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Norway’s tax system has increased inequality, report finds

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Norway’s tax system has increased inequality, report finds
PM Erna Solberg at a conference in Munich, Germany earlier this year. Photo: AFP
13:25 CEST+02:00
Income inequality has increased in Norway as a result of changes to the country’s tax system under successive Erna Solberg governments, according to a statistical analysis.

The analysis, conducted by Statistics Norway (SSB), looked at the distributive effect of taxation under six years with Solberg as head of government in comparison with 2013, the year the Conservative PM came to power.

“Changes to both income and inheritance tax as well as changes to indirect taxation are all pulling in the direction of less distribution (of wealth),” SSB researcher Thor Olav Thoresen told news agency NTB.

Budgets since 2013 have consistently made cuts to tax. Overall, tax has been reduced by 25.5 billion kroner, including a reduction in income tax from 28 to 22 percent, NTB reports.

It is this particular change which has had the biggest impact on overall income inequality, according to the SSB analysis.

In order to make up for lost state revenue resulting from the income tax cuts, a change was made in 2016 introducing a graded tax code (trinnskatt or bracket tax) in place of a surtax for the highest earners (topskatt).

The decision to reduce the income tax rate was broadly supported in parliament in keeping with a reduction in business tax, also from 28 percent to 22 percent, in keeping with the OECD average, according to NTB’s report.

Less popularly, Solberg’s government has also scrapped a levy on inheritances and cut wealth tax (formuesskatten).

But the latter change has had little effect on income equality, the SSB report concludes.

“We expected the effect from wealth tax changes to be greater. The reason is that these tax reductions have encompassed a number of households with low incomes but high wealth,” Thoresen told NTB. That could include persons with temporarily low incomes due to investment losses, he said.

But the effects of the tax cuts have been greatest amongst those with the highest wealth, as expected, NTB writes.

Hadia Tajik, deputy leader and finance spokesperson with the opposition Labour party, criticized taxation under the Conservatives..

“The richest have been given 100 times more in tax cuts than the lowest-paid under Erna Solberg. If you want less inequality, tax policies have to be distributive. That’s the fairest way, and gives a better basis for the country to create value,” Tajik said.

The SSB analysis takes only personal taxation into account and does not include social welfare, which has been strengthened under Solberg, Conservative spokesperson for finance Henrik Asheim said.

“The tax system has many purposes and makes many considerations. It’s not just a question of distribution, but also ensuring it pays to work, that new companies are created and that tax is paid on things we don’t like,” Asheim told NTB.

In a previous study of the redistributive effect of tax policies under eight years of the centre-left governments which preceded Solberg, SSB found that changes to tax rules increased the distributive effect.

READ ALSO: Here is Norway's budget proposal and what it means for you

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