Recommendation for a COUNCIL RECOMMENDATION on Sweden's 2014 national reform programme and delivering a Council opinion on Sweden's 2014 convergence programme
Date: 2014-06-02
Institutions: European Commission
Subjects: Sweden, budget deficit, economic convergence, economic growth, economic reform, economic stabilisation, financial control, job creation, multilateral surveillance, population ageing, stability programme, structural adjustment













EUR-Lex - 52014DC0428 - EN











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52014DC0428

Recommendation for a COUNCIL RECOMMENDATION on Sweden's 2014 national reform programme and delivering a Council opinion on Sweden's 2014 convergence programme /* COM/2014/0428 final */









 
Recommendation for a
COUNCIL RECOMMENDATION
on Sweden's 2014 national reform programme
and delivering a Council opinion on Sweden's 2014 convergence programme
THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the
Functioning of the European Union, and in particular Articles 121(2) and 148(4)
thereof,
Having regard to Council Regulation (EC) No
1466/97 of 7 July 1997 on the strengthening of the surveillance of budgetary
positions and the surveillance and coordination of economic policies[1], and in particular
Article 9(2) thereof,
Having regard to Regulation (EU) No
1176/2011 of the European Parliament and of the Council of 16 November 2011 on
the prevention and correction of macroeconomic imbalances[2],
and in particular Article 6(1) thereof,
Having regard to the recommendation of the
European Commission[3],
Having regard to the resolutions of the
European Parliament[4],
Having regard to the conclusions of the
European Council,
Having regard to the opinion of the
Employment Committee,
Having regard to the opinion of the
Economic and Financial Committee,
Having regard to the opinion of the Social
Protection Committee,
Having regard to the opinion of the
Economic Policy Committee,
Whereas:
(1)                   
On 26 March 2010, the European Council agreed to
the Commission’s proposal to launch a new strategy for growth and jobs, Europe
2020, based on enhanced coordination of economic policies, which will focus on
the key areas where action is needed to boost Europe’s potential for
sustainable growth and competitiveness.
(2)                   
On 13 July 2010, the Council, on the basis of
the Commission's proposals, adopted a recommendation on the broad guidelines
for the economic policies of the Member States and the Union (2010 to 2014)
and, on 21 October 2010, adopted a decision on guidelines for the employment
policies of the Member States, which together form the ‘integrated guidelines’.
Member States were invited to take the integrated guidelines into account in
their national economic and employment policies.
(3)                   
On 29 June 2012, the Heads of State or
Government decided on a Compact for Growth and Jobs, providing a coherent
framework for action at national, EU and euro area levels using all possible
levers, instruments and policies. They decided on action to be taken at the
level of the Member States, in particular expressing full commitment to achieving
the objectives of the Europe 2020 Strategy and to implementing the
country-specific recommendations.
(4)                   
On 9 July 2013, the Council adopted a
recommendation on Sweden’s national reform programme for 2013 and delivered its
opinion on Sweden’s updated convergence programme for 2012-2016.
(5)                   
On 13 November 2013, the Commission adopted the
Annual Growth Survey[5],
marking the start of the 2014 European Semester of economic policy
coordination. On the same day on the basis of Regulation (EU) No 1176/2011, the
Commission adopted the Alert Mechanism Report[6],
in which it identified Sweden as one of the Member States for which an in-depth
review would be carried out. 
(6)                   
On 20 December 2013, the European Council endorsed
the priorities for ensuring financial stability, fiscal consolidation and
action to foster growth. It underscored the need to pursue differentiated,
growth-friendly fiscal consolidation, to restore normal lending conditions to
the economy, to promote growth and competitiveness, to tackle unemployment and
the social consequences of the crisis, and to modernise public administration.
(7)                   
On 5 March 2014, the Commission published the
results of its in-depth review for Sweden[7],
under Article 5 of Regulation (EU) No 1176/2011. The Commission's analysis leads
it to conclude that Sweden continues to experience macroeconomic imbalances,
which require monitoring and policy action. In particular, developments
regarding household indebtedness, coupled with inefficiencies in the housing
market, continue to warrant attention. Although the large current account
surplus does not pose risks similar to large deficits, and is partly linked to
the need for deleveraging, the Commission will follow the current account developments
in Sweden in the context of the European Semester.
