Sweden's message: Taxes, debt, welfare can be balanced

The United States will never be able to afford the kind of welfare benefits enjoyed by Europeans unless it raises taxes, says Swedish Prime Minister Fredrik Reinfeldt.

"It's not sustainable for a country to try to have European levels of expenditure with taxation levels like the United States has," Reinfeldt said last week during an interview. "That's not possible."

Cradle-to-grave welfare doesn't need to erode public finances, so long as a sustainable revenue policy is in place, Reinfeldt said. Sweden has the largest Nordic economy and also the second-highest tax burden of industrialized countries after Denmark, but it has reduced its debt load as a percentage of gross domestic product every year since 2009. The U.S. has the fourth-smallest tax burden relative to GDP, after Mexico, Chile and Turkey, according to figures provided by the Organization for Economic Cooperation and Development.

In the United States, lawmakers have struggled to strike a balance between spending and taxation, bringing Congress close to testing the nation's debt ceiling twice since 2011.

"You have to take a decision on what path to follow," Reinfeldt said. "That kind of deficit is not sustainable for any country and not for the United States, either."

Global investors say the state of the U.S. government's finances is the greatest risk to the world economy, and almost half are curbing their investments in response to continuing budget battles, according to a Bloomberg poll this month. Thirty-six percent of respondents cited the U.S.'s fiscal woes as their biggest concern, compared with 29 percent who cited Europe's debt crisis.

A failure in the United States to rein in its deficit "long-term could put pressure on the world economy," Reinfeldt said.

The European Commission in November estimated that Sweden will post a budget deficit of 0.3 percent of GDP this year, compared with a 7.3 percent shortfall for the U.S.

Sweden emerged as a haven from Europe's debt crisis and is using its budget strength to stimulate economic growth this year as exporters such as truckmaker Volvo AB suffer.

Reinfeldt's government in September said it will spend about 0.7 percent of GDP on new initiatives this year, including infrastructure, research and a corporate tax cut to 22 percent from 26.3 percent.