Same faces, new direction as Sweden's Lofven starts second term as PM

STOCKHOLM (Reuters) - Sweden's Social Democrat Prime Minster Stefan Lofven kept his cabinet broadly unchanged as he outlined plans on Monday for a major shift to the right in policy during his second term in office, including tax cuts and labour market reforms.

A national election in September delivered a hung parliament and it took four months of wrangling before Lofven reached an unprecedented deal with the Centre and Liberals to secure a government that would not need support from the anti-immigration, far-right Sweden Democrats.

The Centre and Liberals were previously part of the opposition bloc.

"Right-wing extremists and their movements are spreading around Europe," Lofven said in his address to parliament.

"In many countries, groups with an anti-democratic agendas have even got into government. But in Sweden ... we choose a different path."

The deal will see Lofven's minority government of Social Democrats and Greens cut income taxes, free up the tightly regulated labour market and loosen rent controls as well as boost spending on welfare, schools, the police and defence.

The former welder and union leader will have to tread carefully as much of the policy platform is seen by many as a betrayal of his party's core values, while the Centre and Liberals also face a backlash for dumping the centre-right Alliance bloc.

Lofven reappointed Finance Minister Magdalena Andersson and Foreign Minister Margot Wallstrom in a broadly unchanged cabinet.

GRAPHIC: https://fingfx.thomsonreuters.com/gfx/mkt/11/5285/5252/Sweden%20government%20graphic.png

(Reporting by Stockholm Newsroom; editing by Niklas Pollard and John Stonestreet)