As Sweden Nears Vote, Center-Right Is Trailing

http://www.nytimes.com/2014/09/09/world/europe/as-sweden-nears-vote-center-right-is-trailing.html

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GOTHENBURG, Sweden — The Swedish government ought to be riding high.

The country has bounced back from the recession faster and farther than any other in Western Europe. Tax cuts have increased the average Swede’s annual disposable income by almost a month’s wages since 2006.

Swedish leaders are playing prominent roles in global diplomacy. Sweden’s banks are strong. Real estate is booming. Consumers around the world hang their H&M clothes in Ikea cabinets, download pop music from Spotify, read Swedish thrillers and watch Swedish television dramas.

Yet for all that, the center-right government of Prime Minister Fredrik Reinfeldt, 49, is in serious political trouble.

With less than a week to go before a general election on Sunday, Mr. Reinfeldt’s Alliance bloc of four parties is trailing the left-leaning coalition of the Social Democrat, Green and Left Parties by five to ten percentage points in recent polls.

Sweden is now sharply divided over big, emotive issues like immigration and the future of the welfare state. And after two terms of center-right government and market-oriented policies, the electorate’s center of gravity appears to be shifting back toward the center-left and the Social Democrats, who dominated the country for 80 years before 2006.

Each side warns about the fringe bedfellows that the other might have to depend on to form a government after a close result on Sunday. The left suggests that Mr. Reinfeldt might try to cling to power by allying with the far-right, anti-immigrant Sweden Democrats, who are polling around 10 percent, a reflection of growing dissatisfaction over the country’s long-held posture of welcoming refugees.

The right, in turn, warns that a government led by the Social Democrats, who have promised to raise taxes to provide more money for schools and welfare programs, would be dependent on support from the former communists of the Left Party, who make no secret of their opposition to private profit in the public sector.

“Business has much to fear from a red-green administration,” said Anna Kinberg Batra, parliamentary leader of Mr. Reinfeldt’s party, the Moderates, in arguing that a left-leaning coalition could unravel the country’s economic progress.

Jacob Wallenberg, scion of the family whose foundations own huge stakes in Swedish industry — close to 40 percent of the total value of the Swedish stock exchange — has warned that a “massive shift to the left” could prompt entrepreneurs to flee the country.

Fredrik Olovsson, economics spokesman for the Social Democrats, said his party was not advocating radical change. “We have strong support in industry,” he said. “The Social Democrats have worked with the business community for decades.”

On the contrary, he said, the party promises to support industry by spending more on infrastructure and addressing a shortage of skilled workers. Its latest budget proposals would inject more than $6 billion into the economy over the next decade.

Welfare benefits for the sick and unemployed would rise, Mr. Olovsson said, and with more investment in education, teacher numbers and salaries would increase while class sizes went down. This would be funded with a modest rise in taxes on the better off, a doubling of the value added tax on restaurants and a new levy on Sweden’s banks, which largely avoided the agonies of the European financial sector. Otherwise, he said, there would be no new taxes on business.

Sweden’s forecast economic growth of 1.9 percent this year masks underlying weaknesses. Unemployment has remained stuck around 8 percent, and much higher among the young. The central bank made a surprise cut to interest rates last month in response to signs of deflation.

There is cross-party consensus that schools are in a mess after a report last year from the Organization for Economic Cooperation and Development showing a sharp drop in the global rankings of Sweden’s educational system. In health and elderly care, high-profile scandals have fueled anxiety that the experiment with private sector providers has gone too far. There is a chronic shortage of housing in the big cities, which has driven up rents and personal debt.

“Definitely the shift to the right in public opinion that occurred in 2010 is gone, we can see this very clearly,” said Prof. Henrik Oscarsson, director of the SOM Institute for opinion research at the University of Gothenburg.

Swedish politics are like a thermostat, he said — the dial on tax cuts has been turned up, but now the temperature is uncomfortable, there are problems in the welfare system and people want the dial adjusted.

At the same time, tax cutting is not the ideological litmus test it is for conservatives in the United States or Britain. Part of the center-right’s success has been its acceptance of Sweden’s model for the welfare state.

In power, the current government has lowered taxes more than any other country in the Organization for Economic Cooperation and Development. But the total tax take is still high, around 44 percent of economic output.

If Sweden’s welfare model has shaped the center-right, the center-left has also had a major change of heart since the financial crisis that hit Sweden in 1991.

“We had our 2008 in 1991,” said Klas Eklund, a senior economist at the Swedish bank SEB in Stockholm and an adviser to several governments.

Subsequent governments of left and right deregulated the public sector, overhauled the pensions system so that it became based on individual contributions, took the country into the European Union and shook up the tax system. As a result, a new Swedish model emerged, ensuring that the country met the recession that followed the financial crisis of 2008 with a budget surplus and a high level of resilience.

Stefan Lofven, the Social Democrat leader and potential new prime minister, has inherited a very different party from the one he joined in the 1970s. Although he has no experience in Parliament, he points to his years at the top of the engineering union IF Metall as valuable preparation for running the country. He has healed the party’s internal rifts after its election defeats.

But Mr. Lofven, 57, must find a workable coalition among the other parties of the left. Even a slight recovery by the center-right could see no group of parties with a clear majority in Parliament, with the anti-immigration Sweden Democrats potentially holding the balance of power.