Historically, värnskatt was a temporary tax introduced for high earners in 1915 when Sweden urgently needed to boost its military forces in light of World War One raging in other parts of Europe.
The word värn means 'defence' and can be found in other words such as värnplikt (literally 'defence duty', a word for Sweden's compulsory military service), värnlös ('defenceless') or the verb värna (han värnar för miljön, 'he works to protect the environment').
Today's värnskatt has nothing to do with the armed forces. It was introduced in 1995 for high earners as a temporary move to consolidate the budget after Sweden's 1990 financial crisis, and was given the name värnskatt precisely because of its temporary nature designed to quickly prop up the state's finances.
It turned out to be far less temporary than intended. Although it was formally abolished in 1999, it was immediately replaced by a very similar state income tax that everyone kept referring to as värnskatt.
In 2019, the tax is paid by high earners on the part of their annual income that exceeds 703,000 kronor (approximately $73,000), and means they pay five percentage units more in tax on that chunk of money.
So why is it in the news this week?
It is now being scrapped as part of the government's autumn budget – which will be presented on September 18th and follows a deal struck between the centre-left government and the centre-liberal parties – and means that Sweden's 345,000 highest earners will get a tax cut of on average 17,700 kronor a year.
In English, värnskatt is translated as 'austerity tax', which makes more sense in its modern usage.
The word skatt means, as you may have guessed, 'tax'. It also means 'treasure'. If you are interested in reading more about Sweden's taxation system, I recommend this article which busts a few myths.
Värnskatten ska avskaffas
The austerity tax is to be abolished
Är du för eller mot värnskatten?
Are you for or against the austerity tax?