STOCKHOLM – Gone are the days when Sweden was the undisputed world champion of high taxes.
"We are not even top three anymore," boasts Prime Minister Fredrik Reinfeldt, reflecting on the tax cuts that have defined his eight-year rule — the longest ever for a conservative leader in Sweden.
Polls before a parliamentary election on Sunday show voters could shift back to the left amid worries that Reinfeldt's smaller-government policies have undermined Sweden's famed welfare model.
Many Swedes say they no longer recognize the country once considered the quintessential welfare state — an almost classless society where high taxes supported a generous social safety net.
Instead, Sweden now has become an inspiring example to conservative leaders like British Prime Minister David Cameron, who is a friend of Reinfeldt.
"They have sold out our country," said Jens Evaldsson, a 39-year-old Stockholm artist with a fluffy beard and a firm dislike of Reinfeldt's government. "The rich are getting richer and things are getting worse for the poor."
The pro-market reforms didn't start with Reinfeldt, 49, but have accelerated during his two terms in office.
Since it took power in 2006, his center-right coalition government has cut income and corporate taxes, abolished a tax on wealth, trimmed welfare benefits, eased labor laws and privatized state-owned companies, including the maker of Absolut vodka.
Meanwhile, the gap between rich and poor has grown faster in Sweden than in most developed countries, though it remains among the world's most egalitarian, according to the Organization for Economic Cooperation and Development.
Sweden's tax-to-gross domestic product ratio is now the fifth highest in the developed world at 44 percent, down from 48 percent (second-highest after Denmark) when Reinfeldt took office, according to the OECD.
Swedes continue to enjoy free education, heavily subsidized health care and generous welfare benefits, including 16 months of paid parental leave.
But the government's influence on people's lives has decreased significantly. More private actors run publicly funded schools and hospitals. The government still controls liquor stores, but has ended its monopoly on pharmacies.
"All the kinds of choices that I was not given when I was young, or my parents, are now there," Reinfeldt told a small group of reporters last week at the government headquarters in Stockholm. "You can now choose your kindergarten, your school, your health care, your elderly care."
The problem for Reinfeldt is a lot of Swedes don't seem to like all that choice.
Even though his government has won praise internationally for keeping Sweden's economy intact during Europe's financial turmoil, at home the perception has taken root that he's selling out the welfare system to greedy capitalists.
Negative headlines have dominated the Swedish media: privately run schools shutting down because of mismanagement by profit-hungry owners; elderly homes cutting back on adult diapers to minimize costs.
Reinfeldt's government is struggling to change that narrative, and polls show his four-party coalition trailing the Social Democrat-led opposition bloc by 5-10 percentage points.
Social Democrat leader and prime minister-candidate Stefan Lofven blames the government also for the declining performance of Swedish schools in international surveys and for failing to reduce the unemployment rate, which has remained steady at 8 percent in recent years.
"A lot of people are wondering what's going on in Sweden," Lofven told The Associated Press after a debate Wednesday. "What's at stake in this election is whether we should continue to cut taxes and privatize, and think that's the solution to Sweden's problems."
Though his answer is "no," he's not ready to roll back some of the government's most popular reforms, including tax cuts for middle-income earners. Lofven, 57, says he would raise income taxes only for people earning more than 720,000 kronor ($100,000) a year.
Even if the opposition wins the election, the result is likely to be among the worst ever for the Social Democrats, who once got up to 50 percent of the votes. Now they have around 30 percent and depend on the backing of the environmentalist Greens and the ex-communist Left Party.
Another game-changer is that Sweden no longer bucks the European trend of far-right parties gaining ground. Polls show the anti-immigration Sweden Democrats, who entered Parliament in 2010, could nearly double their support to 10 percent.
A once-radical far-right group that has softened its image, the party is alone in opposing Sweden's generous welcome to refugees from Syria, Iraq and other conflict zones. This year, Sweden expects up to 80,000 asylum-seekers, the highest number since 1992.
Both blocs shun the party and are expected to reach a compromise in case neither side wins a majority, to avoid giving the Sweden Democrats the balance of power.
In a campaign speech, Reinfeldt urged Swedes to "open your hearts" and accept that the increasing cost of admitting refugees, who are offered free housing and a small daily allowance, will restrict the budget for the next government.
"What's unusual with Sweden is that even a conservative leader like Reinfeldt speaks in glowing terms about a generous refugee policy," said Ulf Bjereld, a political science professor at the University of Gothenburg. "Even if it's going to cost a lot of money."
Karl Ritter can be followed on Twitter at http://twitter.com/karl_ritter