Thursday, April 12, 2007


Despite high taxes, and rigid labor markets, investor coming to Sweden may find an astonishing business environment surrounded by a high degree of business freedom and astonishing business environment in several areas. The difficult of enforcing commercial contracts, determined by following the evolution of a payment dispute and tracking the time (208 days), cost (5,9% of the debt), and number of procedures (19) involved from the moment a plaintiff files the lawsuit until actual payment, is minimal perceived by a broad international perspective. Foreign and domestic investment inflows have been quite a concern in the previous years for Sweden. In the first half of 2005, the foreign direct investment inflow rate fell to zero. In Sweden, no new net jobs have been created since 1950 (link). The multiple effect of the distortion caused by high taxes had been translated into a rigid investment framework squared by the failure of public administration which, in Sweden, has the lowest input efficiency ratio, behind the majority of its counterparts in Western Europe. In the long-run perspective, Sweden cannot rely on strong productivity growth only. Major improvements made in 1990s are largely the outcome of an accelerated deregulation. The latter has enabled companies to catch-up and to overtake global counterparts in high-growth sectors such as ICT and telecommunications. If the economic policymakers will postpone the economic reforms, the catch-up effects of deregulation will soon disappear. Aging population and its demographic effects will pressurize Swedish public sector unless its overall productivity improves.

Swedish policymakers abolished the wealth tax imposed on assets in 1947, an interrupted symbol of Keynesian economic policy, which launched in 1932 when the country stepped onto the road of socialism. Wealth tax was levied on assets above 1.5 million kronor ($215,000) for singles and three million kronor for couples. The current rate is 0.75%, down from 1.5% last year. That's on top of income taxes, which range between 29% and a top marginal rate of about 60%. Wealth taxes used to be de rigueur in Europe, where there are only a few holdouts. France's is between 0.5% and 1.8% on assets above $1 million. In Spain, it's 0.2% to 2.5% on assets above $223,000. Several mega-rich individuals left the country including Swedish tennis star Björn Borg, ABBA’s Björn Ulvaeus, and the founder of Ikea, Ingvar Kampard. In early 90s, when the economic performance was marred by a falling level of the GDP, rising unemployment and high inflation, several economic reforms imposed liberalization on a broad range of product markets such as telecommunications and ICT industry. Those on the left, who have sought economic guidance from egalitarian Sweden, need to browse for a new role model. Recent tax reforms, focused on matching the conditions to spark economic growth and capital creation, have already come into effect. These days, Stockholm is flourishing by taking the benefits of lower tax rates and reduced tax burden followed thereby. In the early period after initiating long expected economic reforms, investment inflow rate increased unexpectedly, fueling the innovative capacity of Swedish economy which is luckily back on normal track, with many challenges yet to come-up in the future.

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