Sunday 4 December 2016

Swedes counting the cost of shift to the left in higher taxes

Johan Sennero and Simon Johnson

Published 20/10/2015 | 02:30

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Wealthy Swedes face the world's highest marginal tax rates as the government begins to roll back a decade of free market reforms that made the country a favourite of investors.

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Critics say the measures will make Sweden less attractive for business and disincentivise work.

Sweden's comprehensive but costly welfare model demands high taxes, but reforms by centre-right governments from 2006 aimed at making work pay better and trimming benefits cut the tax burden to below that in France, Finland or Belgium.

Now the pendulum has swung again. The first full budget under a year-old centre-left minority government - effective from January - will see Sweden overtake the Caribbean island of Aruba as the country with the world's highest marginal tax rate, of around 60pc.

The rise in taxes that is sparking controversy in parliament, social media and newspapers.

"The government's politics are emptying people's wallets and companies' order books," said Anna Kinberg Batra, leader of the centre-right Moderates opposition party.

The National Institute of Economic Research, a government think tank, says taxes will need to rise by around SEK20bn Swedish crowns (€18.5bn) a year to maintain public services.

It says the overall tax take could rise to 45pc of economic output by 2019 from 2014's 42.7pc. Record immigration, sickness benefit costs and an ageing population could also push up spending.

"If you raise taxes again, then Sweden will be labelled again as a country where you cannot do business, it's too expensive," said Christer Wallberg, chief executive at software firm Tacton.

Under mainly Social Democratic governments in the 20th century, Sweden became a byword for high taxes, making exiles of billionaire IKEA founder Ingvar Kamprad and tennis ace Bjorn Borg. The marginal tax rate - how much of each crown a worker takes home over a certain level - reached nearly 90pc for many top earners.

When the centre-right won power in 2006 corporate rates were cut and the overall tax burden fell around 3.5 percentage points. The country boomed. Exiles like Borg and Kamprad moved home.

But the centre-left blame tax cuts for a decline in the quality of welfare and schools and a rapid rise in inequality.

Social Democrat Prime Minister Stefan Lofven's government plans to raise SEK32bn crowns by end-2016 for education, house building and job schemes.

Soaring costs for sickness benefits - seen rising 60pc to SEK51bn crowns by 2019 after the new government relaxed criteria - and mortgage tax relief could blow a hole in budgets.

Integrating 74,000 asylum seekers could meanwhile cost around 4pc of the budget in 2016. But asylum seeker numbers could easily be double the initial estimate.

The money will come from higher fuel duties, taxes on working pensioners and cutting support for firms giving youngsters a job. A home renovation subsidy will shrink and a tax on nuclear power will rise. A bank tax is in the works.

Top marginal tax rates will rise to 60pc, the highest in the world, according to KPMG, from the current 57pc. It could put people off working.

In the 1980s, many doctors chose to work part time to bring down tax rates, straining services. (Reuters)

Irish Independent

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