• Sweden's news in English

Bending the rules: Sweden in transition

Nima Sanandaji · 26 Feb 2008, 16:31

Published: 26 Feb 2008 16:31 GMT+01:00

Facebook Twitter Google+ reddit

Ever since the 2006 elections, Swedish politics has centred on various scandals in which top officials have been accused of paying cleaners and labourers cash-in-hand in order to dodge taxes.

Some argue that this is due to centre-right representatives being more prone to bending the rules. Others state that journalists are more willing to scrutinize the new government than they were when the socialists held sway.

In a recently published book, however, a number of heavyweight economists provide a different perspective: Reinfeldt’s ministers are not the only ones sidelining the system. We may in fact be witnessing a major transformation as increasing numbers of Swedes choose to bypass the social system.

“People adjust their daily lives according to the social systems in which they live,” says Fredrik Bergström, president of the Swedish Retail Institute.

“In Sweden we have created systems that can often become rather difficult to live with. One example of this is paying for having work done on your house on the black market. Purchasing a house is the most important investment that most Swedes make in their lifetimes and it is vital to make some repairs from time to time. But Sweden’s high taxes make it difficult to purchase services legally.”

Bergström, who has a PhD in Economics, is co-author of the book Plan B – den dolda jakten på välfärd (Plan B – The Hidden Quest for Welfare).

The book’s other authors include Associate Professor Nils Karlsson (president of economic research institute Ratio), Professor Stefan Fölster (chief economist at the Confederation of Swedish Enterprise) and Robert Gidehag (president of The Swedish Taxpayers Association).

The release of Plan B last October was accompanied by an opinion piece in Dagens Nyheter, in which the authors explained that 95 percent of Swedes had confessed to having, in one way or another, tampered with social welfare systems for their own benefit.

Bergström explains that our ministers are not the only ones challenging the system. Sweden was once a country in which it was very common to choose “Plan A” – to live your life according to existing social systems. Today, however it has become common to go for “Plan B” and bend the rules.

In their book, Bergström and his fellow authors explain that a Swede with a marginal tax a little over fifty percent must earn 28,550 kronor in order to have 10,000 kronor left over after visible and hidden taxes have been paid.

If the latter sum is to be paid to a labourer facing the same marginal tax, the labourer will have just 2,196 kronor left after taxes. Thus only 8 percent of the original sum can be consumed by the person performing the service, with 92 percent going to taxes.

Bergström explains that individuals facing this situation have a number of choices. They can remain loyal to the system and purchase services on the “white” market, which will be very costly.

Or they can adapt to the system and choose to spend their summer vacations doing repairs themselves. The third option is to pay a few thousand kronor to a labourer on the black market to get the same job done.

During the writing of Plan B, a survey of more than a thousand Swedes showed that a majority had chosen to repair their houses themselves rather than pay professionals to do the job. Over 17 percent admitted to having hired handicraft on the black market, while over 10 percent admitted to themselves having worked on the black market.

Another example given by Bergström relates to the fact that Swedes must often wait a long time to see a doctor, while some patients are simply denied treatment in the public health care system:

“More and more Swedes are choosing to adapt to the system by using personal contacts with physicians to get a better quality of healthcare. Others sign up for private health insurance even though they are already paying into the system through taxes. Some choose to travel abroad to get the care they need.

"This is in contrast to the behaviour which we could previously observe in Sweden, where it was far less common to challenge the system and attempt to find alternative solutions.”

In their survey, the authors of Plan B found that almost 19 percent of Swedes confessed to having gained access to healthcare, either for themselves or a relative, by using personal contacts rather than going through regular administrative channels.

At the same time, 15 percent of those surveyed said that they had spent time taking care of a person close to them for an illness that should have been dealt with by the public healthcare sector.

What we are seeing, Bergström explains, is a long term adaptation to Sweden’s existing political systems. The relationship between the individual and the system has changed over time:

“Since the expansion of taxes and welfare services in the 70s, Swedes have progressively altered their attitude towards social systems. An increasing number of Swedes are today willing to break or bend the rules in order to benefit themselves. This kind of behaviour has over time become quite acceptable among many Swedes.

