Progress and challenges in a chilly Swedish economy

On Wednesday, September 20, the Government's budget proposal was submitted to Parliament. After weeks of constant budget news, it was welcome to learn about the government's overall direction.

The Minister for Finance emphasizes that the situation in the Swedish economy remains difficult, with continued high inflation. The effects of rising prices and interest rates are becoming increasingly clear. Growth has so far been stronger and more resilient than expected in the first quarter, with strong exports of goods. However, growth is expected to fall further in 2023 and early 2024, with the economic situation weakening further. Domestic demand is expected to weaken on the back of weak private consumption due to rising costs and a sharp drop in residential investment. The labor market is surprisingly strong, but unemployment is expected to increase going forward, with a lagged impact.

It looks as if we are heading for brighter times in 2025 with falling inflation and interest rates. Consumption and housing construction are expected to recover and there will be stronger demand for Swedish exports. Unemployment is expected to fall again in 2026.

However, there is considerable uncertainty surrounding the forecasts in the Budget Bill, which are affected by developments in energy prices and geopolitical developments, among other things. We are dependent on the world around us, where we see that various economies, such as Germany, are experiencing weaker economic development than expected, which affects Sweden.

Elisabeth Svantesson (M) emphasized during the press conference that it is important not to add to the current inflation, but that it is important to exercise restraint. "We have strong public finances that also provide room for maneuver if the recession were to become deeper than we now see in front of us.

New digital strategy to develop public administration and connectivity policies

The Government's overall conclusion in the area of digitization is that Sweden is not achieving the overall objective of Swedish digitization policy. Other countries are more successful in using the opportunities offered by digitization despite having lower levels of digital skills and broadband expansion.

Access to broadband is considered good but continued support is important and reaching the last 2% of households and businesses with fast broadband will be a challenge regardless. Sweden drops in the connectivity ranking largely due to the delay linked to the 5G auction. However, the Government believes that there is a good chance of reaching the goal of everyone being able to use electronic communication services.

The government has set up a digitization council and the budget states that it intends to develop a digitization strategy that will develop policy in areas such as public administration and connectivity.

The government also proposes a research and innovation initiative linked to 6G of SEK 50 million in 2024, which will be increased by SEK 100 million annually in 2025 and 2026.

The planned level of broadband support will be maintained, but the current advance payment model will be changed to an arrears model for the payment of support, which means that the level of payments in the coming years will fall. The appropriations to MSB for preparations for the next generation of communication systems for blue light (Rakel G2) will increase by SEK 20 million in 2024.

It is positive that the government has clearly identified the problem and begun work on a new digitalization strategy. Sweden needs to become better at taking advantage of the opportunities offered by digitalization. For 5G alone, the potential for a rapid introduction of the technology is estimated to correspond to an increase in GDP of SEK 126 billion or 2 percent of GDP. The investment in 6G is welcome and will help to develop Sweden's position as a leading technology nation in the long term. But more is needed and, above all, we cannot wait for measures that can be of great benefit here and now and, for example, help to develop and relieve the strain on health care, social care and other public services. TechSverige is calling for more concrete measures and has proposed, among other things, that the government take an initiative for a connectivity boost consisting of clear goals and supporting initiatives linked to the public sector's use of connectivity for a smart public service that takes maximum advantage of the opportunities of digitization.

Welcome investment in a national digital infrastructure for healthcare

In order to manage welfare both today and in the future, a progressive strategy is needed to use the power and potential of digitization. The budget bill takes the next step in the proposal from the Tidö Agreement to reform the digital infrastructure in healthcare. The government announces SEK 341 million for the period 2024-2026 to realize a digital infrastructure for healthcare, which is very positive and welcome. Perhaps Sweden's largest soft infrastructure project needs resources and now it is important that this investment benefits the development of the business community and promotes innovation.

Support for municipalities' work on digitalization

Municipalities are in a difficult situation characterized by challenging demographics and skills shortages in social services and care. Therefore, it is positive that the government announces to support the municipalities' work with digitization and the introduction of welfare technology. This includes strengthening knowledge development in this area. Accelerating the use of security-creating technology and welfare technology is an important piece of the puzzle in future-proofing our welfare. However, TechSverige would have liked to see a much stronger investment in a welfare technology boost for the entire care sector together with skills investments and a strong budget allocation. Unfortunately, there is no mention of a budget in today's budget bill, which is weak.

