women, but if development continues at the same rate as at present, the pro-

portion of unemployed women will exceed that of men by the end of 1996.

In May 1996 male unemployment was 7.7 per cent and female unemploy-

ment 6.5 per cent.

The deteriorating situation on the labour market has led to the proport-

ion of long-term unemployed increasing to 43 per cent of the total number

of unemployed, or 134,000 persons. This is a somewhat higher proportion

than a year ago. The proportion is substantially the same for women and men.

■

Sound public finances

and stable prices

The Government is determined to continue the consolidation of public

finances. This is a decisive prerequisite for pressing down rates of interest

and for restoring the strength of our economy and the level of employment.

The goals are to stabilise central government debt in relation to GDP by 1996,

to limit the deficit in public finances to less than 3 per cent of GDP in 1997

and for Sweden to have balanced public finances by 1998. The expenditure

ceiling will be maintained.

In the Spring Fiscal Policy Bill the Government presented estimates for

public finances that showed that the general government financial deficit

would amount to 3.3 per cent in 1997 and 0.8 per cent in 1998 in the absence

28

of further budget reinforcements. The Government therefore proposed meas-

ures to improve public finances of over SEK 10 billion for 1997 and over SEK

12 billion in 1998. SEK 6 million of these cuts are permanent savings and

SEK 2 billion permanent tax and fee increases which thus improve public

finances from 1999 and onwards. The consolidation programme was thereby

expanded from SEK 118 billion to SEK 126 billion, or to approximately 8

per cent of GDP. The budget policy goals are expected to be met by these

new actions. The improvement of public finances which is to be achieved,

from a deficit of 12.3 per cent of GDP in 1993 to balance in 1998, is wit-

hout parallel in the OECD countries.

The burdens of the consolidation programme entail a reasonable distri-

butional policy. A good distributional profile has been achieved by a com-

bination of expenditure cuts and tax and fee increases. Spending cuts make

up about half of the consolidation programme, and half consists of tax and

fee increases. The result is that the fifth of households with the highest stand-

ard contribute 37 per cent of the budget reinforcements while the fifth with

the lowest standard contributes 15 per cent.

In its Bill “The State Budget Act” (Government Bill 1995/96:20), pro-

posals have been made on changes to the provisions on the state budget and

fiscal power contained in the Instrument of Government and the Riksdag

Act. The purpose is to achieve better control over the budget development.

The result will be to make Sweden’s budgetary process more stringent. Insti-

tutional reforms of the budget process are important to achieve a permanent

improvement in public finances. Sweden is now one of the countries with the

most stringent budget procedures. This reduces the risk for Sweden falling

back into the same budgetary morass as in the early 1990s.

Monetary and foreign exchange policy

The general task of monetary policy is to safeguard the value of money. Price

stability improves the prospects for healthy economic development and makes

a country less vulnerable to turbulence on the international capital markets.

The Riksbank is responsible for monetary policy and its Governing Board

has defined the goal of price stability as meaning that an increase in consumer

prices is to be limited to 2 per cent with a tolerance of 1 per cent in both

directions.

29

The Riksbank’s goal is well in accord that applied in other EU countries.

The Government supports this direction of monetary policy.

The increased confidence in the economic policies pursued has led to a

fall in bond rates and an appreciation of the krona. Over the past year the

interest rate on five-year bond rates has fallen by over three percentage points

and the krona has strengthened by around 15 per cent. Further, the rate of

inflation has declined and inflation prospects for the coming years are in line

with the Riksbank’s goals. This has enabled the Riksbank in recent months

to reduce short interest rates. The repo rate has been reduced by around 2.6

percentage points since the year-end 1995/96.

Sweden’s EU membership has led to changed conditions for monetary

and foreign exchange policy. Sweden is now able to participate in the Euro-

pean currency cooperation and in the European exchange rate mechanism

(ERM).

Sweden will later take a position on participation in the third stage of

the monetary union (EMU). Stable exchange rates are desirable and must be

supported by low inflation and a good balance in public finances if they are

to be robust.

It is not presently under consideration to link the krona to the

ERM. A decision on participation in ERM should be made by the Riksdag in

autumn 1997.

