Sweden is lowering corporate tax for the third time since 2009, now to 20% (see SPR 20/6 Early Ed.). However the Moderates are calling it a tax rise on the sly.
Finance Minister Magdalena Andersson wrote in a Dagens Industri (DI) debate article yesterday that the lower tax will be compensated for by limits to interest deductions.
The Moderates have welcomed the limits to the tax deduction, which aims to stop companies’ aggressive tax planning, although. Maria Malmer Stenergard, tax policy spokesperson for the Moderates, would have liked a larger cut in corporate tax as compensation.
Meanwhile the Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomes the tax decrease but is critical of limiting the right to a tax deduction.
Today the Ministry of Finance is putting out a memorandum on new tax for the corporate sector, write Finance Minister Magdalena Andersson and deputy Finance Minister Per Bolund in Dagens Industri (DI).
It proposes a general rule for limiting tax deductions for interest in the corporate sector in order to increase tax neutrality between different forms of financing. The memorandum also includes other proposals such as new tax rules for financial leasing, new hybrid rules, and a primary deduction for rental properties. Additionally, the current interest rate deduction rules are to be tightened. The proposals are fully financed and are proposed to come into force on 1 July 2018.
As limiting the tax deduction for interest means that the tax regulations are tighter, it is proposed that companies are compensated by lowering corporate tax from 22 to 20 per cent. This lower rate is fully financed by tightening the other rule. Thus the proposal is a redistribution of total tax within business.
The proposal is out for consultation before the government makes a final decision.
With France and Germany pushing for closer cooperation, the European Commission has outlined five scenarios for the future of the EU post-Brexit. Sweden has remained remarkably quiet about the white paper, but at lunchtime today the Commission is to release a report that has the potential to change this.
According a rumour in the German media last week, pressure will be put on Sweden to adopt the euro no later than 2025. The European Commission has denied that this is the case, but Roberg Bergqvist, chief economist at SEB, believes there is a grain of truth in the rumour.
Finance Minister Magdalena Andersson (S) is defiant, saying she will not accept a specific date. “It is up to the people of Sweden … to decide if and when Sweden adopts the euro. There is no other alternative,” remarks the minister, believing that there is understanding in the EU for this stance post-Brexit.
The Ministry of Finance wants the Swedish Financial Supervisory Authority (Finansinspektionen) to be given additional macroprudential tools, but a number of bodies are critical of the plans.
The Trade Union Confederation, LO, believes a review of interest rate deductions needs to be made before the watchdog further restricts household borrowing, while the Swedish Construction Federation warns that a debt-to-income ceiling will make it harder for the young and immigrants to get a first step on the property ladder; a view which is shared by the Association of Swedish Real Estate Agents.
The Swedish Bankers’ Association believes Finansinspektionen’s proposed mandate is too broad and far-reaching but Sweden’s central bank, the Riksbank, welcomes the proposal, given that current regulation does not correct financial imbalances.
Economists are describing Tuesday’s spring budget as cautious and selective. Annika Winsth, Nordea’s chief economist, believes the government is gradually paving a way for an election budget while SEB’s Håkan Frisén would have liked to see reform on the housing and labour markets. However, he acknowledges that it is too late in the business cycle for stimulus.
Anna Öster, chief economist at Länsförsäkringar, agrees with Finance Minister Magdalena Andersson that the Swedish economy remains strong but is disappointed that the government made no mention of the challenges facing the economy. “Put bluntly, there was no holistic approach,” she says.
In its response to the government’s proposal to raise bank fees for the resolution reserve (which could be used in the event of a financial crisis – ed.), the Riksbank has said that it is uncertain whether the increase in the fee would really boost resources for handling a crisis. The Swedish reserve does not consist of an actual fund and there are no liquid assets earmarked for bank crisis management, the central bank points out. The bank believes the government ought to consider whether there are better alternatives for strengthening financial stability.
Finance Minister Magdalena Andersson does not want to comment on the responses until they are analysed.
Professor Ulf Berritz, whose field of expertise is European law, has studied the government’s proposal to raise bank resolution fund fees, that is to say the reserve to shield Sweden from the next financial crisis. At a seminar organised by the Swedish Bank Association (Bankföreningen) on Wednesday, Professor Berritz concluded that the proposal is incompatible with EU law. He also criticised the memorandum sent out by the Ministry of Finance, which failed to analyse the impact of the proposed raise in industry payments, describing it as “a rush job” with insufficient preparation.
After Nordea’s threat to move its head office out of Sweden the Moderates have attacked the government. Ulf Kristersson, the party’s economic spokesperson, says, “We are driving companies out of the country with the policy the government is threatening to bring in.” He says Sweden needs more head offices, not fewer.
Nevertheless Finance Minister Magdalena Andersson is not fazed by Nordea’s threat. “If they place their head office in another country then it lowers the risk for Swedish taxpayers in the case of a crash,” she says. She points out that the banking sector is healthy, has high profits and the fees have not created any problems. She also emphasises that Nordea made billions of kronor in profits last year.
The proposal is now out for consultation.
The state owned airport company Swedavia has warned against the proposal to introduce an aviation tax, stressing the negative impact it will have. The company, which owns and runs ten airports including Arlanda and Landvetter, believes the proposal should not be implemented.
CEO Jonas Abrahamsson says, “The tax is being motivated by climate reasons however the state investigation shows that it leads to very limited climate benefits and that the total carbon dioxide emissions could in fact increase.” At the same time the tax would have very serious consequences for Sweden’s competitiveness.
Abrahamsson says the airlines have been clear that they may be forced to close existing routes and it would be harder to attract international airlines to establish new routes.
At the same time Swedavia’s airports broke passenger volume records last year after an increase of 5% to 39.5 million.
GDP in Sweden grew by 1.0% in the fourth quarter of 2016, compared with the preceding quarter, and 2.3% compared to the same quarter in 2015, according to Statistics Sweden.
Growth in exports of goods and services accounted for much of the increase while imports fell slightly. Increased household consumption, public consumption and investments also contributed.
However the increase in GDP per inhabitant was lower: 0.7% from Q4 2015 to Q4 2016, compared with a total increase of 2.3%. “This shows that the rise in GDP is not only a result of the growth in population, contrary to what many people believe,” says Finance Minister Magdalena Andersson. She is satisfied with GDP growth of 3.3% for 2016, above most EU countries.
Andersson highlighted that there is a surplus of SKr 40 billion in the public finances, saying, “This is mainly the result of the government’s work.” She also hinted that if the next GDP forecast is higher then this could create scope for more reforms in the budget.