STOCKHOLM, Sept 28 A proposal to cap private
companies' profits in Sweden's tax-funded welfare sector would
likely breach of EU law, legal experts said, increasing the
chance the centre-left government's goal of curbing big business
will be watered down or abandoned.
Shares in companies like healthcare provider Capio
and school operator AcadeMedia have been
under pressure since a leaked report in August that a government
study would propose an inflation-indexed profit ceiling of 8
percent on invested capital for tax-funded welfare firms.
Investigator Ilmar Reepalu who will publish the
investigation on Nov. 8 said a profit cap could be introduced
without breaking any laws.
But experts say authorities would face a stream of legal
"The foundation of EU is that everybody is treated equally.
That's not the case here when companies who make a certain
profit can't be part of a public procurement," Andrea
Sundstrand, assistant professor at Stockholm University, said.
"Sweden cannot make up its own exceptions (to EU law), that
has to be done in Brussels, together with all member states."
With the threat of a profit cap fading, a 2.1 billion
Swedish crown ($245 million) IPO of shares the Internationella
Engelska Skolan IPO-ENGEL.ST was 25 times over subscribed on
Thursday. CEO Ralph Riber said the leak of the 8 percent cap was
"just a trial balloon from the investigation to gauge the
In 2014, Swedish regions and municipalities bought services
for almost 120 billion crowns from private welfare companies,
double the level from eight years earlier.
But reports of abuse in care homes and pupils shut out of
bankrupt schools, coupled with rich pickings for firms offering
housing for asylum seekers have provoked widespread anger in
Sweden and the minority centre-left coalition has promised to
Private equity companies, with funds often based in offshore
tax havens and which own many welfare firms, have come under
Prime Minister Stefan Lofven has said tax money should not
"go to the Cayman Islands".
The government study estimated a cap of 8 percent would cut
profits by around 15 billion Swedish crowns ($1.76 billion).
But the proposal has attracted widespread criticism.
"If implemented, it will lead to a nationalisation of
Swedish welfare," said opposition Center Party leader Annie
Daniel Stattin, professor in company law at Uppsala
University, said watertight legislation would be hard to frame
while accounting loopholes would make any such law easy to
"It would complicated, hard to apply and would be nothing
but a pointless gesture," he said.
Lofven will also struggle to get such a bill through
parliament. The Moderates - the biggest opposition party - and
the anti-immigration Sweden Democrats have said they would vote
against a deal.
Centre Party leader Loof said her party would not support a
profit cap, but was willing to cooperate with the Social
Democrat-Green government on ways to improve standards in
The Moderates have also called for stricter quality
standards to be written into contracts between the public and
private sectors and for a special license for welfare service
The Social Democrats, however, remain loath to drop the
voter-pleasing threat to big business and Ardalan Shekarabi,
Minister for Public Administration said the government is still
considering a profit cap.
"Yes, if it is a solution to the problem we see and if the
negative consequences are not that big," he said.
($1 = 8.5665 Swedish crowns)
(Reporting by Johan Sennero; Editing by Simon Johnosn)