■

Tax policy

The increase in employment must take place primarily in the private sector,

which will require a good climate for growth. This requires maintaining good

conditions for enterprises and entrepreneurship. The design of the tax system

plays an important role in this context. The Government is proposing a

number of changes in the field of taxation in to stimulate economic growth.

Stamp duty on real estate is to be temporarily reduced to a third from

12 June 1996 to 31 December 1997. This will reduce the transaction cost for

transfers of real estate, which, together with the low rate of interest is expect-

ed to stimulate the property market. The National Pension Insurance fund

30

shall also in future pay stamp duty in the same way as other taxpayers.

Sales tax on motor vehicles is to be abolished, which will be financed by

an increase in vehicle tax. For vehicles in environmental class 3, part of the

sales tax will remain, however. This will stimulate a renewal of the vehicle

fleet which is desirable for economic activity and to improve the environment.

In the autumn the Government intends to introduce a bill on new rules

for benefit taxation of company cars. It is intended that benefit taxation shall

be based on a correct valuation of the benefit taking into account the level of

interest rates, and will no longer encourage excessive private driving. The

Government wishes already at this stage to make clear that the proposal will

be based on an alternative that will entail the substantial removal of the present

excess taxation of company cars. This will be financed by a lower upward

adjustment of the tax bracket threshold for state income tax.

In order to stimulate small business especially, payroll tax will be reduced

from 1 January 1997 by five percentage points for that portion of the wage

bill under SEK 600,000. A similar reduction will be introduced for the self-

employed.

Sweden has long had a system of taxation favourable to business. The

Government has previously declared that the tax charged to enterprises is to

be restored to the level established in conjunction with the 1990–91 tax

reform. This has been quantified as a tax reduction for enterprises of SEK 2

billion kronor. Subsequently, a so-called temporary risk capital deduction and

a right to make deductions for losses in newly-started businesses have been

introduced.

The 1992 Business Tax Commission was given the task of finding a form

for more permanent relief for enterprises. The intention is to improve the tax

situation with respect to new investment and capital supply. The model for

general relief at enterprise level that was previously under consideration has,

however, shown itself to be unsuitable for a number of reasons.

General relief at owner level is of less interest for a policy aimed at

promoting investments. The main effect of such a measure is to affect the

composition of Swedish household saving. The effect on investment will be

limited. This applies to large companies but also to smaller enterprise without

access to the organized capital market. For those considering saving in these

companies, yield after tax from an alternative investment in listed shares has

31

increased as a result of the general relief. This circumstance counteracts the

effect of the tax relief for dividends and capital gains from smaller companies.

The effects on investment will therefore be slight for these companies as well.

Work on the Business Tax Commission will be accelerated, and the

Government will in the Autumn put forward a proposal for a permanent

double taxation relief focused on small and medium-sized undertakings. Tax

relief is estimated at SEK 3.5 billion. The new rules will apply from 1997.

The Government will further in conjunction with the Budget Bill

propose changes in the tax rules to facilitate generation changes. A review of

taxation of sole traders to simplify the system of rules will also be carried out.

The Government will further consider if there are reasons for introducing a

special benefit treatment of foreign experts and senior executives.

The Government is also preparing a new system for payment of taxes

and charges which is to make easier and more efficient the work of compan-

ies and tax administration. Work on the new system of so-called tax accounts

aims at being able to implement the new system in 1998.

As part of the financing of the measures presented in the Bill, the present

beneficial treatment of public savings programmes is to be abolished as of 1

January 1997. Tobacco tax will be increased from the same date by 15 per

cent. A waste tax will be introduced in 1998. In addition, the permissible

amount for allocations to accrual funds will be reduced as of the 1997 in-

come year.

■

Education and competence

A country’s citizens is its most important resource for the ability to develop.

In an increasingly internationalised world, considerable demands are made

on the individual’s ability to adapt to new circumstances. The transformation

of society makes ever higher demands on skills and competence. Previously, it

was sufficient to be educated while young, now life-long learning is necessary.

Education is an essential requirement for achieving a high rate of long-

32

term growth. The key to lower unemployment, higher growth, increased

equality and expanded freedom of choice is more than anything else edu-

cation and increased competence. To create long-term stable growth, and to

strengthen the individual’s competence in a changing labour market, Sweden

must consistently invest in skills and competence.

