Sweden Under Pressure to Join `Tax Wars' in the Age of Trump

(Bloomberg) -- It’s an election year in Sweden and Prime Minister Stefan Lofven is trying hard to promote an agenda of social equality. But that could prove tough in a world in which tax cuts are stealing the agenda.

With U.S. President Donald Trump pushing through major corporate tax cuts, the competitive fallout for businesses in Sweden and the rest of Europe is causing concern.

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“The tax reform in the U.S. has put tax policy at the forefront,” said Robert Bergqvist, chief economist at SEB AB in Stockholm. “We’ve gone from a currency war to a tax war, which many countries are afraid of.”

Lofven has failed to push through a number of his government’s fiscal reforms, including tougher levies on banks and private companies as well as higher taxes for top earners. That’s partly because his administration in some cases misjudged the legal hurdles, or underestimated opposition from powerful lobbies. He also hasn’t managed yet to deliver a corporate tax cut -- to 20 percent from 22 percent -- after being slowed down by lobbyists seeking loopholes.

Read more on Swedish tax debate

It’s “hard to find anything the government will have done that makes a big positive difference for companies,” said Johan Fall, head of tax policy at the Confederation of Swedish Enterprise, the country’s biggest business group.

“In the light of lowered corporate tax rates in the U.S., U.K. and in other EU countries, there’s even more pressure on Sweden,” Fall said.

With the election due in September, voters appear to be turning their backs on Lofven. But the former welder and head of Sweden’s metal workers’ union says criticism of his track-record is “baloney.” Lofven points instead to his efforts to halt inequality, which was rising after the global financial crisis and after his predecessor cut taxes.

“We have seen an economic development that few other countries have,” Lofven said. “We have increased equality with our budgets. We spend more money on those in need.”

Sweden’s $500 billion economy is enjoying a boom, fueled by a record inflow of migrants and refugees, rock-bottom interest rates and a recovery in export markets. Employment has reached a record high and state coffers are overflowing.

The numbers also suggest that Swedish corporations are doing well, with record investments and the return of jobs from low-wage countries, Lofven said. The government has invested in construction and education, which has helped many people to find jobs.

The upshot, according to Lofven, is that Sweden now has “a quarter of a million more people in jobs now than when we came to power.”

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