(8)                   
On 16 April 2014, Sweden submitted its 2014 national
reform programme and its 2014 convergence programme. In order to take account
of their interlinkages, the two programmes have been assessed at the same time.
(9)                   
The objective of the budgetary strategy outlined
in the 2014 Convergence Programme is to ensure a general government surplus of
1% of GDP on average over the business cycle, as foreseen by the Swedish fiscal
framework. The programme confirms the medium-term objective set in the previous
programme of a structural deficit of 1% of GDP, which reflects the requirements
of the Stability and Growth Pact. Based on the (recalculated) structural
balance, the Convergence Programme plans an outcome that more than fulfils the
medium-term objective throughout the programme period. According to the
programme, government debt, which remains well below the 60% of GDP reference
value, is projected to decrease from 41.5% of GDP in 2014 to 35% in 2017. Overall,
the budgetary strategy outlined in the programme is in line with the
requirements of the Stability and Growth Pact. The macroeconomic scenario
underpinning the budgetary projections in the programme is plausible. Regarding
the long-term sustainability of public finances, a high share of GDP is spent
on long-term care and a significant increase in spending is foreseen over the
long-term to take sufficient account of the ageing of the population, bringing
spending in Sweden in 2060 to 6.4% of GDP. Sweden would need to address this by
ensuring sufficient primary surpluses and further containing age-related
expenditure growth to ensure long-term fiscal sustainability. Based on its
assessment of the 2014 Convergence Programme and the Commission forecast,
pursuant to Council Regulation (EC) No 1466/97, the Council is of the opinion
that Sweden's programme is in compliance with the rules of the Stability and
Growth Pact and that the risks to the budgetary targets are limited.
(10)               
The high indebtedness of the private sector, and
in particular of Swedish households, remains a matter of concern. Moreover, the
financial sector's exposure to households, as opposed to the corporate sector,
has been increasing in line with household sector debt, which currently stands
at 83% of GDP or roughly 160% of disposable income. The indebtedness is spurred
by continued credit growth and a slow pace of mortgage amortisation. In the event of interest rate increases, house
price falls and/or an adverse macroeconomic development, the high household
sector indebtedness would be a risk factor. Such evolutions
would affect households and their consumption patterns. It could also have
adverse second round effects on the banking sector, by increasing the number of
non-performing loans and the cost of market funding. Sweden has neither
announced nor adopted any measures to address the debt bias in taxation linked
to housing which could be done in the context of a tax shift, without
increasing the overall tax burden. However, Sweden has taken some action to
foster prudent lending through the introduction of the 15% risk weight floor
for mortgage exposures in May 2013 and
a further increase has also been announced.
Nevertheless, amortisation practices remain relaxed with very long amortisation
periods below 75% loan-to-value ratios and strong measures in this regard have
not been taken, considering the voluntary nature of the October 2013
recommendation on individual amortisation plans. The Swedish Bankers'
Association strengthened its recommendation in March 2014, calling for
amortisation down to 70% of the loan-to-value ratio. Finally, Sweden has addressed
the corporate taxation debt bias by further strengthening restrictions on
interest deductibility, extending them to all types of intra-group loans as of January
2013 and introducing a so-called investors' deductibility that might alleviate
the debt bias in taxation. The
corporate income tax was also lowered from 26.3% to 22% as from the beginning
of 2013.
(11)               
The Swedish housing market, characterised by
sharp price increases over the last two decades, remains a potential source of
instability. Inefficiencies still weigh on the housing supply, particularly as
a result of complex planning processes, limited competition within the
construction sector and a high degree of rent control. Together with
debt-inducing taxation, these inefficiencies tend to create upward bias in
house prices. Sweden has taken some measures in the rental market, but these
measures appear insufficient to address the underlying structural problem
linked to the high degree of rigidity of the rent system. No measures
addressing the rental market were included in the spring bill presented by the
Swedish government on 9 April 2014. Sweden has adopted measures to address the
inefficiencies of the zoning and planning process, as well as municipalities'
planning monopoly, by requiring municipalities to take a regional perspective
when defining housing needs. These measures go in the right direction; not all
of them have been implemented yet, and no penalties are set out for failing
municipalities.