The most effective distributional policy is one which stimulates econ-

omic growth, eliminates skill deficiencies, and reduces unemployment. How-

ever, increased skills are not only important for our economic welfare but also

form the basis for social, political and cultural development. Therefore a

second educational revolution is required in Sweden on the threshold of the

twenty-first century. More people undergoing education – both at school and

university as well as in adult education – means increased investment in skills

and competence. Despite longer formal education women are much more

seldom than men in positions where their competence is made full use of.

The resources and experiences of both sexes must be made full use of for

higher growth.

Education for unemployed adults

A special programme of state investment in adult education will be carried

out for five years amounting to some SEK 9.6 billion per year when it is fully

implemented and providing at least 100,000 adults, especially the unemploy-

ed, education up to upper secondary school level.

The strong increase in adult education is a contribution to the struggle

against unemployment.

The target group for this investment in education is

in the first place the unemployed and those employees who lack or who have

only partial upper secondary school education. Priority is to be given con-

sistently to those who have the shortest education and the greatest need for

upper secondary school competence to acquire a stronger position on the

labour market. Three-year upper secondary school competence is often a

necessary basis in order to be able to change occupation and train for work

in other sectors. This investment in education will also contribute to break-

ing the gender imbalance on the labour market.

The municipalities should be responsible for carrying out the investment

in adult education. Municipalities can apply for special grants for five years

from 1 July 1997.

33

Municipalities are free to choose the form of organisation and the course

arranger that meets the requirements of the target group and local conditions

in the most efficient and best way. The municipalities shall bear the main

responsibility for these activities and for the quality of the education but they

should able to involve many different course-providers by commissioning or

purchasing education to carry out these activities and satisfy the varying inter-

ests and needs of this large group of adults. Municipalities must establish a

close cooperation with the employment offices in planning and implementa-

tion so that, in the first place, unemployed persons who are in need of upper

secondary education can benefit from this investment in education.

The investment in adult education that is to take place with special state

funds is to be for education at upper secondary school level up to three-year

upper secondary school level and will provide formal competence. Grades,

and the equivalent folk high school certificates, are to be awarded. An indivi-

dual plan of study is to be drawn up and continually reviewed in a dialogue

between the individual and the school. For the unemployed the study plan

will be part of the individual plan of action drawn up by the employment

office and the job seeker. It is important that every municipality through the

employment board finds new forms for cooperation between the municipal

occupation and study guidance service and the employment office in order

to make use of all available competence.

A special delegation will be set up to lead the investment in education

in the initial phase. The Government will carefully monitor the investment

by following up and evaluating the activities that result. This work will take

place in close cooperation with the relevant authorities and the Swedish

Association of Local Authorities.

Study finance

Adults between 25 and 55 who are unemployed and study at compulsory

school or upper secondary school level will be able to receive a special study

grant for a maximum of one study year at the level of unemployment bene-

fit. Even employees in the same age group with at least five years of work ex-

perience will be eligible for the special study grant if the local parties concern-

ed have reached agreement in which the employer undertakes to employ a

long-tem unemployed person in place of the person studying. The person

34

who at the end of the year wishes to continue studying will be able to do so

with the ordinary study grant.

The special study grants will be introduced on 1 July 1997 and amount

to SEK 2.4 billion net. Those beginning studies earlier and who continue

after 1 July 1997 will also be able to apply for the special study grant. There

is also SVUXA (special adult study assistance) which amounts to SEK 1.5 bil-

lion net. Study support has recently been examined by a commission of inve-

stigation. This Commission has proposed that the system of study support

be reformed and a single grant established. The Government will consider

the Commission’s proposals.

Expansion of higher education

Education and research of key importance for promoting the business sector

and employment, and also for the general development of society. Higher

education will therefore continue to expand.

This takes place from a good

initial situation where Sweden already today in an international comparison

has a high level of education. This is, however, unevenly distributed. The level

of education among employees in the public sector is considerably higher than

in the private sector.

The number of applicants to higher education has doubled since autumn

1991. Despite the strong expansion, many eligible applicants are unable to

obtain a pace to study. A continued expansion of higher education is there-

fore necessary to create places for young people and to make it possible for

adults to undergo basic university training or further training at tertiary level.

