Do not take from the aid - start borrowing!

There is talk today of a refugee crisis, but it is not a crisis for Sweden's public finances. Sweden has good government finances and an excellent location for borrowing. Taking away aid to finance the reception of refugees is both stupid and cynical, writes economist Stefan de Vylder.

It would be naive to underestimate the tensions that our efforts to live up to a solidarity refugee policy give rise to. Wherever we look, we see bottlenecks when it comes to refugee reception and integration. Where should the refugees live? How should the Swedish Migration Agency have time to process all new asylum applications in a reasonable time? How should we be able to shake out enough qualified interpreters and SFI teachers? Is there a place in the school for all newly arrived children, and how is the quality of teaching affected by the fact that so many who do not have Swedish as their mother tongue must be offered a place? How will the Social Services, where many social secretaries have already gone on their knees as a result of a strained work situation, be able to handle all new arrivals in need of support? How much longer will the waiting times be in child and adolescent psychiatry?

We are facing major challenges. Tensions and conflicts are inevitable, and will be exploited by xenophobic forces. But this is not about a crisis in public sector finances.

Unemployment problem, not the state budget

Sweden today has an insignificant budget deficit. Central government debt as a share of GDP is among the lowest in Europe. Our current account surpluses (which somewhat simply show the difference between our exports and our imports) have in recent years been around 7-8 percent of GDP.

But just as high - 7-8 percent - is open unemployment. Unemployment is our big problem. Not the state budget.

Tough cuts are now being made, warns the Ministry of Finance and blames the refugee reception. But the budgetary constraints are marginal. The major cost item is wages, of which more than two thirds return to the public sector in the form of income taxes, employer contributions and VAT.

In the short term, expenditure also means a welcome economic stimulus. Demand for housing, goods and services is increasing. Lots of new jobs are being created, not least for many people who today are some distance from the regular labor market. In the slightly longer term, if integration works, we will have a welcome addition to the labor market of mostly young, enterprising people who want nothing better than to support themselves.

Refugees are seen as a burden

Instead of seeing our care for refugees both as a humanitarian effort and as an investment for the future, more and more politicians and debaters are talking about these people seeking help as a heavy burden. And also as a burden that the world's poor must bear. The Minister of Finance has flagged that perhaps more than half of our development assistance budget may be channeled to cover the costs of refugees in Sweden.

This is both stupid and cynical. The drastic increase in refugees seeking refuge in our country is certainly creating problems, and the short-term pain threshold has been reached in many areas. But this is not about a fiscal crisis. These are bottlenecks and lack of absorption capacity. Problems that will require time and money to remedy, as well as flexibility and trusting cooperation between the public sector and civil society.

Excellent location to borrow

Sweden can today, with our excellent starting position in terms of government finances, government debt and gigantic surpluses in our foreign trade, take the opportunity to abolish the expenditure ceiling that has played its role. Today, it is free for the state to borrow, and our five-year interest rate is close to zero. Neither tax increases nor reduced aid are needed to finance our perhaps most important investment for the future: the most welcoming reception of people fleeing war and persecution as possible.

"We will be able to do this", as Angela Merkel put it not so long ago. When our Swedish government plays out refugees who are seeking refuge in Sweden against poor people in the rest of the world, this sends bad signals to the outside world. Sweden has long been a generous donor, but already holds the world record for letting development aid pay for refugee reception.

And where does the pain line for the Green Party go? How do the Ministry of Finance's signals rhyme with our Minister for Development Aid's often repeated mantra about the need for reliability and long-term perspective in our development assistance policy?

Stefan de Vylder

This is a debate article. The author is responsible for analysis and opinions in the text.

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