Experts: politicians misled voters on pensions tax

Sweden's politicians have been slammed by leading economists who argue that they are misleading the electorate by claiming that income taxes discriminate against pensioners, who in actual fact pay less tax than those in work.

“The debate before the election over tax cuts for pensioners is based on false premises. In actual fact those in work are taxed harder than pensioners in Sweden,” said Helena Svaleryd and Daniel Waldenstein at the Research Institute for Industrial Economics (Institut för Näringslivsforskning – IFN) in a debate article in the Dagens Nyheter (DN) daily on Wednesday.

Svaleryd and Waldenstein argue that if you factor in employer contributions, which at least in part constitute a straight tax, then wage earners pay significantly more, even when taking into account the in-work tax credit introduced by the Alliance government in stages over the mandate period.

“Everybody who knows the Swedish tax system knows that pay is taxed in several stages. Aside from municipal and state income taxes, incomes are also taxed via payroll levies. Even if employer contributions are paid in by the employer it is the employee who in the end pays as incomes decline accordingly,” the researchers argued.

Helena Svaleryd, who is a member of the Swedish Fiscal Policy Council – a body set up by the government in 2007 to provide an independent evaluation of the Swedish Government´s fiscal policy, suspects that the election year could be a contributory factor in why political rhetoric is at odds with current research and available facts.

“One could imagine that as the pensioners are one of Sweden’s largest voter groups, this plays a significant role during an election year when pensioners’ core issues also become the politicians’ core issues,” Helena Svaleryd told The Local on Wednesday.

In recent weeks the Red-Green opposition and representatives for individual Alliance parties have been striving to outdo each other in promising largesse to Sweden’s pensioners and decrying the “penalty tax” levied on the group.

Social Democrat leader Mona Sahlin, speaking in Stockholm on Tuesday, went as far as to promise to spend 27 billion kronor ($3.7 billion) on wiping out the “discrimination” between the income taxes paid by pensioners and wage earners.

The researchers argue that there exists no “penalty tax” on pensioners and in fact wage earners pay more, pointing out that the payroll tax (roughly 20 percent of the total employer contributions and currently standing at 6.03 percent), amounted to 87 billion kronor in 2009, while the in-work tax credit amounted to only 66 billion.

“While there may be good reasons from a redistributive policy perspective to compensate weaker groups in society during a recession, all this talk of ‘penalty taxes on pensions’ just serves to muddy the issue, when openness and clarity are what is needed,” Svaleryd told The Local.

In their article Svaleryd and Waldenstein also slammed the claim, forwarded in a recent report from the Swedish National Pensioner’s Organisation (Pensionärernas Riksorganisation – PRO) that Sweden is the only country that taxes the elderly harder than wage earners, citing an OECD report entitled “Pensions at Glance (2009)” to support their argument.

“Pensioners pay higher income taxes (excluding social charges) than wage earners in a majority of the researched countries, for example Finland, Japan and Germany,” they wrote.

The researchers observed meanwhile that it is very difficult to compare pensions internationally as systems are so different, but even after tax deductions Swedish pensioners were well off in an international perspective.

“In certain countries, such as Sweden and the Netherlands, pensions are, in an international perspective, relatively high and are taxed relatively highly. If you take the US as an example then you can see that while taxes are lower on pensions, pay outs as a proportion of final incomes earned are also lower,” Svaleryd said.

Furthermore it is argued that pensioners as a group have also benefited from measures to encourage work as the pension system is at least in part based on the contributions of wage earners. They have also benefited disproportionately from the abolition of wealth taxes and changes to property taxes, the researchers pointed out.

According to official Statistics Sweden wealth figures from 2007, those aged between 65 and 74 are the wealthiest group in the country, with average wealth after deduction for debts of 1.34 million kronor, while the average for those aged 20-64 was only 682,000 kronor.

Svaleryd and Waldenstein furthermore accused finance minister Anders Borg of jeopardising the principle of the pensions system as an “autonomously regulated welfare system” by using finance policy to compensate for lower pensions resulting from higher unemployment.

Anders Borg on Wednesday defended the billion kronor tax cuts announced in the spring budget to compensate pensioners for the fall out of the finance crisis on the pensions system.

“I don’t think that anyone involved in the pensions agreement predicted that we would have these massive hits on stock prices and the economy. It is not reasonable that pensioners should be so affected by this,” he told Dagens Nyheter.

While Svaleryd agreed that the extent and impact of the crisis was difficult to forecast, she argues that the move should be seen as a warning that does not bode well for the future autonomy of the pensions system.

“What happens in the future when the workforce declines?, as we know it will. If every time pensions payments decline voices are raised across the board for tax cuts, then the principle that the system should be autonomous from finance policy will be eroded.”

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Norwegian fury over Swedish tax mix-up

Outraged Norwegian pensioners living in Sweden have reported the head of the Swedish Tax Agency (Skatteverket) to the police after being asked to repay four years' worth of taxes, claiming the agency gave them bad information.

Norwegian fury over Swedish tax mix-up

“I’m a friendly, honest person and I feel like I’ve been steamrolled,” Norwegian pensioner Mona Jonsson told Sveriges Television (SVT).

Jonsson is among the estimated hundreds of Norwegian pensioners who have moved to Sweden in recent years, many of whom claim they were misinformed by the tax agency.

They say officials at the agency told them that that since their pensions were paid from Norway, they should also pay their taxes there.

Four years later, however, the Norwegian retirées have suddenly been hit with claims from the tax authorities that they now owe back taxes in Sweden.

Several of them told SVT that they have been forced to dip into their savings, with some citing fears they stood to lose their houses in order to pay their outstanding Swedish tax bills.

Egil Siira, a Norwegian who chose to spend his retirement in the northern Swedish town Vilhelmina, even has a letter from the Swedish Tax Agency stating that he was to pay tax only in Norway during the first four years of his stay in Sweden.

Several Norwegian pensioners subsequently did not pay taxes to Sweden during their first years here. But now the agency, along with the Swedish Enforcement Agency (Kronofogden), have said the Norwegian pensioners owe the Swedish state outstanding payments.

SVT reported that the likely root to this financial predicament could be that individual agency staff were unaware of a tax law reform affecting Nordic pensioners moving between the countries in the region.

Prior to 2009, taxes were indeed meant to be paid to the country from which pensions were paid. Following the revision, however, taxes are to be paid to the country of residence.

Despite written proof that at least one Norwegian citizen in Sweden was given the wrong information, the tax agency has refused to take responsibility for the mix-up.

“I don’t know what has been discussed in individual cases and can’t make any further statements,” agency legal expert Britt-Marie Hallberg-Eriksson told SVT.

“It is regrettable and a real shame if we’ve given incorrect information.”

Unable to get a sympathetic ear at the tax agency, irate Norwegians have reported tax agency head Ingemar Hansson to the police on suspicion of professional misconduct.

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