Higher education is also an important means of regional policy. The coming

expansion will therefore take place primarily at smaller and medium-sized

institutions of higher education. The business sector must demand and

employ highly-qualified staff if this investment in education is to be of real

benefit to society as a whole.

In the Employment Bill the Government has made proposals on the

distribution of the 30,000 new higher education places planned for 1997 to

1999. This expansion will replace the temporary training places financed by

labour market programme funds. Half of the new places will be in science

and technology subjects. In the Budget Bill and the Research Policy Bill to be

presented at the same time the Government will give more detailed motiva-

35

tion of the decisive importance of higher education and research for increas-

ing employment.

Financing

The investment in education will be financed as was reported in the Spring

Fiscal Policy Bill by increased energy taxes, savings in labour market pro-

grammes and through some cuts.

■

Labour market policy

An active labour market policy assists enterprises to fill vacant places quickly

at the same time as providing the individual with support in difficult periods

of transition. The aim is to fill vacant places as quickly as possible and to keep

periods of unemployment as short as possible.

A good labour market policy

entails mutual obligations on the part of society and the individual citizen.

Society assumes responsibilities towards the individual only to the extent that

the individual meets his or her responsibilities. The responsibility of the in-

dividual consists in accepting the challenge of developing competence and

actively seeking work.

The awareness that unemployment does not mean exclusion from the

community encourages unemployed people to take the initiatives required to

improve their prospects on the labour market. An insurance that provides

cover for loss of income is of key importance in this context. The Govern-

ment therefore considers that the level of compensation shall be increased to

80 per cent as of 1 January 1998. This increase will be fully financed by

changes of rules in the system.

The increase of unemployment benefit to 80 per cent will be partly

financed by a more stringent work qualification period and a stricter employ-

ment concept. The remaining portion will be financed by changes in unem-

ployment insurance from 1998. Sufficient financing will be provided by

restricting upward adjustment of benefit due to pay agreements to a maxi-

36

mum of two per cent, and by coordinating unemployment benefit with

severance pay, holiday pay and parental benefit.

Unemployment insurance will be given a clearer focus by the work

qualification period being made more stringent. The Government proposes

that as a minimum part-time work (50%) for at least 9 months over a 12-

month period (counting only months with 80 hours work) will be required

for eligibility. The income on which compensation is based will be calculated

on the basis of the past twelve month’s income. Moreover, the employment

concept will be reinforced by no labour market programme measures being

regarded as work for the purposes of meeting the requirements of the work

qualification period for eligibility for unemployment benefit. This means that

unemployment insurance will become more uniform and fair since, accord-

ing to the present rules, only certain labour market programme measures are

equated with work.

The overall effect of the more stringent work qualification period and

employment concept is to make it more difficult to qualify for unemploy-

ment benefit. More work will be required before an individual is eligible for

full employment benefit.

The high level of unemployment and the large volume of measures have

placed new demands on labour market policy. Transforming unemployment

insurance from an insurance providing adjustment cover to a long-term means

of support threatens the work-first principle. The active labour market policy

must not be downgraded to simply being a means of qualifying for a new

period of compensation. Quality will then be imperilled.

These measures are to form part of an individual plan of action for a

return to the regular labour market. As has previously been announced, the

Government proposes a time limit, inter alia to make clearer the role of unem-

ployment insurance as adjustment cover. In conjunction with this Bill, it is

proposed that the total period of compensation of the adjustment cover insur-

ance combined with labour market programme measures or study with a grant

equivalent to employment benefit should be maximized at three years with a

possible prolongation to four years for persons who have had regular employ-

ment during the period of compensation. It should be possible within this

span of time to find a good solution even for job seekers who require exten-

sive effort to be made to find regular employment.

37

The Government proposes that the total period of benefit be divided up

into two benefit periods of which the two first will run for at most 300 days

and the third for the remaining period. To be eligible for a new period of

benefit within the period of compensation, the job seeker should be required

to have been in regular employment for six months or to have participated in

labour market programme activities or study with assistance equivalent to

unemployment benefit during the same period.

Persons between 55 and 64 years of age who have been registered at the

employment office for over two years will be offered employment by munici-

palities, county councils or the central government with compensation at the

level of unemployment benefit. There is a considerable need for supplement-

ary inputs in care, nursing and other areas which can be met in this way. The

aim is that the programme should cover around 40,000 older long-term

unemployed.

