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.
There are no winners in the UK’s exit from the EU, according to Finance Minister Magdalena Andersson who wants British guarantees before negotiations can begin on a trade deal.
She also warns for emotional turmoil during the negotiations. “There will need to be adults in the room,” she says pointing out that both jobs and growth are at risk. The UK wants to negotiate a free trade deal alongside the exit negotiations but Magdalena Andersson is sceptical about how realistic this is.
“It is important that the UK meets its financial obligations towards the rest of the EU,” says Andersson, as the UK has obligations of between 50 and 60 billion euro to the EU (between 475 and 570 billion kronor).
The National Board of Trade in Sweden (Kommerskollegium) has calculated that Swedish companies are going to have to pay 2.1 billion kronor in duties when the Brits leave the EU if no new trade deal is in place.
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.
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.
The outlook for the proposal of a new financial tax is not looking bright. After heavy criticism Finance Minister Magdalena Andersson is wavering.
Critics believe the tax would affect 318,000 companies, compared to the 10,700 that are actually active within the financial sector, according to the Swedish Tax Agency (Skatteverket).
Magdalena Andersson said on Tuesday, “Given that it has such a wide impact, it is uncertain that it would fulfil its task.” She says the responses to the proposal will now be looked at in detail but she is not ruling out the idea of a banking tax. “We want the banks, in one way or another, to be able to contribute more,” she says.
Finance minister Magdalena Andersson has been arguing for a more aggressive distributive policy to address growing gaps in society (see SPR 2/1 Early Ed.) and has urged business to stop working against tax increases.
Now professor of economy at Stockholm University, Lars Calmfors, has backed the minister. Sweden remains one of the most equal countries but gaps are growing. The number of Swedes earning less than 60 per cent of the average grew more in Sweden than in all other EU countries between 2000 and 2013. “A significant part of that increase happened after the financial crisis and the alliance government’s incoming. Our starting point was extremely small income gaps but I still think it is a worrying development,” he says.
However the Confederation of Swedish Enterprise makes a different analysis and is completely against tax rises. Head economist Bettina Kashefi says social problems should not be dealt with by raising taxes but by getting people into work.
In an interview with DI at the World Bank’s annual meeting in Washington DC, finance minister Magdalena Andersson says she is concerned about protectionist tendencies across the globe. “The big discussions are about what happens to global trade. There are signs that it is slowing. This could be due to the economic cycle but there are other reasons, such as the many countries undertaking more protectionist measures just now.”
She points out that this is not great from a Swedish perspective as it is a small, open economy. “Our welfare is based on there being the potential to trade,” she says.
She continues, “Not all individuals benefit from the world as a whole growing richer and we therefore must have policies that can compensate for that. Politics has failed there, especially here in the USA.” She considers this to be one of the reasons there is strong support for Donald Trump in the coming presidential election.
She is concerned about economic development if Donald Trump becomes president and points out that there is a huge difference between a leader in the USA with political experience and one without political experience who is, furthermore, extremely impulsive.