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 APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200090018-7

The government maintains employment in stagnating or declining industries by extending structural adjustment assistance.

In addition to providing housing allowances, the government supports adequate housing at reasonable prices for all citizen through low-interest credit to the housing sector and a system of rent controls. Although an average of about 100,000 housing units are completed each year, the demand for housing has continued to exceed the supply. Furthermore, the housing subsidization has at times conflicted with other aims. The construction of dwellings competes with industrial investment for scarce resources, leading to inflationary increases in costs and wages within the building industry.

Sweden's comprehensive social welfare programs are supported by high levels of direct and indirect taxation. The progressive personal income tax, first introduced in Sweden in 1902, has been repeatedly revised upward as the financial requirements of the government have increased. Although Swedish income tax rates are higher than those in most European countries (up to over 55% of gross personal income), the authorities have found it necessary to tap other sources of revenue. Indirect taxes (particularly turnover taxes and motor vehicle purchase taxes) were used increasingly during the 1960's as means of raising revenue and of reducing consumer demand. The 4% retain turnover tax was introduced in 1960, for example, and was gradually raised to 10%. In conformity with the trend prevailing in Western Europe, the turnover tax was replaced in 1969 by a value-added tax of 10% on tax-inclusive retail prices. The tax covers two-thirds of consumption expenditures, with the primary exclusion of housing, energy, medical care, and certain drugs.

To shift more of the tax burden to upper-income brackets, a reform of the entire tax system (both local and central) was effected on 1 January 1971. For the two-thirds of all taxpayers with incomes up to US$8,700, direct taxation was lowered. A common tax scale was applied for both married and single individuals, and to stimulate greater employment of women, joint tax returns for married persons were abolished. The result of these changes was a reduction of direct tax revenues, and the government sought to offset this loss by increasing the value-added tax to 15% of the tax-inclusive prices of goods (17.6% of the before-tax price).

To influence the level of investment expenditures, the government exempts corporations from corporate income taxes on a portion (not to exceed 46%) of their net income. This is accomplished by placing the tax-exempt funds in blocked accounts at the central bank, and when the Labor Market Board decides that these funds can be released for investment purposes, the firms must add the other 54%, which during the interim has been at the firms' disposal. Thus, firms are encouraged to set aside funds during a boom and invest them when the economy needs stimulation.

3. The budget

Largely because domestic transfers and subsidies have risen faster than revenues, Sweden's overall budget has generally shown deficits since the mid-1960's. These deficits typically have amounted to about one-tenth of total expenditures (including lending). They are financed primarily by borrowing from the central bank and to a lesser extent, from commercial banks. Long-term borrowing takes the form of Treasury bond issued 1 bone loans; short-term financing is accomplished through the issuance

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APPROVED FOR RELEASE: 2009/06/16: CIA-RDP01-00707R000200090018-7