Friday, 24 January 2014

Nordic welfare state gets a revamp

Cash-strapped countries scale back on public sector
The Straits Times, 23 Jan 2014

COPENHAGEN - The Nordic model, known for high taxes and its cradle-to-grave welfare system, is getting a radical makeover as nations find themselves cash-strapped.

During the post-war period, the Scandinavian economies became famous for a "softer" version of capitalism that placed more importance on social equality than other Western nations, such as Britain and the United States, did.

But globalisation, economic necessity and an ideological shift to the right has led to a scaling back of the public sector.

In Sweden, visitors are sometimes surprised to learn about year-long waiting times for cancer patients, rioting in low-income suburbs and train derailments amid lagging infrastructure investment. In the wake of a banking crisis in the early 1990s, it scrapped housing subsidies, reformed the pension system and slashed the health-care budget.

In 2006, conservative Prime Minister Fredrik Reinfeldt's government accelerated the pace of reform, tightening the criteria for unemployment benefits and sick pay while lowering taxes. Income tax in Sweden is now lower than in France, Belgium and Denmark, and public spending as a share of gross domestic product has declined from a record 71 per cent in 1993 to 53.3 per cent last year.

Although polls show strong support among Swedes for the income tax cuts of the past few years, the leftist opposition looks set to win this year's general election. The Social Democrats have been boosted by a string of scandals in private elderly care homes and by plummeting school results in international rankings.

However, it is unclear how they will finance an improvement of public services, having already pledged to keep the popular income tax cuts.

If Sweden is the Nordic country to have gone the furthest in shrinking its welfare state, Denmark has moved the fastest.

When her Social Democratic government took power in 2011, there was little to suggest Prime Minister Helle Thorning-Schmidt would make any dramatic changes to the country's cherished welfare state - funded by the world's highest tax burden.

But after a centre-right government had raised the retirement age and cut the unemployment benefits period from four to two years, she went on to cut corporate taxes from 25 to 22 per cent. Other reforms have included requiring young people on benefits to undertake training, and withdrawing aid to those taking too long to finish their studies.

It has left her deeply unpopular in some quarters. At last year's May Day speeches she was met by jeers while last November, her minority government had to seek support from the main opposition parties to pass this year's budget.

The next Nordic country to reform its welfare state is likely to be Finland, battered by a downturn in the two pillars of its economy: the forest industry and information technology.

Helsinki responded to the crisis by announcing last August a slew of measures to put more Finns to work. Under the controversial plan, the retirement age is to go up, time spent at university will go down, and incentives to enter the job market will be boosted for the unemployed and young mothers.

Only Norway looks unlikely to reform entitlements anytime soon, bolstered by its oil wealth.

New centre-right Prime Minister Erna Solberg has pledged to preserve the welfare state.


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