By Niklas Pollard and Johan Sennero STOCKHOLM (Reuters) - For many Swedish businesses and prosperous households, years of falling taxes and reforms that put maids in middle class homes and fed a consumer boom in luxury cars and holidays in Asia may be drawing to a close.
Elections on Sept. 14 look set to throw out a center-right government as many voters rebel against welfare cuts, stubbornly high unemployment, poor school results and tales of hospitals straining to care for patients.
Eight years of Prime Minister Fredrik Reinfeldt helped transform Sweden's image from that of a high-tax socialist state to a European economic star with a AAA rating, startups such as Spotify and export brands like IKEA and fashion giant H&M.
Polls now show a likely victory for the Social Democrats, the party that created Sweden's cradle-to-grave welfare state, although a new government may end up as a weak minority government coalition of center-left and Green parties.
That worries many in business.
"I just hope that any new government realizes that we build our prosperity on growth, not higher taxes," said Hakan Samuelsson, chief executive of Chinese-owned Volvo Car Group, one of Sweden's biggest private sector employers and exporters.
TAXES DOWN, PROBLEMS UP
Reinfeldt cut income taxes five times and held out tax incentives for household services, youth employment and even restaurant meals to foster job creation. The result was more restaurants with Michelin stars than ever before and a boom in purchases of holiday homes in sunny southern Europe.
The tax cuts helped lift after-tax income for Swedish workers by roughly 30 percent, easing pressure on companies to raise wages in the wake of the 2008 financial crisis.
But all was not well. Stockholm's worst riots in years hit its poor immigrant neighborhoods in 2013 and scandals erupted in privately-run homes for the elderly.
Activists even staged a "class war safari" that bussed tourists through a poor Stockholm neighborhood before viewing the luxury hotels, villas and yachts in a wealthy district,
Even center-right supporters were shocked when the OECD's PISA schools survey last year showed Swedish 15-year-olds had the worst decline in results of any participating member of the Organization for Economic Cooperation and Development. They were below average in many areas.
Scandals also surfaced at elderly care homes with reports about residents being locked up in closets and some people not being fed for most of the day.
"It feels like the center-right is pretty tired really," said Richard Osterlind, 44, part-owner of a communications agency who lives in Ostermalm, an affluent area in the center of the capital. "That is why I can understand people wanting to vote the other way now just to stir things up a bit."
TAX HIKES LOOM
That could all change under Social Democrat leader Stefan Lofven, a former welder and trade unionist who is considering overturning reforms and hiking taxes on the rich and on a wide array of companies if he is elected.
Sverker Martin-Lof, chairman of investment firm Industrivarden (ST:INDUa), steel maker SSAB (ST:SSABa) and hygiene product groups SCA (ST:SCAb), worries income tax hikes could rob business of a competitive advantage.
"That will mean demands and pressures in terms of wages will increase very fast," said Martin-Lof, a leading figure in Swedish industry for decades. "If we don't have good times with good growth and profitability, then we will face growing problems again to make the equation add up."
The company boards Martin-Lof sits on may themselves face change. Lofven has pledged legislation to raise the number of women on boards of listed firms if he doesn't see a rapid and radical increase from the current level of about 25 percent.
Even center-right Finance Minister Anders Borg, whose coalition has cut taxes by more than 130 billion crowns ($18.4 billion), now promises hikes on goods such as cars, alcohol and tobacco to reach a one percent budget surplus target in 2018.
The Social Democrats have said the top rate on income could rise to 60 percent. Their likely coalition allies in the Green and Left parties may press to go further and their influence is a key concern for many in business.
"We don't know how that bargaining will turn out - in a negotiation you have to give and take," said Johan Karlstrom, chief executive of Sweden's Skanska (ST:SKAb), the Nordic region's biggest construction group.
A WORD OF WARNING
A letter recently arrived in the mail of the heads of a string of private firms in the health care and schools sector, where years of deregulation make a booming business in what was once the heart of the publicly run welfare state.
Heads of many private firms in the he
By Niklas Pollard and Johan Sennero
STOCKHOLM (Reuters) - For many Swedish businesses and prosperous households, years of falling taxes and reforms that put maids in middle class homes and fed a consumer boom in luxury cars and holidays in Asia may be drawing to a close.
Elections on Sept. 14 look set to throw out a center-right government as many voters rebel against welfare cuts, stubbornly high unemployment, poor school results and tales of hospitals straining to care for patients.
Eight years of Prime Minister Fredrik Reinfeldt helped transform Sweden's image from that of a high-tax socialist state to a European economic star with a AAA rating, startups such as Spotify and export brands like IKEA and fashion giant H&M.
Polls now show a likely victory for the Social Democrats, the party that created Sweden's cradle-to-grave welfare state, although a new government may end up as a weak minority government coalition of center-left and Green parties.
That worries many in business.
"I just hope that any new government realizes that we build our prosperity on growth, not higher taxes," said Hakan Samuelsson, chief executive of Chinese-owned Volvo Car Group, one of Sweden's biggest private sector employers and exporters.
TAXES DOWN, PROBLEMS UP
Reinfeldt cut income taxes five times and held out tax incentives for household services, youth employment and even restaurant meals to foster job creation. The result was more restaurants with Michelin stars than ever before and a boom in purchases of holiday homes in sunny southern Europe.
The tax cuts helped lift after-tax income for Swedish workers by roughly 30 percent, easing pressure on companies to raise wages in the wake of the 2008 financial crisis.