Wage formation

Wage formation must also be improved. It does not function satisfactorily at

present. This is expressed, inter alia, by wage increases generally being at a

higher level than in competitor countries. Wage increases are also expected to

exceed the EU average in the next few years. It is almost impossible to achieve

a sustainable reduction of unemployment as long as wage formation continues

to operate in this way. Efficient wage formation is therefore a prerequisite for

the restoration of full employment.

The Swedish welfare state is now at a decisive crossroads. If it is to be

possible to halve open unemployment by 2000, and to achieve long-term full

employment, those already in work cannot lay claim to all fresh resources cre-

ated.

Sweden’s future ability to be a well-developed welfare state with high

employment and low unemployment is dependent on efficient wage form-

ation. What is now needed is sound and balanced wage formation at a good

European level.

Labour legislation

Labour law needs to be changed.

Labour law must be designed in such a way

as to serve its purpose and to reflect a reasonable balance between the needs

of employees for protection against arbitrary and discriminatory decisions

38

and the needs of businesses to be able to adapt their organisation and work-

force to continually changing circumstances and needs.

It shall also be design-

ed in such a way that it does not make it difficult for companies to start up

and expand.

The Labour Law Commission, which includes representatives of the

social partners, presented the results of its work in May 1996. The social part-

ners reported that they could not support the proposals put forward by the

chairman of the Commission. The Government considers it to be of the

greatest importance that the social partners reach agreement on this central

issue. The social partners have informed the Government that they intend to

continue efforts to reach one or more joint agreements between the parties in

the area of labour legislation. In this context the Government has made media-

tors available to the social partners, who are to report on the results of their

deliberations at the latest by 23 August 1996.

Working hours

Today’s labour market makes ever higher demands for flexibility. There are

increasing demands for quick production times, high quality and developed

competence. Working hours adapted to the conjuncture and the volume of

business are becoming increasingly common. At the same time, there is an

increasing number of new forms of work. Companies’ greater demands for

flexibility affect the situation of employees and make quite new demands on

legislation on working hours and the working environment. Overtime work-

ing has increased in recent years. The new development moreover affects

women and men differently.

Laws must better than before combine the increased need of activities

for flexibility with employees need for security and influence over the length

and location of work. When flexibility increases, it will become increasingly

important that laws take into consideration different patterns of working

hours and use of time. The Working Hours Commission appointed by the

Government in January 1995 has, inter alia, been given the task of evaluating

how a balance is to be struck between these demands and needs. The basis

has been that the social partners should themselves reach agreement on these

matters by collective agreements, but it will probably also be necessary to make

some changes in legislation. The Working Hours Commission should also

39

study whether there is any correlation between shorter working hours and the

possibility for more people to obtain work.

The goal of the Government of halving open unemployment by 2000,

must be placed in the foreground for future policies. After the Working Hours

Commission has presented its findings this autumn, the Government will

introduce a Bill in the Riksdag on these matters.

■

The effects on public finances

In order to maintain confidence in public finances,

expenditure increases

and revenue reductions are to be fully financed by decisions being made at

the same time on expenditure cuts or revenue increases. All of the proposals

presented here are fully financed.

The changes in appropriations requested for the 1995/96 fiscal year entail

a gross increase of SEK 3 billion. They are financed by contributions from

the state enterprise sector (Table 1).

The ceiling on expenditure will be maintained.

In the Government Bill

1995/96:150, the Government proposed an expenditure ceiling for central

government including the social insurance sector outside of the Budget of

SEK 723 billion for 1997 and SEK 735 billion for 1999. In this context, pre-

liminary frames were also announced for the respective areas of expenditure.

In the Government Bill 1995/96:222 Certain Measures to Halve Unemploy-

ment by 2000, Changed Appropriations for the 1995/96 Fiscal Year,

Financing, etc., some proposals were presented which will affect the distribu-

tion between frames for areas of expenditure without affecting the ceiling for

total central government expenditure (Table 2).

The tax proposals are presented and announced as a contribution to

creating the desired stability at the same time as promoting the domestic econ-

omy. The various tax proposals are fully financed (Table 3).

