Newspaper article The Christian Science Monitor

Welfare on the Cheap: Sweden Nibbles at Taxes

Newspaper article The Christian Science Monitor

Welfare on the Cheap: Sweden Nibbles at Taxes

Article excerpt

AUTHOR Astrid Lindgren is as well-known in her Swedish homeland for her caustic satire on high taxes, which helped bring down the Social Democratic government in 1976, as she is for her tales about the mischievous Pippi Longstocking.

Right before parliamentary elections that fall, Ms. Lindgren published a biting newspaper article criticizing the Swedish tax system. She wrote that she had earned so much money the previous year that she ended up owing 103 percent of her annual earnings in tax.

"The article was formally correct, although she could have had a partial refund the next year," says Danne Nordling, chief economist at the Taxpayers' Association, a group that lobbies for lower taxes. But her article so enraged readers "that the new bourgeois government came to power mainly due to her."

These days, while taxes are significantly lower than 20 years ago, Swedes still pay much higher taxes than their American counterparts pay. While the average income-tax rate is 30 percent, Swedes earning more than 220,000 krona (about $32,000) annually pay about 58 percent of their income in combined local and national tax.

No free smorgasbord

What do all these taxes help pay for? For decades, Swedes could rely on the state for free education, heavily subsidized medical care, and a relatively generous pension. Maternity and paternity leaves were paid for by the state, as well as virtually unlimited sick-day benefits and monthly child allowances, regardless of family income.

But this generosity clashes with the bottom line: Unemployment, for years about 1 percent, has climbed to 10 percent. The gross domestic product has dropped 6 percent in real terms, and the interest rate on the national debt threatens to take over other expenditures.

"We don't like the words 'welfare state' because to a US audience it has a bad connotation," says Knute Rexed, the Finance Ministry's chief economist. "But we don't want to retreat from welfare-state ambitions. We say if we want this system to be sustainable, we have to go back to Social Democratic tenets. That means a balanced budget."

Some see revising the tax system as a start to reaching that balanced budget by boosting private enterprise and the economy. In 1990, the Swedish tax system was reformed in an attempt to lower rates and broaden the base. The number of deductions was reduced, taxation of capital was made uniform to encourage savings, and net wealth tax on businesses was abolished.

Many wealthy Swedes who had chosen to live permanently abroad to escape the tax system are now returning home. …

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