But all was not well. Stockholm's worst riots in years hit its poor immigrant neighborhoods in 2013 and scandals erupted in privately-run homes for the elderly.
Activists even staged a "class war safari" that bussed tourists through a poor Stockholm neighborhood before viewing the luxury hotels, villas and yachts in a wealthy district,
Even center-right supporters were shocked when the OECD's PISA schools survey last year showed Swedish 15-year-olds had the worst decline in results of any participating member of the Organization for Economic Cooperation and Development. They were below average in many areas.
Scandals also surfaced at elderly care homes with reports about residents being locked up in closets and some people not being fed for most of the day.
"It feels like the center-right is pretty tired really," said Richard Osterlind, 44, part-owner of a communications agency who lives in Ostermalm, an affluent area in the center of the capital. "That is why I can understand people wanting to vote the other way now just to stir things up a bit."
TAX HIKES LOOM
That could all change under Social Democrat leader Stefan Lofven, a former welder and trade unionist who is considering overturning reforms and hiking taxes on the rich and on a wide array of companies if he is elected.
Sverker Martin-Lof, chairman of investment firm Industrivarden (ST:INDUa), steel maker SSAB (ST:SSABa) and hygiene product groups SCA (ST:SCAb), worries income tax hikes could rob business of a competitive advantage.
"That will mean demands and pressures in terms of wages will increase very fast," said Martin-Lof, a leading figure in Swedish industry for decades. "If we don't have good times with good growth and profitability, then we will face growing problems again to make the equation add up."
The company boards Martin-Lof sits on may themselves face change. Lofven has pledged legislation to raise the number of women on boards of listed firms if he doesn't see a rapid and radical increase from the current level of about 25 percent.
Even center-right Finance Minister Anders Borg, whose coalition has cut taxes by more than 130 billion crowns ($18.4 billion), now promises hikes on goods such as cars, alcohol and tobacco to reach a one percent budget surplus target in 2018.
The Social Democrats have said the top rate on income could rise to 60 percent. Their likely coalition allies in the Green and Left parties may press to go further and their influence is a key concern for many in business.
"We don't know how that bargaining will turn out - in a negotiation you have to give and take," said Johan Karlstrom, chief executive of Sweden's Skanska (ST:SKAb), the Nordic region's biggest construction group.
A WORD OF WARNING
A letter recently arrived in the mail of the heads of a string of private firms in the health care and schools sector, where years of deregulation make a booming business in what was once the heart of the publicly run welfare state.
Heads of many private firms in the health care and schools sector recently received a blunt letter announcing an end to years of deregulation during which entrepreneurs and even private equity firms have created booming businesses in what was once the heart of the public ally run welfare state.
"On September 14, we intend to win the elections and abolish private sector profits within welfare," the letter from Left Party head Jonas Sjostedt said. A brief guide to turning businesses into non-profits followed.
The issue tops the agenda for the Left Party, the former communists, whose support looks necessary for any center-left government.
"What we are most worried about is that these rather strong left-wing populist forces will have too much say in a red-green alliance," said Catharina Tavakolinias, head of Kavat Vard, a private company running nine nursing homes.
Private care companies, with total sales of 93.7 billion Swedish crowns ($13.4 billion), accounted for 31 percent of all care in Sweden in 2012 and employed some 125,000 people full time, according to the Association of Private Care Providers.
The Green Party also raises hackles among some businesses that fear stricter environmental demands and a possible phase-out of nuclear power. Some managers are baffled by a pledge in their election manifesto to seek a sustainable economic system without any mention of the growth needed to support it.
"This is a pivotal election. For as long as I have been working we have had pro-growth parties in power, but now it looks like a party avowedly hostile to growth may gain influence," said Urban Edenstrom, main owner of commercial property firm Newsec with 600 employees. "What is going on?"
SOCIALIST PRICES
Small firms voice concerns about a likely reversal of a 2012 halving of VAT on restaurant meals and a payroll tax rebate for companies that hire young people.
Patrik Gadelius, a former airline pilot, used the lower taxes to realize his dream of running a restaurant.
Now the menu at his Italian restaurant in Lidingo, northeast of Stockholm, shows two prices for each item, the more expensive "Socialist prices" illustrating the effect of higher taxes.
"I want to show my customers now how things are going to turn out so I don't have to handle that discussion from one day to the next," he said.
Magnus Jokulsson runs three cafes in central Stockholm, having expanded from one over the past three years. Most of his 30 or so employees are young and Jokulsson said he would never have expanded without the tax breaks and lower VAT.
"My heart is on the left. That is why this completely jars with my views. It will be hard to vote left now," he said.
Changes go beyond business. A 2007 tax break saw many Swedes adopt the habit of using cleaning services, hitherto considered out of reach by most households. Johan Wallin, 40, working in pharmaceutical development in the capital, was one.
"The question is whether we'll continue with it if (the tax break) is removed," he said.
Still, the center-left is banking on Swedes overcoming lingering concerns and not, as in the last election in 2010, balking at change in the final weeks to back Reinfeldt.
"Sweden can afford change," Lofven, Andersson and two colleagues in the Social Democratic leadership wrote this week in an op-ed in the Dagens Nyheter daily.
(Additional reporting by Sven Nordenstam and Daniel Dickson; Editing by Alistair Scrutton and Tom Heneghan)