Alliance divisions over property taxes

The four party Alliance has already agreed to get rid of property tax, which they plan to at least partially replace with a local property fee.

Reinfeldt said reducing the interest tax relief was just one option.

"I don't have a finished proposal, I have no calculations, and the crucial factor will be how the local property fee is designed and what income it gives," he told news agency TT.

The Christian Democrats' have proposed a local property fee of 2,800 kronor for a villa and 900 kronor for an apartment.

Leader Göran Hägglund said he didn't want to change the interest tax relief.

"I think that would make life harder for a lot of people, young people and others, when they want to buy and own their own property. That would of course be unfortunate," he said. But he agreed with Reinfeldt that the property tax should be financed by changes to other aspects of taxation on property.

Stellan Lundström, professor of property economics at the Royal Institute of Technology in Stockholm, says that reductions in interest tax relief could hit people who own apartments in major cities, and who have large mortgages.

"In relative terms it is the people with large mortgages on apartments in attractive locations that will be worst hit. But it would also affect house-owners in places like [expensive Stockholm suburb] Danderyd."

But Reinfeldt insisted that apartment owners shouldn't worry - the consequences of different taxation models would be carefully investigated.

"We need to weigh things up so that we don't have negative effects on particular groups, reduce predictability for them or upset their chances of supporting themselves. We don't want to replace an arbitrary tax with another form of arbitrariness," he said.

He also pointed out, however, that people who live in their own apartments or in houses in the cities will be the big beneficiaries when property tax is scrapped. Apartment owners will benefit from the Alliance's decision to get rid of taxation on tenant-owners associations and to abolish property tax for apartment blocks.

"This means in reality around 1,000 kronor per year in reduction," he said.

Göran Persson, Sweden's prime minister, said that mortgage interest tax relief is part of a robust tax system that shouldn't be changed.

"It is important that people who have taken out a mortgage to buy a home do not suddenly face changed circumstances. This is a condition for all young families who have put themselves in debt to buy a home," he said.

He declared himself surprised by Reinfeldt's suggestion to finance the abolition of property tax by reducing the tax relief.

"This means quite simply that people who live in really big houses and are getting on a bit get a big tax reduction, while people who are young and have just started out get big tax rises. That's a bad policy," Persson said.

The big losers would be young families with children who recently bought houses in the major urban areas, said Lars Kilander of Mälarsamfundet, which represents Swedish real estate agents.

"A combination of interest rate rises and a reduction in mortgage interest tax relief - that is a situation we absolutely don't want to see," he said.