LVT developments in Sweden

Land value taxation never gained the political support in Sweden that it attracted in Denmark. In Sweden, Social Democratic parties, largely backed by trade union movements, went down the Fabian socialist path of taxation of wages, and an all embracing welfare state. It is a model that reached its zenith in the two decades after the war. It was practicable at the time because the country had come out of the war undamaged; its industry was well placed to participate in the post war reconstruction of Europe. The tax system was geared to an economy with stable employment, dominated by large scale industrial employers and a big public sector.

The problem with this model is that it gradually kills off the geese that lay the golden eggs, while at the same time imposing ever increasing demands for the services that the state provides. This was already apparent by the mid-1970s. Successive governments have wrestled with the problem ever since. Although it largely succeeded in abolishing the underclass which persists in Britain – no trivial achievement – the gain was thrown away after the 1980s – when Swedish governments hubristically thought that although Sweden was a small country, it could play the role of a humanitarian superpower.

Successive Swedish governments adopted a policy of allowing in unlimited numbers of migrants from the Balkans and Middle East, thereby re-creating an underclass, but no means for them to participate in the economy. The geese that laid the golden eggs had flown; IKEA, for instance, is now a Dutch company which manufactures most of its products in countries like China, Bangladesh and Vietnam. The main political parties have no solution to this intractable state of affairs, which has led to a collapse in confidence in politics, politicians and the entire political system. Most people try to avoid thinking about it but youth unemployment, crime, and the decline in the quality of public sector services such as schools, hospitals and elderly care, accompanied by ever-rising taxes, impinges sooner or later on everyone and cannot be ignored.

At the last general election in 2018, the socialist government was voted out but held on to power; the next one however, in 2022, is likely to bring about a change in government, though whoever is elected has no policies for dealing with the situation where taxes are well above the limit of what can be levied without harming the economy, while at the same time calls on the public purse rise inexorably. Furthermore, the economic structures of the 1940s are no more. Employment is no longer stable and the large scale manufactures have largely departed.

The pressing nature of the immediate problems do not create not fertile ground for land value taxation, but the idea turns up now and again: there was a favourable article by Özge Öner in Svenska Dagbladet (SvD) on 8th October 2020 and another, on 5th May, also in SvD, by Åsa Hansson of the University of Lund. The other Swedish national daily, Dagens Nyheter, joined in on 15th May, with a piece by Lars Marcus and Holger Wallbaum, academics in the Department of the Built Environment at the Chalmers Technical College in Gothenburg.

While nothing is likely to happen within the next few years, it seems as if the slowly developing crisis is prompting academics and specialists in the field to take a serious look at this reform in a way that would be inconceivable in Britain, where it is definitely a forbidden topic. At this stage, it is important that advocates of land value taxation have a clear idea of what it is, what it is not, and what it can achieve.

• LVT is not, and cannot be, a tax on increases in land value. This approach was the downfall of the land value tax which was proposed by the Liberal government in Britain immediately before the First World War. It demands the establishment of a base set of land values at a particular point in time. It is also conceptually unsound, since all land values are continually sustained by the presence and activities the community. The opening of new infrastructure does indeed give rise to a one-off increase in land values in the areas served, but, for example, although much of Gothenburg’s tram network is a century old, the track and overhead wiring still has to be maintained and renewed so as to help sustain the land values in the city.

• LVT is a tax not on land price but on land rental value ie the annual value of the land, this annual value including the taxes themselves. Annual rental values were the basis of the property tax system (local rates) as it operated in Britain before 1988. Although LVT is widely levied on selling prices, the practice is conceptually unsound, as explained in this article and several others on this website.

• One of the political advantages of rental value LVT assessment is that rents rise broadly in line with wages and are not subject to the wild fluctuations that are seen with land prices in the course of boom-slump cycles. Prices in recent years have been kept artificially high by low interest rate policies; owners are naturally fearful of having to pay taxes based on these artificially high prices.

• LVT must be accompanied by reductions in other taxes, since they are competing for the same revenue stream. Existing taxes on wages, profits, goods and services cut into land value and hence reduce the size of the land value tax base.

• Left wing supporters of LVT need to understand that LVT can not be one more tax on top of all the others.

• Right wing advocates of tax cuts need to understand that if they want them, even if they believe in what they call the “small state”, the minimal services have to be paid for by some form of tax and that the only tax which does not give rise to collateral damage is a properly conceived land value tax. They also need to understand that a substantial part of the public sector burden consists of spending needed to mitigate the damage done by the tax system itself.

• The necessity for tax cuts is, or ought to be, one of the features of LVT which would make it attractive to voters. There is plenty of scope in Sweden, where the earnings threshold for income tax is tiny and there is no registration threshold for Value Added Tax, currently levied at a swingeing standard rate of 25%; even the tiniest one-man business has to register and necessities such as food and fares are subject to the tax at a rate of 12%.

• A switch from existing taxes to LVT reduces the overall burden of tax on marginal locations ie where land value are low. This would help to arrest the migration of people and business to the conurbations, thereby reducing pressure on housing and the need for the endless and very costly building of new infrastructure.

• Effective integration of migrants to the Swedish economy can not be achieved in the absence of substantial earnings and VAT registration thresholds, enabling low paid workers and small business to operate without having to deal with the tax authorities. If an LVT system is applied, this results in no loss in revenue as the increased volume of economic activity leads to higher rents and a growth in the LVT tax base.

• LVT prevents the revenue losses associated with the flight of better-off people from cities such as Gothenburg. Local revenues are vulnerable when communes are funded by local income taxes instead of property taxes.

This is an opportune time to develop a firm set of proposals for the implementation of LVT when the need is more widely recognised. LVT advocates need to get together, understand how the system would work, what pitfalls to avoid, how to present the arguments and counter the opposition, and in particular, to get advice from the valuation professionals at the Swedish National Land Registration Agency (Lantmäteriet). In this way, a practicable and properly thought-out system can be prepared for a roll-out if the opportunity arises.