No link between digitalization and sustainable development

The Minister of Finance was pressed hard, especially in the climate area, during the press conference where the budget was presented, given that, for example, the proposals for a reduced reduction obligation will greatly increase Sweden's emissions and when the government itself states that we will not be able to achieve the climate goals with existing policies. According to the answers provided by the minister, it is in the upcoming climate policy action plan in the autumn that we will get all the answers about what measures the government will take to reduce emissions. Let's hope that the link to digitization and existing tools offered by the tech industry is clearly made in it - because in the budget bill, this link is largely absent. Because no green and sustainable transition without tech. TechSverige has made six concrete proposals for measures that can easily be included in the action plan for just this, such as an investment in AI for the climate to promote innovations. TechSverige hopes that the government will realize that investments in digital infrastructure and digital solutions will contribute to energy efficiency improvements (not just increased energy demand as they state in UO 21) and emission reductions in virtually all policy areas, we could achieve success in the climate and environment area much faster.

Long-awaited investment in skills

Higher education is the foundation of the tech industry's skills supply. According to the results of the 2020 IT Skills Report, more than half of companies are looking for higher education when recruiting IT specialists. This is a role that universities are finding increasingly difficult to fulfill. Technical education in Sweden has received fewer resources for a long time, which has resulted in reduced teaching time and high dropout rates. This is a pressing issue that TechSverige raised with the Minister of Education last May.

The government is now proposing a targeted investment in engineering education in higher education. The government is also allocating resources to expand the engineering programs at Uppsala University, Lund University and Chalmers. In order for more people to be able to train as engineers, the basic year programs at these universities will also be expanded. It is also proposed to strengthen and extend funding for Tekniksprånget. Investments in basic year programs and Tekniksprånget help to prepare students for studies at post-secondary level and broaden recruitment to IT programs. These are long-awaited initiatives that TechSverige has sought and worked for.

At the same time, the government sees that there is still a high demand for vocational education and proposes new investments in higher vocational education. This is a welcome initiative and a step in the right direction to meet the skills needs of the tech industry and other sectors.

To ensure that training places are utilized, TechSverige believes that it is important that these initiatives are supplemented with clear assignments and increased resources to the Swedish Agency for Higher Vocational Education to increase awareness of the form of education and the very good job opportunities it provides.

Shorter processing times require more resources and closer cooperation with authorities

As of 1 October 2022, a new public transition study grant was introduced with the aim of strengthening the position of workers in the labour market. Interest in this new study grant has been so extensive that CSN is finding it difficult to handle all applications, which has led to significantly increased processing times. As a measure to meet this challenging need, the government proposes to increase the allocation to CSN. In addition to providing more resources to CSN, TechSverige believes that the authority should be able to temporarily borrow staff from other authorities to reduce processing times.

Earmarked resources needed to reduce processing times for highly skilled workers

The Government is increasing the allocation to the Swedish Migration Agency to handle the continued high workload in examination and emphasizes the importance of the Swedish Migration Agency's new model to promote the recruitment of highly skilled labor to result in improved service and reduced processing times. TechSverige welcomes the Government's ambitions but believes that earmarked resources are needed to implement the new model and to reduce processing times for highly skilled labor immigration.

Sharp cuts in research and innovation funding could jeopardize Sweden's international competitiveness.

TechSverige welcomes the government's initiative to establish a research and innovation program to promote 6G development and increased connectivity, but does not believe that this should be done by sharply reducing funding to Vinnova. It is worrying that the government is planning to significantly reduce Vinnova's budget at a time when there is a great need to increase investment in research and innovation in Sweden in order for us to be able to gear up and compete in the global market.

Cybersecurity needs to be improved, but progress is slow

Cyberattacks and cyberespionage are a growing security challenge for Sweden. Increased competence in information and cyber security is therefore necessary. TechSverige welcomes Cybercampus Sweden at KTH, which will be established to strengthen both skills supply and research in cybersecurity. Cybercampus Sweden will be a national collaboration between several universities, research institutes, authorities and companies throughout Sweden. It is good that the government has listened to the industry, both in terms of the need for education and research and the importance of including the business community in Cybercampus Sweden.

The Government considers that large parts of the public administration do not work systematically with their information security work. The budget bill gives the impression that development is stagnant. The government notes that "some development of the activities of the National Cyber Security Center (NCSC) has taken place in 2022". At the same time, the government acknowledges that this does not correspond to the demands that developments in the outside world place on the center's activities.

