In the current issue of The Spectator I interview Sweden’s Anders Borg, perhaps the most successful conservative finance minister in the world — both in his economic track record, and the accompanying electoral success. His response to the crash was a permanent tax cut to speed the recovery. At the time, everyone told him it was madness. But Borg is unusual amongst finance ministers, in that he is a trained economist. To him, madness lay in repeating the formula of the 1970s and expecting different results. Last year, Sweden celebrated the elimination of its deficit. It’s perhaps worth mentioning a few other points which I didn’t fit into the interview.
1. Revenge of the nerds. Borg and Fredrik Reinfeldt, the Swedish Prime Minister, have no interest in being interesting. Reinfeldt is incredibly dull, and Borg is a numbers man. In opposition, Borg was famed throughout the party for his ‘macro emails’ — dense arguments for tax cuts, studded with graphs and complicated maths, which filled some 30 pages when printed. Borg, a former SEB chief economist, has a mastery of detail such that he can defeat any opponent in Swedish debate.
2. Borg’s sense of mission. In Sweden, the joke now is that the conservative government’s only idea is even further tax reductions (through what they call the ‘jobbskatteavdrag’, increasing the ‘earned income tax credit’). But an over-taxed Swedish electorate seem to forgive them for it. The Swedish election message is not ‘Do you like us? Would you like to go for lunch with us?’ No one would. The message is: ‘We are the new workers’ party. If you’re in a job, we’ll make you better off by cutting your taxes.’
3. Good politics means making and winning the argument. When things got messy, Borg didn’t hide. His own ‘Fiscal Policy Council’ — which the new government established when they took office — was very critical of Borg for not doing debt-fuelled stimulus like everyone else in Europe. Borg then started an extraordinary public row with the chairman of the committee, and even started a blog to argue against that Council’s report in 2009. Rather than crave the approval of external agencies to hide behind, saying ‘I must be right because the ABC and DEF say so’, Borg was alone — with enemies the world over, and even in Stockholm. But he had complete faith in the strength of his argument, which he had rigorously researched.
4. This is about a ‘supply of workers’ not a ‘supply of jobs’. In Britain, the argument remains Keynesian insofar as it’s all about how government can create more jobs. Borg saw it differently: if welfare pays more than work, why work? He wanted to increase the incentive to work by cutting in-work taxes (using a Clinton/Gingrich style tax credit, not the Brown-style mutation of it) and in so doing, create more workers. That is to say, people looking for jobs. This is part of his supply-side logic, a thoroughness that is unthinkable in Britain where Brown’s logic is still studded into the way the Treasury thinks. Borg published a massive book explaining how his reforms will adjust the labour market and lower structural unemployment. Again, such a document is unthinkable in Britain.
5. Borg changed the terms of debate. Now, all opposition parties in Sweden (apart from the former communists) back profit-making schools (a victory from the 1994 Swedish conservatives) and none say they’d repeal Borg’s tax cuts if they were in power. Borg has also sought to downplay the radicalism of his reforms, presenting them as a continuation of the tax cuts made by his Social Democrat predecessors, who were nudged into fiscal reform by the aftermath of Sweden’s 1990 financial blowup. It’s interesting that those countries stung in the early 1990s — Sweden, Canada, Australia — are far better-off now because they adopted austerity and proper bank regulation.
6. Making people better off is a strong electoral proposition. My fellow Scots are being teased right now for a Social Attitudes Survey suggesting they’d vote for independence if it made them £500 better off, and vote against it if it made them £500 worse off. But for the average voter, on £23k, these sums matter. I suspect a good many voters across Europe will support the party that will make them better off: it’s a clear, retail electoral proposition. The Swedish conservatives won re-election for the first time by saying they’d cut taxes giving the average low-paid worker an extra month’s salary every year. And that, if re-elected, they’d do more.
7. Only Brits would see Borg as Thatcher in a ponytail. In Sweden, Borg and Reinfeldt are seen by many on the Swedish right as being pathetically wet — and some Swedish right-wingers have defected to other parties. Like Cameron and Osborne, Borg and Reinfeldt have positioned themselves as centrists and picked fights with the old guard of their own parties to emphasise their new modernising credentials. Borg’s focus is on tax cuts is the low-paid and he is seen as the main source of resistance to cutting the 57 per cent marginal rate on income above about £51,000 a year. His party is also not very interested in deregulation of the labour market, a cause that Osborne has championed. Like Cameron and Osborne, both Borg and Reinfeldt have a weakness for green initiatives, which business loathes. But overall, I really don’t see what a Swedish conservative could complain about. Reinfeldt and Borg are cutting taxes, doing well economically, and making historical electoral success.
8. Borg’s tax cuts almost entirely paid for themselves. Even Borg, with his macro emails, did not quite expect the stimulatory effect of his tax cuts. Subsequent studies suggested that the money saved — in lower dole costs, and extra VAT receipts from people spending their newly-earned money — recouped up to 85 per cent of the cost of the tax cut. The UK Treasury will assume that any tax cut will simply lose money, as is still programmed with Brownite assumptions about zero dynamic effect. Osborne has previously spoken about the need to address this.
9. Borg doubts that Osborne can do the same. Tax cuts need to be credible to be effective, he says, and Osborne’s deficit is so big that people would just save any money from a tax cut, dulling its stimulatory effect.
10. Borg was a rebel — but of the type we don’t really have in Britain. He was a libertarian, and in Sweden there is famous YouTube clip from the late 1980s when he was on the telly saying that a country’s wealth comes from its people, not its government. And, when asked what he’d do if elected, he replies: ‘If I was prime minister I would not do a damn thing — then people would be free to decide for themselves’. His views have moderated, but his sense of urgency has not. Anyway, CoffeeHousers, the denim-clad guy in the video was recently voted by the FT the most effective finance minister in Europe, and has reminded his peers that good politicians are never confined by the parameters of public debate. They can shape these parameters themselves.