'Taxes still too high in Sweden'

The Swedish government has implemented ambitious tax reforms. However, the average taxpayer still pays three out of five earned kronor in taxes. And the public is still unaware of the extent of taxation.

In a survey conducted a few years ago it was shown that the majority of Swedes vastly underestimate the amount of taxes they pay. Half of those questioned for the survey believed that they paid 36 percent or less in taxes. Many do not know that the so-called hidden taxes are approximately as high as the visible taxes.

In Denmark political parties to the left and the right have agreed on implementing a tax reform that means the highest marginal rate of tax on labour will be reduced to below 50 percent next year. The same tax rate is 57 percent in Sweden. If hidden taxes are also included, the total highest marginal tax rate on labour is a full 74 percent in Sweden.

But won't tax cuts undermine the so-called Swedish model? It is important to remember that Sweden was a country with even distribution of income, relatively few social problems - such as crime - and high life expectancy back in 1950. At that time Sweden had a lower tax rate than the United States. Low taxes and ample opportunities for entrepreneurial activity brought about Sweden's high standard of living.

It was when politics radicalized during the 1960s and onwards that Swedish taxes began to rise to the high levels we know today. When taxes reach a high enough level they tend to be spent on things other than crime reduction, qualitative health care and education. It is no coincidence that Sweden has several hundred public agencies that, among other things, are occupied with ”supplying Swedish sailors with a meaningful cultural life”.

As taxes have risen, so has welfare dependency. In 1970, around 11 percent of the adult population of Sweden was living off various forms of public handouts rather than work. In the summer of 2006 this figure had doubled to 22-23 percent. It is of course important to have public safety nets, but the high dependency on handouts is draining public resources. This is why Sweden has higher taxes than other modern nations but cannot offer higher pensions.

In fact, a comparison with other industrialised countries shows that Swedish senior citizens receive an average level of pensions. The average pension income is 14,000 kronor ($1,500) per month in Sweden, compared to 18,500 kronor per month in Austria and 17,700 kronor per month in the Netherlands.

Another problem arising from high welfare dependency is that norms associated with work and responsibility have deteriorated in Sweden. It has today become socially acceptable for people to receive government sick leave payments despite being capable of working. And norms are deteriorating most among young people.

The number of Swedes on sick leave is astonishingly high in international comparisons. Swedes eat right, exercise and are amongst the healthiest people in the world. When we see people in their twenties going into early retirement it is part of a phenomenon whereby society attempts to hide true unemployment and many people don’t mind living off social benefits.

There are many reasons to cut Sweden's taxes: to encourage entrepreneurship and work, to reduce welfare dependency and to create a system more focused on the core functions of the welfare state. The government has already reduced the tax burden, but the reforms must continue. The taxes should at least be cut to a level where the average income earner ”only” pays 50 percent in taxes.

Nima Sanandaji

Swedish Taxpayers Association (Skattebetalarnas Förening)

Nima Sanandaji is also president of Swedish free market think tank Captus and publisher of the weekly online Swedish magazine Captus Tidning.