Sweden's new center-right government has axed the country's wealth tax, decades old uninterrupted symbol of the left-wing rule.
The eradication of wealth tax is said to be based on limiting tax breaks which ought to be released in the next year's budget. Up until now, there has been a unique 1,5 percent tax rate on personal above SKr 1,5 million for singles while the level for cohabitees and marriage couples equals SKr 3 million. In the previous year, government collected SKr 4,8 billion from wealth tax. It is estimated that nearly SKr 500 billion venture capital is out of the country. The wealth tax has contributed to the low level of Sweden's investment and disappointing entrepreneurial activity until first fiscal and structural reforms were imposed in the early 90s. Among EU25, Sweden ranks 18th in terms of the percentage of citizens running their own business.
Sweden is one out of four OECD countries which tax personal wealth. Sweden's uniqtue wealth tax was introduced in 1947 and has left damaging consequences ever since as capital flight and brain drain skyrocketed. It taxed capital gains, luxury goods, inheritance and the well-off. Bjorn Borg felt compelled to move to tax-haven principality of Monaco, a residence to many successful Swedish individuals such as Anja Paerson, Kajsa Bergqvist and Christian Olsson. In the past decades, the wealth tax combined with complex, progressive and confiscatory taxation of corporate and individual income, many successful Swedes left the country. Ingvar Kampard, the founder of IKEA (Swedish global furniture store) was forced to leave Sweden to avoid the tax and setup overseas foundations managing his wealth. Mr. Kampard remembers those dark days of confronting tax bureaucrats in 1970s: "They said that all I want is profit and I replied that I was giving people jobs." In the last decade, several European countries have completely abolished wealth tax including Netherlands, Denmark and Finland.
The abolition of the wealth tax is a good step in a way of absorbing Swedish entrepreneurial potentials and reducing the overall tax wedge and burden in the share of the GDP. In empirical literature, there is hardly any strong evidence on the justification of wealth tax. In fact, wealth tax usually taxes goods with high price elasticity; mostly luxury goods which easily exercise tax avoidence and thus the negative side-effect of wealth tax tripples. Wealth tax burdens the productive behavior which is the basis of human capital creation, resulted in economic growth, structural advancement and stronger innovative capacity to absorb real competitive advantage and translate it into growth effort. It means fewer incentives to launch growth ideas and more incentives to avoid paying punitive taxes. The effect of the wealth tax, also negatively affects stock index and companies listed hardly see any particular reason to work on increasing capital gains and dividends to shareholders as an additional unit of capital accumulated means an additional tax burden to it.
Here's what experts say on the abolition of 'wealth tax':
"The big winners are, in the long term, all Swedes, because we need to have the conditions for jobs and companies necessary to match global competition. One issue is that little money stays in the country. There has been a big discussion in recent years about how globalization makes capital more and more non-national and harder to keep within national boundaries. This is a symbolic as well as a real move. It is important to have entrepreneurs and to offer them finance from other entrepreneurs. This will have a real impact on the willingness to invest."
- Anders Borg, Swedish Minister of Finance
"Many of those who made money here have made it from starting and building businesses and are keenly interested in supporting new businesses and young entrepreneurs."
- Tom Bergen, Swedish Venture Capital Association
"This is another step towards Sweden becoming a normal country."
- Maria Rankka, Timbro
Here's what you can read about this topic:
Sweden plans to scrap decades-old wealth tax in a move to stay competitive, Canada.com (link)
Sweden to abolish wealth tax, The Local (link)
Sweden axes wealth tax, Financial Times (link)
The Effect of Stock Prices of the Swedish Wealth Tax (link)