This article in The Spectator is about Sweden’s Finance Minister Anders Borg who confronted the recession by cutting taxesÂ acrossÂ all income groups to prevent the wealthy leaving Sweden, refused a big stimulus spend up Â and has been working to move Sweden away from a high tax, high regulation system and create smaller government including cutting welfare payments.
His advice,Â âKeep on dealing with the deficit, because deficits destroy everything else.â Similar to National in New Zealand he wasÂ criticizedÂ for allowing tax cuts to the wealthy and yetÂ the Financial Times recently declared him the most effective finance minister in Europe.
Interestingly we don’t hear much about Sweden from Labour despite it’s success at dealing with the global recession.
âEverybody was told âstimulus, stimulus, stimulusâ,â he says â referring to the EU, IMF and the alphabet soup of agencies urging a global, debt-fuelled spending splurge. Borg, an economist, couldnât work out how this would help. âIt was surprising that Europe, given what we experienced in the 1970s and 80s with structural unemployment, believed that short-term Keynesianism could solve the problem.â Non-economists, he says, âmight have a tendency to fall for those kinds of messagesâ.
He continued to cut taxes and cut welfare-spending to pay for it; he even cut property taxes for the rich to lure entrepreneurs back to Sweden. The last bit was the most unpopular, but for Borg, economic recovery starts with entrepreneurs. If cutting taxes for the rich encouraged risk-taking, then it had to be done. âIn most cases, the company would not have been created without the owner,â he says. âThere would be no Ikea without [Ingvar] Kamprad. We would not have Tetra-Pak without [Ruben] Rausing. They are probably the foremost entrepreneurs we have had in the last few decades, and both moved out of Sweden.â
But they were not rich, I say, when they were starting out. âNo, but they were becoming rich. If you have a high wealth tax and an inheritance tax, people emigrate because it becomes too costly to own a company. Ownership is a production factor. Entrepreneurs are a production factor. Yes, these people are rich and you can obviously argue that we want to encourage social cohesion. But it is also problematic if you drive out entrepreneurs from your country, because they are the source of job creation.â
The Conservative took a hit politically for giving tax cuts to the rich, but interstingly the tax cuts across the board had spectacular results:
Tax rates would be cut for workers, and welfare cut to pay for it. High welfare levels, he says, can inflict cruelty in the name of compassion. âPeople emigrate from the labour market. Unemployment traps capture a lot of people in social exclusion.â Tax cuts are not spoken of as an ideological aim, but as a tool to cut unemployment and advance social justice.
What even Borg did not expect was that his tax cut for the low-paid would increase economic growth so much that it has almost entirely paid for itself. Borg had created something that Osborneâs critics say does not exist: a self-financing tax cut. âThere was some criticism at the time that we were borrowing to finance tax cuts,â he says. But Sweden could do it, because it was expecting to return to surplus soon; Britain has no such luxury, he says. His main advice to Osborne is: âKeep on dealing with the deficit, because deficits destroy everything else.â
National is trying to return to surplus and Labour insists on spending even more. AS Anders Borg says deficits destroy everything else.