economy

Advisor Warns About Election Promises

Don't make promises about government spending that you won't be able to keep. That's the warning to Sweden's politicians by the chairman of the Swedish Fiscal Policy Council, Lars Calmfors, ahead of this autumn's General Election.

He says that the uncertain economic recovery around the globe could easily go off the rails, causing a double-dip recession that would also hit Sweden. Promises of extra cash for different parts of the welfare state might then be hard to realise, he claims.

Speaking to SR International Professor Calmfors says that cutbacks around the world to reduce huge budget deficits could lead to higher interest rates, which would also have a knock on effect in terms of reduced consumption, and that would even affect countries like Sweden, he says, with lower exports meaning less production and higher unemployment.

The Swedish Fiscal Policy Council was set up by the government to be an independent body looking at its fiscal policy, and Lars Calmfors says fiscal policy during the recession has been OK, Sweden currently has stable state finances, with relatively small debts in comparison with its BNP

Compared to other countries Sweden gets a good mark, he says, but the government could still have handled some things better. They should have done more in 2009, for example, as the financial crisis exploded. Things are looking ok for 2010, and it's a bit too early to say what will happen in 2011, Lars Calmfors says. That also applies to political parties making promises ahead of the September elections, he adds.

"They have to be very careful", he says. "We don't know how long the international financial turbulence will last. We don't know what long-term effects it will have on our public finances. So politicians have to be very careful when it comes to promising reforms. It may even be the case that they will have to withdraw some of the reforms already implemented".

Professor Lars Calmfors adds that there is some leeway in the Swedish state finances for extra temporary measures should the country slip back into recession, for example extending the extra cash given to local councils and municipalities for another year, but the main priority is to make sure that Sweden's finances stay healthy even if the world economy deteriorates again. On a positive note he points out that Sweden is in a better position than many other countries, thanks to actions by both the current and previous governments.