STOCKHOLM Sweden's main center-left opposition party, leading in opinion polls, will reverse eight years of tax cuts by raising the burden by 1 percentage point of GDP if it wins next month's election, the likely new finance minister said.
Magdalena Andersson, the party's economics spokeswoman and widely tipped for the finance post after the Sept. 14 vote, said taxes - including a new levy on banks and the top rate of income tax reaching around 60 percent - would be raised over two years to pay for more welfare spending.
The plan is a clear signal of a U-turn after eight years of center-right Prime Minister Fredrik Reinfeldt, who has cut taxes and trimmed the welfare state as the Nordic region's largest economy outshone many of its European competitors.
But Sweden also has the fastest growing economic inequality of any OECD nation and voters have been shocked by media reports that staff at elderly care homes locked up patients in closets or neglected to feed them, raising fears people have slipped through a thinning welfare net.
"We will increase taxes in Sweden, definitely, and also on the highest incomes," said Andersson, who said the top rate would rise on incomes above 60,000 Swedish crowns ($8,731) a month. The current top rate is about 57 percent, one of the world's highest.
A poll published last weekend showed a possible coalition of opposition Social Democrats, Left Party and Green party would get just under 50 percent together if an election were held now, while support for the government coalition stood at 39 percent.
Reinfeldt cut income, wealth and corporate taxes, seeing the tax burden fall by 4 percentage points of GDP. Sweden is one of the few economies in Europe with the top AAA credit rating.
But polls show many voters have tired of reforms while pressure is growing for more spending on education and health.
"Given that our school results are falling quicker than in any other OECD-country we need to spend more money on schools, that's definitely our main priority," Andersson said.
Andersson wants to tighten up rules on the private equity firms currently running many tax-funded hospitals and schools.
NEW VOICE IN EUROPE?
Critics say Andersson's plans of increasing spending and taxes could jeopardize the economy.
Reinfeldt said at the weekend there was no fiscal room for more spending, citing higher costs of record asylum seekers that pressured government finances. The budget deficit is already at 1.2 percent of GDP, the highest in more than a decade, while a sputtering euro zone may weaken Sweden's growth.
Andersson, a former director at the tax agency who has never held an elected position, dismissed Reinfeldt's argument and argued the euro zone - a major trading partner for Sweden, which is outside the single currency - would recover.
Andersson said she would be a voice for more investment and taxes on the wealthy in Europe, in contrast to Finance Minister Anders Borg who gained prominence in Brussels for pushing austerity and reform to boost the region's languishing economies.
"I'm very critical of lots of conservative governments across Europe," Andersson added. "There has been too much focus on cutting benefits for ordinary people when it comes to reducing deficits. There has not been enough focus on increasing taxes, taxes of rich people, on companies."
"The problem in Europe is not too high taxes," she said.
Andersson said a new banking tax would raise around 4 billion Swedish crowns ($582 million) a year. Critics say she is taxing a sector just because it is profitable.
"Banks are not quite as exposed to international competition as some of our other companies and they're also incredibly profitable and I see potential of taxing there without negative effects for the economy," Andersson said.
Social Democrats supporters say the party, in power for most of the last century, has been business friendly and pragmatic in balancing welfare spending with helping industry.
Andersson said no spending would go unfinanced and no new taxes would fall on "ordinary " people.
"I'm a firm believer in sound public finances so in that sense I will be a very austere voice," she added. "A much smarter austerity that would harm ordinary people much less."
Few see a return to the Sweden of the 1970s, when marginal tax rates of the wealthy were more than 80 percent. But there are concerns among businesses that competitiveness could be jeopardized by a lurch to the left.
If they win, the Social Democrats would likely need support of the Left Party and Green Party to pass bills. The Left Party, with roots in the communist movement, wants to end private profits in welfare sector and raise taxes further for the rich. The Greens want to end nuclear power plants in Sweden.
(Editing by Alison Williams)