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 But this leafy, well-heeled area is a microcosm of Sweden, where
eyes are on a struggling school with strained finances, not enough
teachers and poor results. Like many Swedes, Ohlin wants her
cherished welfare state back.
"Classes are more about storage (of kids) than anything. Teachers
cannot handle the workload they have in some classes," said Ohlin, a
mother of two. "There is poor discipline and poor attention. There
is a huge fear of going over the budget."
Voters like Ohlin are returning to faith in cradle to grave welfare
after eight years of center-right Prime Minister Fredrik Reinfeldt,
who cut income, wealth and corporate taxes. Sweden's tax burden has
fallen by four percentage points of GDP — now lower than France.
In the eyes of many Swedes, the welfare state withered. Sickness and
unemployment benefits were cut. Private firms started to run
tax-funded schools and hospitals. But a tipping point may have come
as a September general election approaches — and many now point to a
U-turn.
To win over voters, both the government and opposition are
campaigning to end tax cuts months before a general election.
"We do not see that there is room for any broad tax cuts in 2015 and
2016 and also when we look ahead, there's limited room," Finance
Minister Anders Borg told Reuters.
By any standards, Sweden is healthy. Its public debt is around 40
percent of GDP, half of Germany's.
But Sweden has one of the world's most generous welfare states — like subsidized child care with up to 480 days of parental leave per
child. Its Nordic model depends on keeping to a strict national
bookkeeping unusual in much of Europe.
At the same time as demands grow for more spending on schools and
hospitals, Sweden's public finances have worsened. The country may
now be heading for years of rising tax burdens if it wants to keep
its public finances in order.
"There isn't as much money as people think," said Torbjorn Hallo,
economist at the Swedish Trade Union Confederation, which has links
to the Social Democrat opposition. "Swedish voters do not want more
tax cuts. Neither do they want tax hikes."
"Whatever government will have to find money for missing billions,"
Hallo added, saying Sweden could need to raise 70 billion Swedish
crowns ($11.02 billion), or around 2 percent of GDP, just to keep
the current welfare ticking over.
TRIPLE-A RATING
It contrasts to the heady days when Borg gifted Reinfeldt, on his
45th birthday, a framed graph showing the tax burden falling to 45
percent of GDP for the first time in decades.
Flush from income tax cuts, middle classes have also enjoyed cheap
loans and a property boom. As wealth grew — with clusters of
Michelin star restaurants in Stockholm — Sweden remained one of the
few economies in Europe with the top AAA credit rating. It also has
the fastest growing economic inequality of any OECD nation.
Those days of market reform have faded. Week-long riots last year in
Stockholm from largely poor immigrants put inequality under the
spotlight.
But if there was one event that swayed opinion it was the OECD's
PISA survey last year where Swedish 15-year-olds racked up the
biggest decline in results of any participating nation. Swedish
children ranked below OECD averages in many areas.
One of the biggest private education firms in Sweden went bankrupt
in 2012, leaving 11,000 students in the lurch. Other state run
schools have seen class numbers rise and teachers' salaries fall
behind. There is only one Swedish university classified in the
world's top 100 rankings, according to the Times Higher Education.
The angst also extends to health — where private firms run a fifth
of hospital services. Scandals surfaced at elderly care homes with
reports about residents being locked up in closets and some people
not being fed for nearly a day. Staff switched off alarm systems at
night so as not to be disturbed.
Hundreds of nurses also protested over poor resources for maternity
wards.
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"There's simply no reason in cutting taxes in a country where
neither the school system nor health care works," said Ohlin.
Polls show the Social Democrat opposition, campaigning for more
spending on welfare, should trounce the government.
PRESSURE
The concern is whether Sweden can afford demands of people like
Ohlin. More spending on education and health may come amid a fiscal
squeeze. That may leave any future government with less room to
spend as tax cuts have eaten into public finances.
When Reinfeldt came to power, the structural budget surplus was 2
percent of GDP. By 2014 a deficit of 1.2 percent of GDP is expected,
according to state-run National Institute of Economic Research
(NIER). It says the government may need fiscal tightening of 2.4
percent of GDP to balance the budget by 2017.
"The Swedish economy is in a good position," said Mats Dillen, NIER
head. "But the most likely scenario will be for taxes to rise. It
will be difficult to increase welfare spending without tax rises.
There will be pressure on fiscal policy."
That may prove a conundrum for the Social Democrats, running on a
ticket of increased welfare spending.
"I am really worried about the state of public finances," said
Magdalena Andersson, economics spokeswoman for the Social Democrats
and widely tipped to be Sweden's next finance minister if the
opposition wins September's election.
Mindful of the deficit, the government has already announced
increased taxes on alcohol and private pensions. But these are low
lying fruits. Other decisions, such as whether to increase taxes on
the rich, will be more controversial.
"The opposition and the government have said that they are not
interested in any significant tax increases. Then a really tough
policy will be needed to get back to surpluses," said John Hassler,
chairman of the Swedish Fiscal Policy Council, a government agency.
Dillen said Sweden could see marginal tax rates on high incomes
gradually rise to 60 percent, from 56 percent, if the government
phases out tax deductions.
Some businesses are worried.
"What puzzles me is that you sit in a government with a strategy to
cut taxes," said Jorgen Rasmusson, CEO of Lodde Plat, a construction
company based in Malmo. "Then you start saying that you should not
lower taxes, but rather retain and then possibly announce hikes."
The government and the Social Democrats have already announced more
spending on schools. Few see a return to the Sweden of the 1970s,
when marginal tax rates of the wealthy were over 80 percent.
But with an election looming, taxes may soon rise.
"I don't think we are going back to the past," said Arne Karlsson,
chairman of Ratos, a Swedish private equity firm. "Both sides
understand Sweden needs to be competitive. But yes, things will
change." ($1 = 6.3547 Swedish crowns)
(Additional reporting by Johan Sennero, Niklas Pollard and Johan
Ahlander; editing by Anna Willard)
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