Welfare, Tax Crimps Sweden


Australian Financial Review


12th September 2006


Geoff Kitney claims (Casual style forges more ties, September 7) "Sweden has one of the best performing economies in the world growing at more than 5.5 per cent and low unemployment by European standards (about 6 per cent), despite having one of the highest tax rates in the world.


"Scandinavian economies have consistently outperformed much of the rest of the world despite their taxation and welfare systems, and levels of public ownership, that are at odds with the so-called American model or low tax and small government".


However, according to the May 2006 OECD Economic Outlook, since 1995 Sweden's highest annual growth rate has been 4.4 per cent in 2000 and its average growth about 2.8 per cent a year, the same as the Organisation for Economic Cooperation and Development average. By contrast, the US average growth rate has been about 3.3 per cent a year.


True, Sweden has a larger government sector, with general government expenditure about 56 per cent of GDP compared with 37 per cent in the United States. 


However, since 1995 Sweden has cut government spending by about 11 percentage points of GDP, presumably partly reflecting lower welfare spending. Also, while reducing unemployment from 9 per cent in 1995, Sweden's rate appears to be only slightly below the standardized OECD average of about 6.5 per cent in 2005.  


Although Sweden has been moving in the right direction, its large taxation/ welfare system may still be keeping growth below that in the US and Australia.