40

Table 1

Specification of changes in expenditure appropriations for the 1995/96

budget year in relation to the central government budget

SEK 000s

Amount in cen-

Proposal for

Change

tral government

new appropri-

Increase (+)

budget

ation amount

decrease (-)

Reforms

Head of state and government

Cooperation and development in

Baltic Sea region, appropriations

with reserves

1,000,000

+1,000,000

Ministry of Industry and Commerce

Programme for development, renewal

and growth of small-sized enterprises,

appropriations with reserves

1,000,000

+ 1,000,000

Ministry of Environment

Investment grants for promotion of

adaption in an environmentally-

sustainable direction,

appropriation with reserves

100,000

1,100,000

+ 1,000,000

Total

100,000

3,100,000

+ 3,000,000

Financing

Yield from Securum

+ 3,000,000

41

Table 2

Specification of previously annonced measures

Million kronor

1995/96

1997

1998

1999

Reforms

Ministry of Education

Investment in education

900

6,600

8,000

9,600

Ministry of Labour

Increased compensation level in

unemployment insurance (80%)

1,500

1,500

Total reforms

900

6,600

9,500

11,100

Financing

1

Ministry of Labour

Work qualification period

300

300

400

Employment concept

200

200

300

Replacement (unemployment insurance)

1,200

1,500

1,600

Savings, unemployment benefit

1,000

1,000

Efficiency improvements in labour market

programme measures

500

1,185

1,185

1,185

Changes in recruitment assistance and

labour market training

900

900

900

Samhall

100

100

100

Agencies in expenditure area 14

30

30

Ministry of Education

Savings in expenditure area 16

1,000

Other ministries

Withdrawal of, inter alia, appropriation savings and

appropriations with reserves (Labour, Finance, Transport

and Communications and Defence)

600

Savings listed in the Budget Bill

400

200

100

Total financing

500

4,885

5,415

6,615

1) The remaining part of the investment in education will be financed by increased energy taxes.

42

Table 3

Specification of changes on the income side

Million kronor

1995/96

1997

1998

1999

Tax reliefs

Temporary reduced stamp duty for properties

and plots

800

2,000

200

Abolition of sales tax on cars

600

1,500

1,500

1,500

Changes in taxation on car benefits

900

1,000

1,000

Double taxation relief

3,500

3,500

Reduced social insurance charges

2,100

2,300

2,300

Total tax relief

1,400

6,500

8,500

8,300

Financing

Increased vehicle tax

300

1,600

1,600

1,600

Increased tobacco tax by 15%

1,300

1,200

1,200

Increased tax on public savings programmes to 30%

400

400

Use of remaining SEK 2 billion frame from

Government Bill 1994/95:25

400

800

700

1,600

Reduction of maximum allocation to accrual

funds from 25 to 20%

3,000

3,000

Restricted upward adjustment of bracket

threshold before 1997

900

1,000

1,000

Waste tax

400

400

Total financing

700

4,600

8,300

9,200

Balance effects, tax measures

-700

-1,900

-200

900

Yield from Securum

800

2000

200

0

Balance

100

100

0

900

43

By an offensive industrial policy for growth and employment, the Govern-

ment intends to facilitate the growth of enterprises and to halve unemploy-

ment by 2000.

A special three-year programme for the development of small-

sized enterprises is therefore proposed with the aim of strengthening business

expansion. SEK 1 billion has been allocated for this purpose. Moreover, the

focus of regional and industry policy is to be changed in order to make improv-

ed use of all regional and industrial policy resources. Furthermore, a one-

billion kronor fund will be established aiming at strengthening cooperation

and development in the Baltic Sea region over a five-year period. Additional-

ly, a five-year programme is proposed for adaptation to sustainable develop-

ment. This programme is aimed at pushing forward technological develop-

ment and creating employment primarily by the adaptation of buildings to

the recycling principle, recovery and recycling, reduced dumping of construct-

ion materials, and measures related to water and sewage. It is proposed to allo-

cate SEK 1 billion for this purpose. A maximum of SEK 200 million of the

funds allocated for special initiatives in certain municipalities and county

councils for 1996 will be available for use for projects aiming at restructuring

local government activities. As a result of these projects, the prospects for con-

tinued adaptation to the economic situation will be improved in such a way

as to guarantee the quality of local government activities in a longer-term

perspective.

