Sweden’s Election Part II: Why expats should care – Tax

In our last blog, Mundus asked – Why care about the Swedish elections? We argued that there are a number of strategic issues affecting the economic outlook for Sweden where the different sides of politics have very distinct policies. Issues such as housing, taxation and labour immigration should be of significant concern to expats. In this blog, we look at the tax policies of the different parties ahead of the Swedish election.

Sweden’s last big tax reforms were done in the 1990s, when the Social Democrats agreed with the Liberals on initiatives that brought Sweden’s income tax level down from the extraordinarily heights of the 1970s. SACO, a Swedish association of unions for professional employees, which focuses on tax reform, argues that Sweden is now ready for another big tax shake up, restoring some of the basic principles of the 1990 reform that have since been lost. Given the Swedish economy is based on innovation and knowledge, SACO says that Sweden needs a tax system that advantages “thinking power”, rather than low wages or poor working conditions, encouraging workers to improve their competence and skills. It wants to reduce marginal tax rate significantly, so that no-one pays more than half on their salary in tax. For those now paying marginal rates around 60%, this would lead to significantly more take-home pay. SACO thinks that this can be done, while at the same time incentivising education, innovation, entrepreneurship and climate change.

The Social Democrats however see things differently. This week, the Finance Minister said in her budget address that Sweden “cannot afford tax cuts for those who make the most”, as it needed to budget for investments in climate change and to cope with 300,000 more retirees that are forecast over the next decade. Despite calling for another “cross-bloc tax reform”, the reality is that government‘ policies are more attuned to tax and spend, than tax liberalisation. As documented in Mundus’ in-depth analysis of party positions, the Social Democrats’ tax focus is on giving more money to pensioners, families and welfare. They want to protect the progressivity of the tax system (ie high income earners pay more), and to fight tax evasion. Or, as the Prime Minster said, “it is incredibly clear that what needs to be done cannot be done with reduced taxes”.

The Alliance parties however appear to be singing from SACO’s hymn book, although they have slightly different tunes. The Moderates want to see a tax reform during the next term with priority being given to lowering of taxes on higher incomes, and to stimulate continued competence development throughout life by increasing tax deductions for companies that give professional and competence training to their employees. They expect their reforms to cost SEK 22 billion. The Liberals want to reduce taxes for those earning less than SEK 37,700 per month, with even bigger reductions for those above SEK 54,300, reforms which are expected to cost SEK 12.7 billion. The Centre Party wants to increase a deduction that wage earners already will see on their salary slip called “jobbskatteavdraget”, lowering taxes by SEK 2,000 per month for all those who work, costing SEK 8.4 billion. Presumably, if the Alliance parties were to collectively win government, then there would be coalition negotiations where they would agree on the exact formula for tax reductions.

The Sweden Democrats are also in favour of tax reductions, through the jobbskatteavdraget, along with other tax reforms that would lessen the burden on companies employing people. This should see them leaning closer to the Alliance in budget negotiations than the Social Democrats, although there might be tactical reasons that would see the SD oppose Alliance reforms. In addition, the SD have a number of proposals to increase benefits to their target demographics – parents, the elderly and rural areas that might limit the possibility for tax deductions.

The Greens, unsurprisingly are proposing tax rises for fossil fuels in order to fund increased spending on environmental initiatives.

For many foreigners living in Sweden, who are less concerned about the levels of retirement benefits and elderly care, the attractions of significantly lower taxes might make them hope for an Alliance win at the poll. This will appeal particularly to the expat segment, those who are brought in on short-term assignments, often at higher salaries. For foreigners who have a long-term view on living in Sweden the arguments become less clear-cut on financial lines, and will mirror the position of Swedes.  If you believe that lower taxes are required to encourage innovation and entrepreneurship, then your support would go to the Alliance. For those looking for more solidarity in the community, their support may go towards the Social Democrats.

Swedish elections