STOCKHOLM (Reuters) - Fredde and Mickan own a waterfront mansion in the Stockholm suburbs, hire Polish help and have endless cash to spend on state-of-the-art barbecues and designer labels.

People participating in the class war safari observe buildings at the upper class district at Solsidan in Saltsjobaden near Stockholm in this January 28, 2012 file photo. REUTERS/Anders Wiklund

They are only characters in “The Sunny Side”, a popular Swedish television series, but they drew so much attention to their wealthy neighborhood that an activist group called “Everything for Everyone” chose it for a class war safari.

The tour of the “rich man’s ghetto” promised to “cultivate your class hatred”. It was a one-off and participants were pelted with eggs but it sparked a soul-searching over growing income disparities in a country known for egalitarian values.

“I think many people would say this is the loss of one part of Swedish identity,” said Michael Forster, a senior policy analyst at the Organisation for Economic Cooperation and Development (OECD).

Sweden has seen the steepest increase in inequality over 15 years amongst the 34 OECD nations, with disparities rising at four times the pace of the United States, the think tank said.

Once the darling of the political left, heavy state control and wealth distribution through high taxes and generous benefits gave the country’s have-nots an enviable standard of living at the expense of the wealthiest members of society.

Although still one of the most equal countries in the world, the last two decades have seen a marked change. Market reforms have helped the economy become one of Europe’s best performers but this has Swedes wondering if their love affair with state welfare was coming to an end.

The real tipping point came in 2006 when the centre-right government swept to power, bringing an end to a Social Democratic era which stretched for most of the 20th century.

Swedes had grown increasingly weary of their high taxes and with more jobs going overseas, the new government laid out a plan to fine-tune the old welfare system. It slashed income taxes, sold state assets and tried to make it pay to work.

Spending on welfare benefits such as pensions, unemployment and incapacity assistance has fallen by almost a third to 13 percent of GDP from the early nineties, putting Sweden only just above the 11 percent OECD average.

At the other end of the spectrum, tax changes and housing market reforms have made the rich richer.

Since the mid-80s, income from savings, private pensions or rentals, jumped 10 percent for the richest fifth of the population while falling one percent for the poorest 20 percent.

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RICH MAN, POOR MAN

Critics say the changes have left many behind.

In a small, dim room in central Stockholm, about 20 homeless Swedes huddled together for an hour-long radio show which they produce weekly to raise awareness of those on the streets.

“The soul of a man” - a song from the Great Depression in the United States - plays in between speakers and poetry readings while they warm up with free coffee and hot dogs.

At a waterfront conference centre across town, the head of the region’s biggest bank defended the hefty profits banks are making on housing loans.

The CEO himself will soon be moving into a more than $3 million apartment which the bank recently purchased in one of Stockholm’s ritziest neighborhoods.

Eurostat said recently that after Bulgaria, Sweden had the second biggest rise in the percentage of its population deemed at-risk-of poverty.

Jenny Lindroth, who runs the social department at Situation Sthlm, a magazine sold by the homeless and addicts, says welfare changes are hurting the vulnerable. “Some people can’t live up to it, they can’t take it, they can’t handle it,” she said.

The number of people selling Situation has more than doubled to about 500 in five years and they are getting younger.

A recent study by the National Board of Health and Welfare showed a 25 percent jump to 4,500 in the number faced with “acute” homeless situations - those who required emergency accommodation, shelter or slept outdoors - compared with 2005.

NO UTOPIA

These diverging pictures of Sweden are increasingly common and are also being seen in neighboring Finland and Denmark, albeit at a slower pace.

“I certainly don’t think Sweden is a utopia. Sweden has become much more of a fairly normal European country,” said Stefan Folster, chief economist at the Confederation of Swedish Enterprise.

On the class war safari, participants were first bused through a neighborhood south of Stockholm, where some 10 percent of the residents are on social benefits.

Then they headed to “The Sunny Side”, stopping by a luxury hotel next to a marina which is packed with gleaming yachts in the summer before viewing sprawling villas in the area.

“The differences were just so completely clear in these two areas,” said 28-year-old Anna Svensson, one of the organizers. “We wanted to show what it really looked like, and where the money and the power can actually be found.”

The tour was heavily criticized. A columnist for the daily Dagens Nyheter called it “a dangerous experiment in group hate”.

“It feels like we are being treated like animals,” a teenager from the area interviewed by Swedish television.

Some believe the latest trends in Sweden may hurt the centre-right government, especially if unemployment, running near 8 percent, remains high as the country heads towards new elections in 2014.

“This is going to be ammunition for the opposition in Sweden,” said Soren Holmberg, a political science professor at Gothenburg University.

He believes there is still fundamentally strong support for the welfare state and that the jobless rate and changes to benefits such as healthcare will be increasingly in focus.

The government has defended its policies. Finance Minister Anders Borg called the rising income gap “troublesome” but said it was still low relative to other countries.

“While it is important to have a cohesive society, growth and social flexibility are also important, so those must be balanced,” he said.

Markus Jantti, a Professor of Economics at Stockholm University’s Swedish Institute for Social Research, fears Sweden will see a long period of rising inequality.

“The question to be asked is, how big growth in differences across the distribution are we willing to see... By the time we are finished with this it may well be the loss of Swedish identity,” he said.

($1 = 6.7640 Swedish crowns)