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Development forces and adaptive capacity A globalised Swedish economy Pontus Braunerhjelm (FSF, KTH) Camilo von Greiff Helena Svaleryd (IFN) Final report from the Globalisation Council’s Secreteriat What changes can we expect? • New industrial nations are increasingly integrated • Increased competition among older industrial nations • Large potential boost to prosperity due to specialisation and new markets • Knowledge an increasingly important component for continued growth and for maintaining or strengthening prosperity The starting point for Sweden • Stable macroeconomic platform • Acceptance of internationalisation • Historically good development forces and adaptive capacity • Dynamics on the micro-level? Reforms are necessary to ease transitional stages and promote developmental forces • Sweden as a knowledge nation • The Swedish labour market • The private sector’s capacity for renewal • Taxes and social insurance Sweden as a knowledge nation Education – adaptation, decreased income differences, specialisation • Consider introducing an obligatory pre-school year. • Increase education using English in primary schools. • Enable participation in an international project as part of the schooling. • Raise teachers’ starting salaries and increase the opportunities for a well-paid career. Sweden as a knowledge nation Education – adaptation, decreased income differences, specialisation • Introduce the possibility of fees for higher education and raise student loan levels correspondingly, consider deductions for expenses, more autonomy. • Increase government appropriations to R&D. • Establish a ”Nobel fund” where universities can apply for grants to recruit top international researchers. The Swedish labour market Strengthen adaptive capacity through: • Improving the safety net for the unemployed by raising the ceiling for unemployment insurance and making it obligatory. • Reforming the Protection of Employment Act (LAS) in order to increase adaptive capacity in the economy and lower the barriers to labour-market entry. The Swedish labour market Strengthen adaptive capacity through: • Improving retraining and educational opportunities during working life by increasing labour market training programmes and making them more flexible. • Allow pension savings to be used for education, increase the opportunities for deductions for individual savings. • Raise the retirement age and index it to the average life length. • Use severance pay programmes funded by labour market coalitions to a greater extent. The private sector’s capacity for renewal Innovation drives growth and developmental force • Strengthen competition, increase the authority of the Swedish Competition Authority, forbid public actors on markets with functioning competition, learn from the deregulation of the 1990s, investigate deductions for health insurance. • Strengthen intellectual property rights, promote EU patents and reasonable costs for seeking patents, introduce a venture capital deduction and broaden the opportunities for profit-sharing loans. The private sector’s capacity for renewal Innovation drives growth and developmental force • Strengthen the possibilities of obtaining international marketing support for SMEs within the framework for current support. • Promote the ability of strong clusters to grow in strong urban and regional areas. Taxes and social insurance • Phase out the austerity tax and lower national tax levels so that the maximum tax bracket is 50 percent as a first step in order to increase job supply, attract foreign labour and encourage education. • Lower the tax on capital to 25 percent, tax options and simplify or phase out the paragraph 3:12 rules. • Broaden the tax base to the greatest extent possible. • Clarify the difference between taxes and social insurance premiums/fees. Taxes and social insurance • Introduce a single VAT rate of 25 percent, return to the earlier form of property tax but impose interest charges on capital gains deferments. • Appoint a commission of enquiry on taxes and social insurance. Stabilisation policies • Sweden should now take the third step towards EMU cooperation and convert to the euro. • The Riksbank’s role as an inflation fighter must be communicated in a trustworthy way. • The Riksbank should consider introducing new variables for fighting inflation, such as credit growth. • The Riksbank should more clearly explain how price change sources (the economy’s supply side or demand side) affect key interest rates. The decreased persistence of price changes increases the opportunity for a more flexible monetary policy. Stabilisation policies • Investigate a merger of the Financial Supervisory Authority and the Riksbank. • Capital requirements increase and inverted capital requirements are used to reduce procyclicality in the current system. • A larger international coordination of fiscal measures are motivated due to increased import leakage • A greater fiscal preparedness should be available in order to put employment growth measures in place in the short term.