Swedish budget – skattesänkning

The Swedish budget was announced yesterday. The theme is “skattesänkning” – tax cuts and credits designed to stimulate employment as well as a reduction in taxes on business. The tax cuts mainly benefit those on higher incomes. There are also small tax cuts for pensioners. The Social Democrat’s economics spokesman, Thomas Östros has criticised the finance minister, Anders Borg, for experimenting with the country’s economy; Borg, in turn, criticises the Social Democrats for standing for sky-high taxes and welfare programmes.

Whilst these proposals will help to reduce the damage done by high taxes to the economy, there is little sign of an understanding that what is taxed and how it is taxed is as important as the total amount collected. The government has already cut the fastighetsskatt (residential property tax), and that led to a rise in house prices. But it is a bad property tax in any case, being based on selling prices which have bubbled up in Sweden as elsewhere, leaving people who purchased long ago and have now retired with a substantial burden.

The high quality of Swedish public sector services is appreciated by people and cannot be done on the cheap. But there is a need for reform even of the present taxes. Property taxes should be based on rental values, with their inherent stability. Sweden would also benefit from the introduction of the British system of tax-free earnings allowances, which helps to reduce the disincentive of the unemployed to go to work, whilst at the same time reducing the cost of employing the unskilled. The lack of a tax-free earnings allowance would explain why there are all sorts of menial tasks in Sweden where expensive electronic systems are doing things that would better be done by people. It makes no sense when real unemployment is running at an alleged 20%, four times the official figure, and where the economy is about to be hit by recession.

Of course Sweden, like everywhere else, would benefit from a shift from present taxes to LVT (jordvärdeskatt), but the movement for this reform which was established in the years before World War 1 never gathered force and Sweden went in for a comprehensive system of social welfare and public ownership paid for by high taxes. But the high taxation was not sustainable as it was damaging the economy, so tax-cutting politicians have been popular – until the welfare cuts have to be made. People want the welfare without the high taxes on their wages, something which LVT could allow them to have.