OECD criticizes Sweden’s property tax reform

The Organisation for Economic Co-operation and Development (OECD) has criticized the Swedish government's decision to abolish residential property tax. Sweden needs to reduce tax on labour, not property, according to the OECD.

“There are other tax cuts that are much more important. In general, Sweden is a country with higher taxes than other OECD countries, but not when it comes to property tax,” Jens Lundsgaard from the OECD’s Swedish office told news agency TT.

Lundsgaard bases his criticism on a thorough appraisal of the proposal presented by the government on Tuesday.

“What the government is doing is favouring housing over work and enterprise, and one has to wonder why that is.

“There is a far greater need for tax cuts that address unemployment and tackle exclusion on the labour market than reducing residential taxes,” he said.

The OECD regarded last week’s removal of wealth tax as a positive move but the organization is finding it more difficulty to understand the economic rationale behind the government’s latest move.

“The government should look at state income tax and the extremely high marginal tax rates. This is much more important than reducing property taxes,” said Lundsgaard.

While the OECD approves of the use of increased capital gains tax to finance the reform, this is not considered sufficient to counteract the distortional effects anticipated by the organization.

“Even last year property taxes were low in Sweden if one factors in the tax deduction available for interest repayments.

“Anybody buying an apartment in Stockholm today is entitled to a tax deduction worth around 25,000 to 50,000 kronor. The new property tax only amounts to 4,500 kronor.

“The net effect is a subvention worth 25,000 to 45,000 kronor. That is not a good long-term situation,” said Lundsgaard.