Sweden to abolish wealth tax

Wealth tax is to be abolished in Sweden this year, the leaders of the four parties of the ruling Alliance have promised in a surprise move.

The reform will be financed partly through limiting tax breaks on private pensions.

The proposal to abolish wealth tax will be put forward in the government’s spring programme, due to be released in a few weeks, the party leaders wrote in a joint article in Dagens Nyheter.

Prime Minister and Moderate Leader Fredrik Reinfeldt wrote together with the Liberals’ Lars Leijonborg, the Centre Party’s Maud Olofsson and Christian Democrat Göran Hägglund. They pointed out that Sweden is one of only four OECD countries to tax wealth. Sweden could lose its competitive edge if the tax remains, they said.

Finance Minister Anders Borg has previously said that it would take several years to abolish wealth tax. Borg said on Wednesday that he had not made a u-turn, claiming that he had not wanted to make an announcement until the cut had been financed.

“We have now found a way of financing this so that we can do this in a good way,” he said.

Asked who gains from the proposal, he said:

“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,” he said.

Wealth tax is today 1.5 percent on amounts over 1.5 million kronor ($215,000) for single people. For cohabitees and married couples this amount is 3 million. The state’s takings from wealth tax were 4.8 billion kronor in 2005.

The abolition of the tax will partly be funded by limiting the size of tax reductions on pension savings. Today someone earning up to 400,000 kronor a year can deduct about 20,000 kronor for money paid in to pension funds. People who earn more can deduct up to five percent of income up to a maximum of about 40,000 kronor. The government will now cap deductions to 12,000 kronor per person per year.