The investment in education will be followed up by expanding the re-

gular education system by 100,000 adult education places and 30,000 new

higher education places. A start will be made on the special investment in

adult education already in the 1996/97 school year. From autumn 1997, the

special five-year investment programme for adult education will be initiated

in new forms. This entails a six-month postponement in relation to the

announcements made in Government Bill 1995/96:150. The permanent

expansion of higher education will start in 1997 with 15,000 places. In order

to create scope for good planning of the continued expansion, the remaining

15,000 places will be made available first in autumn 1999. As a basis for

planning, the Government has produced a proposal on the allocation of these

30,000 places. Half of the new places will be concentrated on sciences and

technology. The costs of this investment in education will be financed by

changes and changed priorities in a number of areas of expenditure, inter alia

44

the educational sector. Financing will take place mainly in the labour market

sector and through increased energy taxes. Moreover, financing will take place

by the investment in education having an effect on open unemployment and

relieving the pressure on unemployment insurance.

In the field of labour market programmes, it is proposed that labour

market policy be reoriented. The employment offices will be reinforced and

central resources cut back. The municipalities will be given a stronger role.

Use of labour market programme funds will made more flexible. To increase

the quality of public service, temporary public sector work will be offered to

those aged 55 years old or older, who have been registered at the Employ-

ment Office for more than two years. Unemployed persons between 25 and

55 years of age will be given the opportunity of studying for one year at comp-

ulsory or upper secondary school level with a study grant at the level of unem-

ployment benefit. Employees will also be eligible for the study grant provided

that they are replaced by a long-term unemployed person registered at an

employment office.

The nature of unemployment insurance as cover for adjustment will be

reinforced. A time limit will be introduced in unemployment insurance after

1 January 1997 to strengthen the work-first principle. The Government

considers that the level of compensation in unemployment insurance should

be increased to 80 per cent as from 1 January 1998. This increase will cost

SEK 1.5 billion kronor and is to be fully financed by changes of rules in unem-

ployment insurance. In conjunction with this Bill, changes are proposed in

the work qualification period and the employment concept that are estimat-

ed to reduce expenditure by SEK 0.5 billion kronor from 1997.

The remaining savings of SEK 1 billion will be introduced from 1998

and will relate to changes in unemployment insurance.

In the Convergence Programme presented in June 1995, sales of state

assets of SEK 50 billion were announced for the period up to the end of 1998.

This included Nordbanken and Securum. Parts of the state’s holding of Nord-

banken shares have subsequently been sold. Further details of these measures

will now be announced.

The Government will shortly present proposals to the Riksdag on the

sale of the holding in Stadshypotek AB. The shares in Stadshypotek AB are

held by Stadshypotekskassan as a component in the restructuring of Stads-

45

hypotek. In the preliminary material on this reconstruction, it was noted that

both borrowers and the state had contributed to building up Stadshypotek’s

equity. The borrowers in Stadshypotek have received 55 per cent of the capi-

tal in 1994. The Government considers that this group has thereby been com-

pensated for its contribution to the build-up of capital. The assets now held

by Stadshypotekskassan therefore belong to the state. The value of the shares

is now estimated to be around SEK 5.5 billion kronor. The position of Stads-

hypotekskassan’s bondholders is not to deteriorate due to the sale of the share-

holding.

The yield from Securum will be used as part of the financing of measures

now proposed by the Government. The yields required for financing the pro-

posed measures have been allocated to fiscal years in tables 1 and 3, but in

practice it is intended that the contributions will be received in 1997 and 1998.

■

Distributional effects

A fair distribution of welfare depends to a large degree on an even distribu-

tion of wage incomes, which is in turn made possible by high, stable employ-

ment.

High-quality education and efficient wage formation are key factors

for employment trends.

The changes that the state can make to taxes, grants

and publicly financed activities cannot in the long term compensate for large

changes in the distribution of earned incomes.

In recent years income gaps have increased, inter alia, due to the under-

lying trend towards greater pay differentials. There is a similar trend in

practically all countries that maintain income distribution statistics. Demand

is increasing for persons with advanced, modern education at the same time

as technological development is creating an increasing number of innovations

that replace unqualified work. Production which previously employed a large

number of people with a low level of education has moved to countries with

low wages. In a number of countries the costs of high unemployment have

necessitated cuts in social welfare systems. The consequence has been further

increases in income gaps.

