Sweden “safe” with comfortable standard of living, says Moody’s

In its annual report on Sweden, Moody’s Investors Service said Tuesday the country’s Aaa government bond ratings and country ceilings reflect a macroeconomic framework characterized by progressive policies designed to ensure the sustainability of its generous welfare system and comfortable standard of living.

“The economic upswing of the past three years has contributed to larger-than-expected fiscal surpluses, thanks to strength in income tax receipts as well as indirect tax buoyancy,” said Moody’s Vice President Kristin Lindow, author of the report.

“Structural surpluses significantly exceeded the government’s 1% target in 2005 and 2006 and are expected to continue to come in at 2% or even higher in 2007-2010 in spite of the implementation of further tax reductions.”

Lindow said that spending restraint will be crucial to achieving the government’s near- to medium-term fiscal goals. “Policy discipline along with lower personal and corporate tax rates has encouraged a flourishing private sector, although the public sector remains one of the largest in the world,” she explained.

A key element of the recently-elected government’s agenda is cutbacks in social benefits provided to households, which now make up a third of all government spending.

“The more aggressive plans to reduce the size of the Swedish public sector will potentially widen the gap in Sweden‘s favor between Sweden‘s public finance results and those of many other Aaa-rated countries or the Eurozone average,” said the analyst.

She pointed out that the European Commission has judged Sweden‘s government finances to be sustainable over the long term even as the full impact of population ageing takes effect.