Sweden’s finance minister on the US budget debate

Questions for Sweden’s finance minister, Anders Borg, on the US budget mess, and comparisons with Sweden.

Queston: Have you been following the budget debate here in the United States? What’s your sense as an outside observer?

Response: When you look at fiscal restructuring — what the U.S. needs to do — it is very clear that they need to increase taxes and cut expenditures. The most obvious thing to do would be to introduce a VAT. Look at the U.K. They are run by a Tory government — they increased the VAT. Look at Greece — it’s a Social Democratic government, they’ve increased VAT. All of these countries have increased VAT because it’s a broad-based tax with low costs and limited impact on growth.

It’s also quite clear that the U.S. doesn’t have control over its healthcare sector. The cost control of Medicare and Medicaid doesn’t really work. We’ve all seen the Congressional Budget Office projections so it is quite obvious that you need to strengthen the revenue side, but also have much better control of the expenditure side.

Question: I’m not sure to what degree people in Sweden are aware of this, but in U.S. political debates, your country is often used as a kind of code word for socialism, high taxes and a generous welfare state. Do you think this view Americans have of Sweden is still accurate?

Response: During [the Moderate Party’s] period in government, we’ve cut taxes quite substantially. For ordinary people, we’ve cut them the most. We’ve also been restructuring our social welfare system. But our idea is that you can keep social cohesion by giving priority to education, healthcare. Everyone, regardless of income can get good healthcare and good education. We think that we are modernizing the Swedish model, making it more flexible, and trying to keep as much social cohesion as we can.

Joshua Keating, “Sweden’s finance minister on the Portugal bailout, Europe’s recovery, and America’s budget mess“, Passport (FP blog), 18 April 2011.

HT: Mark Thoma.

Sweden’s education reforms effectively amount to a voucher system (without tuition top-ups, residence restrictions or entrance exams), in which public schools compete with private schools on an equal basis. More on the reformed Swedish school system here.

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