Today hardly any EU country is not restructuring its public finances. The real challenge lies in the approach proposed by political reformers - some insist that only a tough upfront reform will bear results, while others prefer a gradualist approach to ease the public’s pain.
Goran Persson, the former Social Democratic Swedish Prime Minister, prefers the tough approach. He undertook a painful programme of reforms between 1996 and 2006 and now claims that political courage and a willingness to put one’s job on the line are the secret of his success. “You must realise, it is not an economic issue, it’s a political one. It’s not so difficult to figure what to do; the difficulty is to do it. It ends up in the political process,” he said.
The Social Democratic Party paid the price of the statesmanship of its leaders by losing badly in the 2006 and the 2010 elections to the centre-right coalition. But Sweden is today a better country to live in thanks to the reforms piloted by Mr Persson.
The Swedish experience is inspiring other politicians to follow the tough stand taken by Mr Persson. The former Swedish Prime Minister addressed the 2010 Annual Conference of the Chartered Institute of Public Finance and Accountancy that carried the theme: The Turning Point. It seems that the newly elected Conservative Liberal Democratic alliance in Britain was impressed with the Swedish experience driven by Mr Persson who gave some lively advice to the new UK Cabinet members.
The Swedish fiscal reform was based on a dual approach: an equal split between expenditure cuts and tax rises. He urged his audience “to be completely honest with the public” about the task ahead and criticised those politicians that when in pre-election mode are not “outspoken” enough. He explained how, in his time as Premier, his first step was an 11 per cent across-the-board cut in government spending.
This is never going to be an easy message to politicians. The deficit that was hovering around 12 per cent in 1994 was virtually eliminated within four years and by 1999 the economy was growing by 3.6 per cent. The Swedish welfare state is slimmer but healthier and remains a model for many European countries.
A major emblem of this success was the branch and root reform of the pensions systems that has now become a blueprint for the more inspirational EU governments. The Swedish pensions reform involves the scrapping of the statutory retirement age, makes savings for retirement mandatory, and rewards those who want to keep working for as long as they like to reap the benefits of their work once they decide to retire.
The former Swedish Prime Minister warned the UK politicians to look at pensions’ reforms carefully. He insisted: “Pensions reforms are best tackled now before the demographics make it even harder to get public support: in a few years time, many European countries will have a majority of voters over 50.”
Mr Persson also believes that no sacred cows should be spared from the cull. Bureaucracy was targeted first to send the message that no one would be left untouched. The mantra of efficiency savings (the preferred option of many political leaders) will not be enough. “Cuts will need to be made in the flesh of public services as well. You need to be able to take whole parts away – not only at the margin – but to say that you will stop doing things,” Mr Persson told the conference.
Just before Mr Persson became Prime Minister a centre-right government introduced major reforms in the Swedish educational system. Up to then parents did not have much choice where to educate their children.
The early 1990s reforms in education funding meant that the state would finance almost all the cost of educating children in private schools.
Initially, the Social Democratic Party objected to these changes, but it then embraced them. Private schools have since flourished, even if some argue that attainment levels have not improved much and that some “social segregation” has been encouraged.
Locally, like everywhere else, the debate on the best way to reform public finances will rage on. The current economic slowdown will drag on and recovery will be very much dependant on how successfully we tackle our fiscal reforms, and how determined we are to put our health, pensions, and educational system on a sound basis.
Political rhetoric may obscure the tough decisions that need to be taken – but don’t ever believe that change, whenever it comes, will be painless.
jcassarwhite@yahoo.com