46

Note: A simplified calculation that only shows the direct effects on household disposable

incomes. The change of disposable income if unemployment benefit is replaced by previous

wage incomes, equivalent to a halving of the number of days in open unemployment.

Measures to increase and improve education are thus not only import-

ant for long-term economic growth and the ability to reduce unemployment,

but are also important elements of distribution policy.

Effective investment

in higher education can be of great importance if it prevents the permanent

economic and social exclusion of the long-term unemployed as has occurred

in many other countries as a result of a high level of unemployment. Invest-

ments in education in sectors with a high level of wages and a shortage of

labour power moreover counteract the underlying international tendency to

increased pay differentials.

The investment in education contained in the Employment Bill includes

both measures specifically directed at the long-term unemployed, adult edu-

cation at upper secondary school level for those with a low level of unemploy-

ment, and investment in higher education. If more people take part in educ-

ation, this may in the short term lead to an increased spread in household

annual incomes, since more people will receive study grants instead of unem-

ployment benefit or earned income. Income gaps will be counteracted, how-

ever, as increased education leads to reduced unemployment and higher wages

as a result of increased competence.

Diagram 4 shows the estimated distributional effects of a halving of open

Diagram 4

Distributional

effects of a halving

of open unemploy-

ment.

Per cent

1

2

3

4

5

6

7

8

9

10

0

1

2

3

4

Decils

47

unemployment. The analysis shows that a reduction in unemployment can

be expected to increase income for households with a low or average econo-

mic standard. Moreover, reduced unemployment has other very important,

long-term effects, such as a more even distribution of lifetime income, redu-

ced risks for health problems, and increased reserves for social welfare policy.

These are effects that do not show up in the statistics on annual income dis-

tribution.

Diagram 5 shows a calculation of the distributional effects resulting from

the most important changes of rules now proposed in the tax system and in

unemployment insurance that affect households. These are primarily changed

taxation of company cars, increased taxation of public savings programmes,

changed upward adjustment of bracket thresholds for state income tax, and an

increased level of compensation to 80 per cent in unemployment insurance,

the time limit and more stringent work qualification periods etc. The cal-

culation has been made using the same methods and on the basis of the same

material as the analyses in the Supplementary Bill in 1995 (Government Bill

1994/95:150) and in the Spring Fiscal Policy Bill (Government Bill

1995/96:150) and shows the direct effects of measures when they have come

into effect (full effect) in 1996 prices. The diagram also shows the distri-

butional effects of tax and transfer measures in the consolidation programme

including the Spring Fiscal Policy Bill.

Decils

Per cent

–10

–8

–6

–4

–2

0

2

1

2

3

4

5

6

7

8

9

10

Consolidation including Spring

Fiscal Policy Bill

Employment Bill

Diagram 5

Change in

disposable income

through the tax and

transfer measures.

The total effects of the Consolidation Programme, the Spring Fiscal

Policy Bill and the Employment Bill are regarded as having a reasonable

distribution policy profile. The measures now announced have relatively small

direct distributional effects. Even after the measures in the Employment Bill,

households in deciles 9 and 10 together contribute around 37 per cent of the

budget reinforcement (Diagram 6).

Diagram 6

Share of total

budget

reinforcement

contributed by

each decile.

Decils

Per cent

–5

0

5

10

15

20

25

30

1

2

3

4

5

6

7

8

9

10

Consolidation including Spring

Fiscal Policy Bill

Employment Bill

48

AN ECONOMIC POLICY FOR HALVING OPEN

UNEMPLOYMENT BY 2000

“

This Government Bill contains the

Government’s proposed guidelines for

economic policy to strengthen

employment and reduce unemploy-

ment. The Bill proposes that the

Riksdag give its support to the goal of

halving open unemployment from 8

per cent in 1994 to 4 per cent by

2000, and that arrangements be made

to review progress twice yearly. In

addition, a number of measures to

increase employment are presented.

Introduction to Swedish Government Bill

1995/96:207. An economic policy for halving

open unemployment by 2000.

Prime Minister’s Office

S-103 33 STOCKHOLM

TEL +46 8 405 10 00

”