The move also underlines the success of the so-called "Nordic model" under which countries following Sweden have forged competitive economies with high levels of taxation and public spending. Although Swedes face some of the highest tax bills in the world, they enjoy free, high-quality school and university education, generous unemployment benefits, state- funded maternity and paternity leave and guaranteed child care. So popular is the system that Eurosceptics won their referendum campaign against euro membership in 2003 mainly by presenting the single currency as a threat to the welfare state.
The Swedish Finance Minister, Par Nuder, said there will be a "gradual" rise in taxes over five to 10 years and challenged other governments to follow suit. He told the Financial Times: "Contrary to many of my European colleagues, I dare to say what is necessary. What people are demanding from us all over Europe is that we should invest more in the public sector."
With elections next year, Sweden's centre-left government is convinced presenting itself as the champion of the welfare state is a vote-winner even if it means higher taxes.
Jens Henriksson, state secretary at the Swedish finance ministry, said: "People may be able to afford five flat-screen TVs, but what they really want is a good school for their children." He said increased taxation is necessary to pay for a predicted rise in the cost of public services over the next 30 years as the country gets richer and more demands are made on education and health care.
The Swedish government has yet to decide which taxes to increase but the cost will fall on the average citizen. Though the tax burden in 2003 was 51.4 per cent of gross domestic product - the EU's highest - corporate tax rates are low to compete with other European member states.
Mr Henriksson, who took four months of paternity leave when his second child was born - with four-fifths of his pay reimbursed by the state - said that citizens feel they are getting value for money. He said: "You start to get a popular revolt against taxes only when people feel they are paying and not getting anything for it."
And the "Nordic model", with its investment in hi-tech science, has delivered economically. Sweden's economy grew at almost 4 per cent last year with a 3 per cent increase predicted for 2005. This has been achieved with the highest rate of investment in research and development of any European country, 4.3 per cent of gross domestic product compared to 1.9 per cent in the UK in 2003.
Excellent child care has brought more women into the workplace; good schools have delivered a well-educated workforce; public spending has created good transport links, and high unemployment benefit has allowed thousands of workers to retrain and change profession.
Poul Nyrup Rasmussen, the former Danish premier and president of the Party of European Socialists, said: "Sweden, Denmark and Finland are among any list of the world's eight most competitive econo-mies. We have shown we can unite competitiveness, high social security and good welfare with good environmental standards. The right form of social security, including unemployment benefit, plus strong public sector investment in education and research make up a Nordic formula that makes us competitive. In the 21st century the most valuable thing you can have is motivated, innovative, well-educated human beings."Reuse content