“When you know that your neighbours have started paying for repair of their houses cash-in-hand, you might think to yourself: ‘Why should I obey the rules when everybody else is bending them?’. Cheating will become common and the state must reinforce control mechanisms which reduce individual freedom.”

This change in social norms has also meant that Swedes are increasingly relying on themselves rather than the state to solve their daily problems. Bergström explains that the alternatives to public welfare chosen by Swedes often do not involve breaking the law. Rather, individuals find various methods of going around public systems to fulfil various needs:

“Another aspect of the social change we have seen in Sweden over time is that, in a globalized world, many individuals can choose what we refer to as ‘exit behaviour’. That is, if you face problems with one system, you simply leave it for another.

"An example of this is that many Swedes with high incomes end up living abroad to escape the taxes. We see this behaviour both amongst famous athletes and ordinary businessmen and professionals.”

Story continues below…

Over the years it has become common for Swedes to invest their money abroad to dodge wealth tax. In order to stop this phenomenon, the government finally decided to abolish the tax. When individuals don’t follow the system, sometimes the system must change.

Similarly, the Swedish Tax Agency is working on a proposal to increase the amount that can be paid for a service without having to report the activity as taxable. According to the proposal, this amount will increase from today’s 999 kronor to 10,000 kronor. Prime Minister Fredrik Reinfeldt has supported this idea, since it would mean that fewer Swedes would cheat the system.

In a globalized world, exit behaviour could increasingly put pressure on the government to implement reforms. For example, Sweden’s close neighbour Estonia has a flat tax combined with one of the lowest tax rates in the world, while we arguably have the highest. If enough individuals and firms establish themselves in countries such as Estonia rather than Sweden, the Swedish system must change in order to survive.

Bergström concludes by remarking that a functioning society must be based on people following the rules and paying their taxes. At the same time, we must understand that there is a reason why Swedes over time have become less loyal to the Swedish model. Some public systems are simply too difficult and costly for individuals to always follow.

Moderate ministers paying for services cash-in-hand might well be the tip of the iceberg, indicating a deep-rooted change in Swedes’ relationship to their welfare systems. It is a change which, in the long run, might well lead to major alterations in the Swedish welfare system.

‘Plan B – den dolda jakten på välfärd’ is published by Ekerlids. The book’s authors are: Fredrik Bergström, Stefan Fölster, Linda Genf, Robert Gidehag, Nils Karlsson, Henrik Lindberg, Johan Marcus and Helena Olsson.

Nima Sanandaji is president of the Swedish free market think tank Captus and publisher of Captus Magazine.

Nima Sanandaji (news@thelocal.se)

Facebook Twitter Google+ reddit

Today's headlines
Why the Pope is visiting Sweden next week
Pope Francis in the Vatican. Photo: AP Photo/Alessandra Tarantino

Pope to nail reconciliation agenda to Lutherans' door in southern Sweden.

The Local Recipes
How to make no-knead sourdough bread like a Swede
No-knead sourdough bread. Photo: John Duxbury/Swedish Food

Swedes love their sourdough bread. Food writer John Duxbury shares his favourite Swedish recipe for a no-knead loaf.

Meet Sweden's lonely Donald Trump voter
A Donald Trump campaign button. Photo: Rogelio V Solis/AP

The Local talks to an American Donald Trump supporter on what it is like living in progressive stronghold Sweden.

Forgotten Ingmar Bergman script to be made into a film
It's thought the script was part of an ill-fated collaboration between Bergman (left) and Federico Fellini (right). Photo: AP

Written in 1969, the script is 'up to the standard of his best', according to the Ingmar Bergman Foundation.

Sweden's consumption footprint 'among the worst'
Trucks transporting goods on a Swedish highway. Photo: Fredrik Sandberg/TT

Sweden has been criticized for its unsustainable consumption of the planet's resources in the latest edition of a major WWF study.

