Sweden's minority government unveiled an expansionary 2005 budget on Monday with bigger-than- expected tax cuts and money to create jobs, as Prime Minister Goran Persson fights a growing electoral threat from the opposition.
The Social Democrat government, which relies on two smaller parties to get bills through parliament, announced tax cuts of 8.1 billion crowns ($1.09 billion), higher than the 5-6 billion revealed after talks with its Left and Green Party allies.
That is just over 1 percent of total tax take in a country which has the highest taxes in the EU as a share of the economy.
"This is a budget which focuses on the labour market and jobs. The most important thing is for more people to get jobs," Finance Minister Bosse Ringholm told parliament.
The centre-right opposition slammed the bill as spendthrift with no effect on unemployment. But analysts and markets took it in their stride, seeing no damage to financial stability.
Markets paid more attention to central bank projections of higher inflation, partly due to more expansionary fiscal policy.
The bill projects a 2004 central government deficit of 63.8 billion crowns, falling to 38.4 billion in 2005 before rising to 51.8 billion in the election year of 2006.
It dishes out an extra 14.5 billion crowns to municipalities to create jobs until 2006. Income tax is lowered, gift and inheritance taxes are scrapped and property taxes reduced, while taxes on electricity, fuel and cars are increased.
The government stuck to its target for a surplus in the broader public sector budget of at least 0.5 percent of GDP in 2005 and of a 2 percent surplus over the business cycle.
The job market was seen staying fairly weak with unemployment at 5.6 percent this year and 5.1 percent in 2005.
Growth was forecast at 3.5 percent this year, although stripping out the effect of extra work days this fell to 2.9 percent. In 2005, it was seen at 3.0 percent. Economists said state finances would suffer little.
"We still forecast a budget surplus and therefore a continued reduction of the debt to GDP ratio, from that respect it is not worrisome at all," said Klaus Papenbrock, senior economist at Deutsche Bank. Opposition parties felt otherwise.