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EUROPEAN UNION

Ex-minister: financial transactions tax ‘failed’

As Europe debates whether to apply a tax on financial transactions, a former Swedish finance minister says Sweden's experience in the 1980s was so negative it repealed the tax as plunging trading volumes led to disappointing tax revenues.

“The Swedish experiences were negative, both from the point of view of the state’s finances and from a general socioeconomic perspective,” former finance minister Bo Lundgren, 64, told AFP.

In 1984, the Social Democratic government introduced a tax of 0.5 percent on each purchase or sale of shares (a level that was doubled two years later) and 1.0 percent on options. The tax on bonds varied depending on the maturity, ranging from 0.03 to 0.001 percent.

The tax was levied on brokerage services.

The Swedish government later introduced a tax on currency transactions in 1989.

But the consequences of both taxes were considered so harmful to the markets that they were soon abolished: the one on currency transactions was removed after just 16 months, in 1990, and the other was removed after eight years, in 1991.

Lundgren, who had the tax on shares, options and bonds abolished when he was finance minister in a centre-right government, told AFP the effects of the currency transaction tax “were so dramatically negative that all currency trading basically moved from Stockholm to London, so the Social Democratic government (in power at the time) abolished the tax.”

Meanwhile, the tax on shares, bonds and options “led to share trading moving abroad but the effects were not as dramatic as the currency transaction tax.”

“The year we abolished it, in 1991, the tax revenue amounted to around three billion kronor”, or about 375 million euros ($476 million) in today’s currency.

“But on the other hand the tax had reduced share trades so much that once it was abolished, trading increased and that in turn led to an increase in brokerage fees which led to an increase in corporate tax (revenues) and other tax (revenues) increased.”

“When the tax was abolished we estimated that there was no loss (of revenue) involved, because it led to such a sharp increase in trading.”

In his proposal to parliament repealing the tax on shares, options and bonds, Lundgren said at the time that “activity on the Swedish stock market has decreased sharply in recent years which has resulted in a series of disadvantages for Swedish industry.”

“The tax on shares and other securities has contributed to this development,” he said.

He said Swedish companies suffered from reduced liquidity on the stock market and had a harder time raising risk capital.

Lundgren, who is now the head of Sweden’s National Debt Office, and Sweden’s current Finance Minister Anders Borg — both members of the conservative Moderate party — have voiced opposition to the European Commission’s proposal to tax financial transactions.

The Commission in September proposed a tax of 0.1 percent on stock and bond transactions and 0.01 percent on derivatives, aimed at pulling in up to 55 billion euros ($70.4 billion) annually.

France and Germany are in favour of the tax and have said the 17-member eurozone could adopt it on its own, while non-euro member Britain is fiercely opposed to it amid fears it could prove devastating to its global financial hub, the City of London.

Paris has gone so far as to say it could begin introducing the tax on its own if a broader agreement is not reached.

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Explained: Why is Sweden so worried about the EU’s minimum wage plan?

EU labour ministers meet in Brussels on Monday to discuss the European Commission's planned minimum wage directive. Why is the proposal causing such unease in Sweden?

Explained: Why is Sweden so worried about the EU's minimum wage plan?
Customers visit a branch of McDonalds in Stockholm. Photo: Stina Stjernkvist/TT

What’s happening on Monday? 

EU ministers responsible for employment and social affairs, including Sweden’s Eva Nordmark, will meet in Brussels for a two day meeting at which they hope to adopt a European Council position on a directive imposing “adequate minimum wages” on all EU countries. Once the Council, which represents member states, has agreed a common position, it will begin negotiations with the European Parliament and the European Commission. 

What’s Sweden’s position on the minimum wage directive? 

Sweden has been, along with Denmark, one of the most vocal opponents of the directive, arguing that it threatens the country’s collective bargaining model, in which unions and employers set wages without government interference. 

But on Friday, the government dropped its opposition, together with country’s umbrella union, the Swedish Trade Union Confederation, arguing that a compromise proposal put forward by the European Commission would protect Sweden’s wage autonomy. 

A majority of the members of the Swedish parliament’s employment committee are backing the government’s new stance, but three opposition parties, the Moderates, the Christian Democrats, and the Sweden Democrats, are opposed to the change in position. 

“I am extremely happy that there is broad support and majority backing for us to continue with the negotiations, to stand up for what we have come to so far, and do everything we can to protect the Swedish wage-setting model,” Sweden’s employment minister Eva Nordmark (S) said after a meeting with the employment committee on Friday. 

READ ALSO: Why Sweden doesn’t have a minimum wage and how to ensure you’re fairly paid

Why did Sweden make its dramatic last-minute u-turn? 

Sweden’s government judges that, after the compromise, the directive will no longer mean that Sweden is forced to bring in a statutory minimum wage. 

“I consider, together with experts in the civil service and experts in the unions and employer organisations, that there is no requirement for Sweden to bring in a statutory minimum wage,” Nordmark told TT. 

She added that agreeing to sign up to the directive would give Sweden the ability to take a deeper part in the negotiations giving it the power to make sure that important exceptions are made for Sweden. 

Denmark, however, is still resolved to say ‘no’ to the directive. 

Surely a minimum wage is a good thing? Isn’t Sweden supposed to be a high-wage economy? 

Sweden is certainly a high-wage economy, but that is largely thanks to its model of collective bargaining, under which wages are generally set by negotiations between employees and employers for each sector. 

If the directive sets a precedent allowing governments, either at a national or EU level, to interfere in this process, or for those who disagree with the result of the collective bargaining agreement to appeal to government entities, it could undermine the Swedish system. 

Who is still worried? 

More or less everyone. While the Swedish Trade Union Confederation is supporting the government’s decision, its vice chair Therese Guovelin, described the European Commission’s compromise proposal as simply “the least bad compromise proposal” the union had seen.

She has previously described the European Parliament’s position that the directive should apply to the entire European Union as “a catastrophe”.

“That would mean that a disgruntled employee who is not part of the union, could take their case to court, and would then end up at the EU Court, and it would then be them who would decide on what should be a reasonable salary,” she explained. “In Sweden, it’s the parties [unions and employers’ organisations] that decide on that.”

Tobias Billström, group leader for the Moderate Party, said he was concerned at the role of the European Court in the directive. 

“There are big risks with this,” he told TT. “The EU court might decide to interpret this directive as applying across the board, and then we might end up with what we wanted to avoid. The Moderates have as a result been against this development, and it’s important that Sweden gets to decide itself on the Swedish labour market.”

What might happen now? 

The European Parliament might try to remove the wording and the exemptions which Sweden hopes will allow its employers and unions to retain control of wage-setting. 

Mattias Dahl, chief executive of the Confederation of Swedish Enterprise, which represents employers’ groups, said that the government needed to stand its ground in the upcoming negotiations, reiterating that he would have preferred that the European Commission had not sought to give itself such a role in the Labour Market.  

Nordmark said that Sweden did not intend to back down to the parliament. 

“These are important red lines for us. If there are demands from the European Parliament that push in a different direction, we can lean on the Swedish opinion and what we stand for,” she said. 

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