Video: How to be Joel Kinnaman for a day
Kinnaman with one of the camera rigs that will allow people inside his head. Photo: Tele2

The Swedish Hollywood actor will strap a camera to his head, stream it live and allow viewers to interact with him this weekend.

Presented by Invest Stockholm
How Stockholm's cold climate boosts creativity
Photo: Ola Ericson/imagebank.sweden.se

Do long, dark winters actually make Swedes more creative and more productive? We spoke to Stockholm startups to find out.

Sweden to keep record-low interest rate in 2017
Sweden's landmark negative interest rate will continue towards 2018. Photo: Anders Wiklund/TT

The Swedish central bank said that it will take longer than expected to reach its inflation target.

Presented by Stockholm University
9 unexpected programmes at Stockholm University
Photo: Niklas Björling

Did you know Stockholm University offers 75 master's programmes taught in English? And some of them are programmes you won't find anywhere else...

Creepy clown messes with the wrong dog walker in Sweden
Not the clown in the story. Photo: Pontus Lundahl/TT

A dog helped its owner fight off a creepy clown chasing the pair in southern Sweden.

Sponsored Article
One expat's strategy for making friends in Stockholm
People-watching: October 26th
Sponsored Article
Nordic fashion in focus at Stockholm University
Sweden cuts 2016 refugee forecast
Is Game of Thrones coming to Sweden?
Blog updates

6 October

10 useful hjälpverb (The Swedish Teacher) »

"Hej! I think the so-called “hjalpverb” (auxiliary verbs in English) are a good way to get…" READ »


8 July

Editor’s blog, July 8th (The Local Sweden) »

"Hej readers, It has, as always, been a bizarre, serious and hilarious week in Sweden. You…" READ »

Sponsored Article
Stockholm: creating solutions to global challenges
Property of the week: Kungsholmen, Stockholm
Sponsored Article
Last chance to vote absentee in the US elections
Will Swedes soon be looking for fairtrade porn?
The Local Voices
'I simply don’t believe in nationality'
Why we're convinced Game of Thrones is based on Sweden
Sponsored Article
This is Malmö: Football capital of Sweden
People-watching: October 21st-23rd
Sponsored Article
Where is the Swedish music industry heading?
Fury at plans that 'threaten the IB's survival' in Sweden
Analysis & Opinion
Are we just going to let half the country die?
Sponsored Article
Why you should 'grab a chair' on Stockholm's tech scene
Angry elk chases Swede up a lamp post
Sponsored Article
Swedish for programmers: 'It changed my life'
The Local Voices
'Alienation in Sweden feels better: I find myself a stranger among scores of aliens'
People-watching: October 20th
Sponsored Article
Top 7 tips to help you learn Swedish
The Local Voices
A layover at Qatar airport brought this Swedish-Kenyan couple together - now they're heading for marriage
Sponsored Article
‘Extremism can't be defeated on the battlefield alone’
Swede punches clown that scared his grandmother
Sponsored Article
Stockholm: creating solutions to global challenges
Fans throw flares and enter pitch in Swedish football riot
Sponsored Article
Why you should 'grab a chair' on Stockholm's tech scene
Could Swedish blood test solve 'Making a Murderer'?
Sponsored Article
Where is the Swedish music industry heading?
Swedish school to build gender neutral changing room
Sponsored Article
One expat's strategy for making friends in Stockholm
People-watching: October 14th-16th
Sponsored Article
Nordic fashion in focus at Stockholm University
Man in Sweden assaulted by clowns with broken bottle
Nobel Prize 2016: Literature
Watch the man who discovered Bob Dylan react to his Nobel Prize win
Record numbers emigrating from Sweden
People-watching: October 12th
The Local Voices
'Swedish startups should embrace newcomers' talents - there's nothing to fear'
How far right are the Sweden Democrats?
The Local Voices
Syria's White Helmets: The Nobel Peace Prize would have meant a lot, but pulling a child from rubble is the greatest reward
jobs available