“Sweden should consider flat tax”

Dagens Nyheter has called on the government to consider abolishing progressive income tax, and replace it wth a single rate.

The debate has been sparked by the revolution that is taking place in the tax systems of some of Sweden’s neighbouring countries. Estonia was the first country to adopt “flat tax” rates in 1994. Subsequently other states such as Latvia, Lithuania, Russia, Slovakia, Ukraine, Georgia, Romania and Serbia have followed suit.

Opposition parties in Poland and the Czech Republic want to introduce flat taxes. Flat taxes mean that the same percentage of tax is levied on all income. In Estonia for example a single uniform rate of 26% is levied on personal and corporate income and no deductions are permitted. The Estonian economy has thrived since the introduction of flat tax rates.

The Economist newspaper has recently examined this issue in a special report. According to the Economist, flat tax codes make tax systems more efficient and result in broader economic benefits.

Dagens Nyheter devoted an editorial to the flat tax issue in Sunday’s edition. Sweden has a progressive tax system whereby those with higher incomes pay a much greater percentage of their income in tax. Those earning more than 26 000 SEK a month are subject to state tax.

When the Swedish tax system was reformed 15 years ago there was some support for implementing a flat tax system however it came to nothing as groups such as LO were opposed.

Now DN has called on Swedish politicians to take another look at the issue. There are good reasons to do so, it argues. Firstly flat taxes make it more worthwhile to work and become skilled, hence leading to higher economic growth. Secondly flat taxes reduce bureaucracy, simplifying matters for both the authorities and individuals. Thirdly, politicians will no longer be in a position to introduce arbitrary changes to tax scales which have unfair consequences. DN argues that old Europe has much to learn from new Europe on taxation matters.

David Murphy

David Murphy is managing director of Word of Mouth Communications