The improbable Swedish finance minister's spending and tax cuts have resulted in fiscal stability and economic growth
The bespectacled and pony-tailed Swedish politician Anders Borg may be the only male finance minister in Europe to wear an earring to work, but don’t let his unlikely appearance throw you: he is not to be underestimated.
Perhaps it is because this libertarian does not see himself as a politician but as an economist that he isn’t bothered much by how others perceive him. Borg has advocated drug legalisation and, in keeping with his slightly hippie image, admits that he smoked pot in his youth. Perhaps this attitude explains why he had the courage to push through spending cuts and controversial tax cuts. Although scrapping a wealth tax and several property taxes was politically difficult at the time and lost his party some support, the results are paying political dividends.
Unusually for someone in such a senior government position Borg, who is 44, doesn’t have an academic degree although he spent several years at university. Judging by his success, his time spent studying political science, philosophy and eventually focusing on economics was not wasted and led him away from a Keynesian view of the world. His view of how Sweden’s economy should work was undoubtedly also shaped by six years working in the banking sector before victory in the 2006 election led to his appointment as finance minister in the new centre-right cabinet. It was a leap of faith for Prime Minster Fredrik Reinfeldt, as Borg’s previous political experience amounted to two years in the early 1990s as a political adviser in the prime minister’s office, coordinating the work of various non-financial ministries, followed by two years as an adviser to the then prime minister Carl Bildt.
Borg is bold. He refused to listen to those shouting down his approach at a time when the Obama administration was planning an enormous stimulus package and the whole of Europe seemed to be cheerleading for bailouts. He dismissed that approach and said the US President was wrong to risk future deficits to provide first aid to the American economy. He has been vindicated. Sweden’s economy is outperforming the rest of Europe and commentators all over the world are urging other finance ministers to take a leaf out of Sweden’s book. Reinfeldt and Borg’s reward was to see their coalition re-elected in 2010. But Borg modestly declines to take all the credit, saying merely that the Swedish economy’s performance has been helped by “strong institutions” and “broad support for responsible policies”.
As Sweden is outside the eurozone, Borg has to some extent been dealt a lucky hand, in that he has avoided the bond market turmoil that the rest of Europe faces. He doesn’t sit on the sidelines and dish out advice, venturing only to suggest that other finance ministers learn from Sweden’s 1990s banking crisis. It is this understanding of historical events and quiet confidence that distinguish him as one to watch. His main advice to George Osborne, his British counterpart, has been to focus on dealing with the deficit, as he himself has successfully done.
Borg also understands how vital entrepreneurs are to recovery: he wants to encourage them to stay in Sweden and to stop capital flight. His decision to abolish his country’s wealth tax was a no-brainer on the basis of the numbers but hadn’t occurred to his predecessors. Research for the Swedish tax authority in 2002 found that capital flight from Sweden had amounted to 275 billion kroner since the beginning of the 1980s (around £400 billion in 2002 prices). This is further evidence that Borg shows no fear where others have shied away from abolishing a tax that was both harmful to the economy and ineffective.
Borg also grasps how critical welfare reform is. Sweden previously had very high welfare spending but that has been cut significantly on Borg’s watch. It was part of an agenda of spending cuts that he felt had to partner tax cuts. Borg might look as if he hasn’t had a haircut in a while, but he is not afraid to suggest that government spending should take one. In this sense (if not tonsorially) he has something in common with Britain’s work and pensions secretary Iain Duncan Smith, who also sees that it’s unacceptable to leave people in the poverty trap, creating problems such as social exclusion.
There is still a lot more work for Borg to do in Sweden. He might have dished out some advice to Osborne but he’s also got his eye on what the Chancellor is doing. He has taken note of Osborne’s decision to cut corporation tax to 23 per cent by 2014. Sweden’s rate is currently 26.3 per cent and Borg realises the importance of making his country’s taxation system competitive.
They might not like it, but European leaders from François Hollande to Mariano Rajoy could use a finance minister like Borg. With him in charge of their finances, France and Spain might not be staring into the abyss of national bankruptcy but instead be looking forward to the kind of fiscal stability and durable economic growth that Sweden is enjoying.