(12)               
Despite high funding levels, there is evidence
that learning outcomes in compulsory school as measured by international
student assessments are worse than in the early 2000s, with Sweden now
performing below both the EU and OECD averages in all three areas tested
(reading, mathematics and science). Moreover, the relationship between
socio-economic background and performance has become stronger, and differences
between schools have increased. While the measures put forward by the
government are steps in the right direction, it appears that more radical
structural changes will be necessary. To that end, Sweden is about to carry out
a review of the effectiveness of the school system to
restore a high level of performance.
(13)               
The labour market situation of the young, the
low-skilled and people with a migrant background remains weak. Youth
unemployment remains above the EU average. While the Swedish government has
taken steps to address these points, it appears that difficulties may be linked
to problems in the education field, with the Swedish education system failing
to supply a proportion of young people with the necessary skills for successful
integration into the labour market. As regards labour market integration and
education and training, Sweden has adopted measures to facilitate the
transition from school to work (apprenticeships reform, including an
'apprentice salary') and help young people get work experience ('vocational
introduction employment'). The transition has been de facto strengthened
through the introduction of early measures for those most in need. However, coverage
and outreach to unregistered people who are not in education, employment or
training remains weak. Sweden is also working to speed up the integration of people
with a migrant background, while challenges persist notably with people with a migrant background from outside the EU.
Finally, Sweden is in the process of evaluating the effectiveness of the
current reduced VAT rate for restaurants and catering services in support of
job creation. The final evaluation is expected to be ready in January 2016.
(14)               
In the context of the European Semester, the
Commission has carried out a comprehensive analysis of Sweden’s economic
policy. It has assessed the convergence programme and the national reform
programme. It has taken into account not only their relevance for sustainable
fiscal and socio-economic policy in Sweden but also their compliance with EU
rules and guidance, given the need to reinforce the overall economic governance
of the European Union by providing EU-level input into future national
decisions. Its recommendations under the European Semester are
reflected in recommendations (1) to (4) below.
(15)               
In the light of this assessment, the Council has
examined Sweden’s convergence programme, and its opinion[8] is reflected in
particular in recommendation (1) below.
(16)               
In the light of the Commission's in-depth review
and this assessment, the Council has examined the national reform programme and
the convergence programme. Its recommendations under Article 6 of Regulation
(EU) No 1176/2011 are reflected in recommendations (2) and (3) below.
HEREBY RECOMMENDS that Sweden take
action within the period 2014-2015 to:
1.                      
Continue to pursue a growth-friendly fiscal policy
and preserve a sound fiscal position, ensuring that the medium-term budgetary
objective is adhered to throughout the period covered by the Convergence
Programme, also with a view to the challenges posed on the long-term
sustainability of public finances by an ageing population.
2.                      
Moderate household sector credit growth and
private indebtedness. To this end, reduce the effects of the debt bias in personal
income taxation by gradually limiting tax deductibility of interest payments on
mortgages and/or by increasing recurrent property taxes. Take further measures
to increase the pace of amortisation of mortgages.
3.                      
Further improve the efficiency of the housing
market through continued reforms of the rent setting system. In particular, allow
more market-oriented rent levels by moving away from the utility value system
and further liberalising certain segments of the rental market, and greater
freedom of contract between individual tenants and landlords. Decrease the
length and complexity of the planning and appeal processes, by reducing and
merging administrative requirements, harmonising building requirements and
standards across municipalities and increasing transparency for land allotment
procedures. Encourage municipalities to make their own land available for new
housing developments.
4.                      
Take appropriate measures to improve basic
skills and facilitate the transition from education to the labour market,
including through a wider use of work-based training and apprenticeships. Reinforce
efforts to target labour market and education measures more effectively towards
low-educated young people and people with a migrant background. Increase early
intervention and outreach to young people unregistered with the public services.
Done at Brussels,
                                                                       For
the Council
                                                                       The
President
[1]               OJ L 209, 2.8.1997, p. 1.
[2]               OJ L 306, 23.11.2011, p. 25.
[3]               COM(2014) 428 final.
[4]               P7_TA(2014)0128 and
P7_TA(2014)0129.
[5]               COM(2013) 800 final.
[6]               COM(2013) 790 final.
[7]               SWD(2014) 90 final.
[8]               Under Article 9(2) of Council Regulation (EC) No
1466/97.