Wealth tax abolition widely welcomed

Sweden will abolish its wealth tax this year to boost investments and create jobs, Prime Minister Fredrik Reinfeldt said Wednesday, the latest in a slew of reforms announced since his centre-right government ousted the Social Democrats from power six months ago.

The move was broadly welcomed in political and business circles.

“We will propose to abolish wealth tax as of 2007 in our spring budget bill,” Reinfeldt, the leader of the conservative Moderate Party, wrote in an article published in daily Dagens Nyheter.

The article was co-signed by the heads of the three other government coalition partners, Maud Olofsson of the Centre Party, Lars Leijonborg of the Liberals and Göran Hägglund of the Christian Democrats.

The spring budget bill, to be presented to parliament on April 16, is traditionally a revision of the autumn budget.

The move is aimed at attracting risk capital investments, which would helpcompaniesgrow and increase employment, the government said. Job creation has been the centre-right government’s primary objective since coming to power.

“We hope to give a boost to the desire to invest in Sweden, in order to create conditions for new, expansive companies and create more new jobs,” the four party leaders wrote.

They quoted tax authorities as saying that Swedish capital worth about 500 billion kronor ($72 billion) is currently placed abroad for tax reasons.

Finance Minister Anders Borg said Sweden also needed to keep pace with developments in other countries.

“When one country after another abolishes wealth tax, and we are left as one of the few countries to still have it, then you have to take this kind of decision,” he said.

The government said that of the 30 members of the Organisation for Economic Cooperation and Development (OECD), only five countries – France, Norway, Spain, Sweden, Switzerland – still have wealth tax.

Wealth tax was introduced in Sweden in 1947. In 2005, the state yielded some 4.8 billion kronor ($688.2 million) in revenues from the tax. Some 225,000 people pay the tax, representing about 2.5 percent of the population.

The tax is equivalent to 1.5 percent of wealth exceeding 1.5 million kronor for singles and 3.0 million kronor for couples.

However, some of the country’s richest entrepreneurs have been exempt from wealth tax since 1997 – including the family that controls Swedish cheap and chic fashion retailer H&M – since they threatened to leave the country and take their companies with them if they were forced to pay millions of dollars in wealth tax.

The abolition of the tax is expected to be adopted in parliament, where the four coalition partners hold a majority.

The measure will be compensated by a decrease in the tax break granted to private pension savings.

An employee earning up to 400,000 kronor a year can deduct about 20,000 kronor for money invested in a private pension fund. The government will now cap deductions at 12,000 kronor per person per year.

Since taking power after September’s elections, the centre-right government has introduced a series of measures aimed at getting Swedes into the workforce, including a reduction of unemployment insurance and higher union fees, as well as a tax break on home help.

It has also proposed the sale of the state’s holdings in six companies.

Those measures caused a storm of controversy from the opposition and unions, and the government’s popularity suffered as a result.

By contrast, the wealth tax move has been widely welcomed, though not all approve of the methods used to get rid of it.

The powerful Confederation of Swedish Trade Unions, LO, which has close links to the opposition Social Democrats, said it was “unacceptable” that pension savers have to pay the price of the abolition,. The Confederation of Swedish Enterprise hailed the move as a “sensible decision”.