Analysis-Sweden's cost of living crisis spooks voters ahead of election

·5-min read
People cast their ballots at polling station at the central stationas advance voting begins in Stockholm

By Simon Johnson

STOCKHOLM (Reuters) - With its robust welfare provisions and green energy mix, wealthy Sweden should be better placed than most countries in Europe to withstand the energy-driven cost of living crisis battering the continent.

But consumer worries over soaring electricity bills, rising interest rates and stalling economic growth mean the campaign for the general election on Sept. 11 has turned into something of a bidding war between the centre-left and right-wing blocs over which can do more to ease the short-term pain. That could entail long-term costs for the economy.

"There is a risk that there will be a compensation economy rather than a focus on long-term structural reform," said Sven-Olov Daunfeldt, chief economist at the Confederation of Swedish Enterprise.

Swedes are among Europe's most well-off. The welfare system - though much less generous than it used to be - means poverty rates are well below the European average. But in recent decades, the gap between rich and poor has been growing, leaving many vulnerable to inflation that is currently at around 8%.

Eva Lindman Marko, a 59-year-old educational psychologist, said she got a monthly electricity bill for over 19,000 Swedish crowns ($1,765) in January - two or three times what she pays in a normal winter.

Prices could be even higher this coming season - not least because of problems at the Ringhals nuclear plant.

Sweden's electricity comes mainly from hydro-power, nuclear and wind, with only a tiny fraction from gas. But with prices set on international markets, it has not escaped the continent-wide effects of the war in Ukraine on energy prices.

"A rise of over 100% feels brutal in itself. But the cost may be three or four times as high," Lindman Marko said, adding that this winter she plans to lower the thermostat at home, wear thermal clothes and go to the sauna at a local swimming pool to warm up.

"Clearly the more worried you are over, for example electricity prices, the more it will affect how you vote," she said.

Petrol and food prices have also soared. The cost of butter is up by around 25%, meat 24% and cheese around 22% this year, according to consumer price comparison site Matpriskollen.

Stockholm's Stadsmission, a non-profit organization, said it had seen its membership of its Matmissionen subsidized foodshops nearly double in the first half of the year.

"It's a broad group - maybe you are a pensioner, maybe you are unemployed or perhaps have not lived for a long time in Sweden," said Johan Rindevall, who heads up the Matmissionen shops.

"Forty percent of our new members this year have been families with children."

Matmissionen sells food donated by major chains to members with monthly incomes below 11,200 crowns at around 30% of the prices seen in high-street shops.

PROMISES, PROMISES

The two major political blocs are rushing out promises to help consumers fight the effects of inflation.

Prime Minister Magdalena Andersson's Social Democrat government has promised up to 90 billion Swedish crowns ($8.36 billion) in subsidies to ease the pain of rising electricity bills for households and businesses, on top of billions in subsidies paid last winter.

The Moderates, the leading centre-right opposition party, have promised income tax cuts and lower fuel prices, which they say would mean 24,000 crowns extra for working families each year.

They intend to pay for measures by cutting back on overseas aid and benefits like unemployment and sickness insurance.

As a longer term solution to the energy crisis, the centre-right plans loan guarantees of up to 400 billion crowns to support building new nuclear power stations. Like Germany, Sweden has been shutting reactors in recent years.

The Left Party, loosely part of the centre-left bloc, wants to halt electricity exports.

Opinion polls don't give a clear answer as to which policy promises have caught voters' eyes, but the ruling Social Democrats have at least avoided blame for the gloomy economic outlook.

The two main blocs are running neck-and-neck though the Social Democrats are easily the largest party.

TOUGH CHOICES

Whoever wins may find it hard to live up to all their promises.

The NIER, a government think-tank, reckons the next administration will have around 120 billion crowns to play with in terms of extra spending.

A chunk of that is already earmarked for defence spending as Sweden raises its allocation to 2% of GDP from the current 1% to support its bid to join NATO, and for other measures like boosting healthcare and employing more police to deal with gang crime.

At the same time, GDP growth is expected to slow to around 0.4% next year, according to a government forecast, and even grind to a halt completely if inflation worsens and rates rise more than currently expected.

Increasing public debt would "add fuel to inflation and further raise interest rates and could also threaten public finances, threaten welfare and pensions," Finance Minister Mikael Damberg warned last month.

Diverting cash to support households will leave less for structural reforms needed to support the shift to a "green" economy, to rebuild the welfare state and to meet a skills shortage in the labour market.

The Social Democrats' plan to subsidize energy bills will be paid from a fund that is supposed to be used, in part, for expanding transmission capacity - one of the major causes of record domestic electricity prices in Sweden.

Plans by the right to decrease the amount of biofuel in petrol and diesel, making them cheaper, will also make it harder to reach the country's target of zero net emissions by 2045.

It is also uncertain which policies will get approval from the next parliament, given that even within the centre-left and right blocs there is much disagreement about what to do and how to pay for it.

"No responsible politician can say that they will compensate for every price rise," Andersson said last month.

($1 = 10.7646 Swedish crowns)

(Reporting by Simon Johnson; Editing by Frances Kerry)