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- Sweden heads to the polls on Sunday as the Northern European country faces both higher structural defense spending and growing welfare demands.
- Economists warn that politicians’ election promises face a “hard crash” with fiscal reality, regardless of who wins the election.
- Sweden’s center-left opposition parties, fronted by the Social Democrats, have had a meaningful lead in most polls in the run-up to the election, but that lead has since narrowed.
Whoever wins Sweden’s general election on Sunday will face an unusually difficult financial equation with a structurally higher defense bill, growing demands on the welfare state as well as shrinking room to pay for both.
That challenge comes as Russia’s war in Ukraine grinds through its fifth year, and uncertainty over U.S. President Donald Trump’s commitment to European security adds pressure on the continent to shoulder more of its own defense burden.
Yet neither Russia nor Trump has featured prominently in the election campaign. Instead, voters have focused largely on domestic concerns including health care, schools and household finances, even as economists warn that the next government will have considerably less room to deliver on its promises.
“We do see a lot of election promises, like we usually do in an election campaign,” SEB Chief Economist Jens Magnusson told CNBC. “But I do think that it will be a rather hard crash when these promises meet with the reality after the election.”
While domestic issues dominate the vote, the next government will inherit fiscal and security commitments that leave it with limited room to maneuver.
Sweden’s center-left opposition parties led by the Social Democrats have had a meaningful lead in most polls in the run-up to the election. But that lead has narrowed as the current government led by the Moderate Party’s Ulf Kristersson mobilized support among Swedes.
The government holds support from the far-right Sweden Democrats, which the center-left has refused to collaborate with, and the makeup of any government coalition post-election remains up in the air.
“We will have to prioritize defense spending for quite some time,” Magnusson said. “We will have to prioritize Ukraine, and we cannot continue to both cut taxes and increase spending, and just borrow the difference.”
A changed security environment
Sweden joined NATO in March 2024, abandoning more than two centuries of military non-alignment in the wake of Russia’s full-scale invasion of Ukraine.
NATO members last year agreed to significantly hike defense spending to 3.5% of GDP by 2035, alongside an additional 1.5% for defense- and security-related spending.
Sweden’s military expenditure rose sharply between 2022 and 2025, according to the Stockholm International Peace Research Institute, as the country embarked on a major rearmament drive.
Despite that transformation, foreign policy has been largely absent from the electoral debate. Political scientists say the reason is not that security has become less important, but that there is relatively little disagreement among the major parties over Russia, NATO or continued support for Ukraine.
“The signal being sent by effectively all parties is that Swedish voters will have to get used to defense being a much larger part of the budget,” Jonas Tallberg, professor of political science at Stockholm University, told CNBC.
“It’s about how we should fund defense, rather than whether Sweden should invest in defense as such,” he said.
That leaves the next government faced with the question of what ultimately pays for a permanently larger defense bill.
“The rising levels of defense spending that we’re seeing in Sweden and in many other parts of Europe have to be at the expense of something, and typically aspects related to the welfare state or, for that matter, foreign aid,” Tallberg said.
Swedbank Chief Economist Mattias Persson similarly acknowledged a trade-off between defense and welfare spending, while noting that policymakers regard security as a prerequisite for maintaining the welfare state.
“We can’t have welfare if we can’t have secure borders,” Persson said, adding that scarce resources ultimately have to be prioritized.
Russia and Trump
While Russia remains the fundamental driver of Sweden’s rearmament, Trump’s approach to NATO has added another dimension.
European governments are both building their capabilities to deter Russia while also preparing for the possibility that they may have to shoulder more of the continent’s security burden themselves.
Tallberg said one part of Sweden’s defense investment was aimed at building the capabilities needed to deter potential Russian aggression. The other was aimed at strengthening the “European pillar of NATO” at a time when European allies are less certain they can count on continued U.S. commitment to the alliance.
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Magnusson similarly cautioned against attributing Sweden’s defense buildup primarily to Trump. Russia’s invasion of Ukraine and Sweden’s subsequent entry into NATO would have pushed defense expenditure higher regardless, he said, although pressure from Washington has added to that shift.
“It is a rather tricky situation,” Magnusson said. “I don’t think you can blame it all on Trump, but he certainly hasn’t helped.”
Trump’s trade policies present another source of uncertainty for Sweden’s small, export-dependent economy, although both Magnusson and Persson said the impact so far has been less severe than initially feared.
And Trump himself is unlikely to determine many votes on Sunday.
“Swedes will not go to the polls thinking about Donald Trump’s effects on Sweden,” Tallberg said, because the parties are “essentially on the same page with respect to how Swedish foreign policy should be conducted.”
Limited fiscal headroom
Sweden enters the election from a relatively strong fiscal position. Government debt remains low by international standards at 35% in 2025 and is forecast to rise to 39% this year, while Swedish households’ disposable incomes have held up well.
But both SEB and Swedbank say the next government’s room for unfunded reforms will be considerably tighter than in recent years.
Magnusson said the government had deployed around 80 billion Swedish kronor ($8.3 billion) in unfunded reforms this year, alongside another 45 billion to 50 billion kronor in defense spending and support for Ukraine outside the normal fiscal framework.
That approach has allowed Sweden to increase domestic spending and cut taxes while simultaneously financing its security commitments. But Magnusson said it cannot continue indefinitely.
He expects higher defense expenditure to be a structural shift, lasting at least the next five to 10 years. Eventually, he said, that means higher taxes, lower expenditure elsewhere or greater debt.
Swedbank’s Persson also said Sweden can currently afford to maintain its welfare state, increase defense spending and preserve sound public finances. But over the coming years, he argued, defense expenditure needs to be brought back within the country’s normal budget process.
That fiscal constraint collides with an election campaign focused heavily on domestic spending.
Jan Teorell, professor of political science at Stockholm University, said foreign policy has historically played little role in determining Swedish elections. That remains the case despite NATO membership representing a historic break with the country’s long tradition of military non-alignment.
Instead, “it seems like this could be more of a welfare election than we’ve had for quite some time,” Teorell told CNBC.
Migration and law and order remain important to voters, he said, but welfare issues have increased in terms of their importance to voters.
At the same time, both SEB and Swedbank point to strong household finances, creating another paradox in an election dominated by promises aimed at easing pressure on voters’ wallets.
“Both in Sweden and in the U.S., households usually think that inflation is much higher than it actually is,” Persson said.
Teorell pointed to measures introduced by the government to cushion households from the economic fallout of the U.S.-Iran war and disruption around the Strait of Hormuz, suggesting those interventions may have helped push purchasing power further up the political agenda.
“Maybe that sort of started some kind of snowball rolling, and the other parties latched on,” Teorell added.
The promises may be easier to make before the election than to deliver afterwards.
“No matter who is actually putting these promises out there, I think they will all have to be somewhat moderated after the election,” Magnusson said.