The Government is proposing an increase of SEK 20 million in funding for MSB to develop operational cyber capability in civil defense. This will be done at CERT-SE, which is Sweden's national function for supporting society in preventing and managing cyber incidents. This is welcome.

There have been great expectations of the NCSC, which, according to the budget bill, "has not had the right conditions". In the budget bill, the government reiterates that the Swedish Defence Radio Agency (FRA) will continue to lead the development of the center. Again, without the previously promised evaluation of the center having been presented.

The government seems to be fumbling around with strategic issues in information and cyber security. This is perhaps not surprising, as the government continues to postpone a new national strategy. This is problematic as the government makes strategic decisions on the fly and the lack of a strategy appears to be a shortcoming as cyber threats increase. The government seems to be aware that this is a problem, as it notes that municipalities "have an important role in maintaining important functions in society".

Digitization is missing from investment promotion

It is positive that the government sees the "business potential" in the green and digital transition. Digitization and AI are specifically mentioned among the things that Swedish foreign ministries should support. The government also intends to take a "new and comprehensive approach" to develop trade and investment promotion. This will be done with a strategy for foreign trade, investment and global competitiveness. This is urgent - the tech sector accounts for 6% of Swedish exports.

Unfortunately, digitization is missing when the government describes investment promotion. However, the government intends to give Business Sweden a mission to increase its focus on the foreign companies that have already invested in Sweden. The idea is to get these companies to further expand their operations in the country. This may well be needed. Last year's budget bill changed the tax rules for data centers in Sweden virtually overnight. This has damaged Sweden's reputation as a country to invest in and directly affects international (and Swedish) companies that have made investments of many tens of billions of SEK in the country.

Developed government IT operations - please wait

The opportunities for private suppliers to continue to develop public digitization have been hampered by the issues surrounding, among other things, government IT operations. Some legislative changes to facilitate private providers have come into force. In the budget bill, the government says it is working towards "secure, coordinated and more efficient solutions for government agencies' IT operations." We will probably have to wait a while longer to find out how this will happen.

Has the data strategy for 2021 been forgotten?

In the budget bill, there is a lot written about access to data and that the ability to share data is increasing in strategic importance. However, there is no mention of the strategy in this area adopted by the previous government less than two years ago. This does not bode well for the new digitalization strategy announced in the budget bill. The government also acknowledges that it is EU cooperation that drives much of the development in digitization policy.

Is the government backing into the AI future?

When the government writes about AI, it is first with a skeptical attitude: "It is crucial that the right conditions are created for ethical and human-centered AI use, while the risks and challenges of increased AI use must also be addressed." Then there is "better service ... and new opportunities to manage the welfare of the future". AI is mentioned in many areas such as EU cooperation, export promotion and a mission on AI in social services. However, it is clear that the government is not putting a future-oriented, constructive and growth-friendly approach to AI and its opportunities first. The Prime Minister's AI Commission does not appear to be mentioned in the budget. Let us hope that it can contribute to a broader view of the possibilities of AI.

Strengthen Swedish competitiveness and reduce the regulatory burden

Good conditions for companies to build knowledge and conduct their business are a prerequisite for Swedish competitiveness and sustainable social development. TechSverige welcomes the simplification package of SEK 50 million to make it easier for companies and has a clear hope that current legislation adopted, both at EU and national level, will be based on the "Think small first" principle.

As a complement to the previously announced Implementation Council, a Simplification Council will be established to identify simplification measures that follow from Swedish law and develop concrete proposals. The Implementation Council will focus on issues related to the implementation of EU directives that are of particular importance to Swedish companies. 

We are also pleased that the government has announced that the time limit for the so-called expert tax will be extended from the current five to seven years and that the 3:12 inquiry will be given an additional task to review the rules on qualified employee stock options to make the rules more effective. 

In summary, the government is presenting yet another cautious budget with the fight against inflation at the top of the agenda. However, there are many indications that inflation is falling at the same time as Sweden has low growth and Sweden is facing major structural challenges such as an ageing population, skills shortages and a failure to make better use of the opportunities offered by digitalization. We would therefore have preferred a more aggressive fiscal policy with reforms and investments to strengthen Swedish competitiveness.

However, there are some positive elements and messages on direction. This now needs to be translated into concrete reforms and the pace needs to be increased. We hope that the new office that is being set up with experienced investigators under the Prime Minister's Office will ensure that the reform processes move faster and that a clearer link is made to the digital opportunities of the tech industry to solve the major societal challenges. A term of office goes fast!

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