Fiscal Policy Council Criticizes Swedish Government's 2026 Budget for Large Deficit and Borrowing Practices

The Swedish Fiscal Policy Council has delivered strong criticism of the government's 2026 budget, highlighting that it leads to the largest deficit in 30 years and departs from established fiscal framework principles. According to the Council's annual report "Svensk finanspolitik," the government's expansive budget and decision to finance permanently higher defense spending through loans until 2034 significantly burden future generations and limit the ability of future governments to undertake reforms.

The report emphasizes that despite an expected economic recovery in 2026, the budget leaves no room for unfunded measures in 2027 or 2028. This represents the most serious breach of the fiscal framework principles to date. The Council also argues that monetary policy, managed by Riksbanken, should handle economic stabilization, but instead, the budget prioritizes fiscal policy, resulting in a procyclical approach.

A central point of contention is the government's choice to borrow for increased defense expenditures while simultaneously lowering income taxes by a similar amount. The Council views this as a political choice rather than a necessity and stresses that it would be possible to finance defense spending without violating fiscal balance targets. Economist Knut Kainz Rognerud noted that such borrowing to cover military costs rather than funding them through the budget raises sustainability concerns. Lars Heikensten, the outgoing chairman of the Fiscal Policy Council, underlined that postponing costs through borrowing is a deliberate political decision that places a financial burden on future generations.

As Sweden enters the election year, the Fiscal Policy Council warns that these fiscal policy violations mark a troubling shift, potentially endangering the country's long-term economic stability and reform space. The Council's report is a strong message urging a reconsideration of fiscal strategies to ensure they align with responsible economic principles and safeguard future economic flexibility.