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POLITICS

What you need to know about the Swedish government’s proposals to cut tax for 7.5 million people

Sweden's Finance Minister has announced three tax cuts ahead of the autumn budget, which she expects will have an impact on the wallets of three quarters of the total Swedish population.

What you need to know about the Swedish government's proposals to cut tax for 7.5 million people
The changes proposed would affect low- and middle-income earners, members of unemployment insurance funds, and people on sickness benefits. Photo: Johan Jeppsson/TT

“This means more money in the wallet for ordinary people,” Finance Minister Magdalena Andersson, one of the favourites to take over as leader of the governing Social Democrats, promised when she announced the cuts.

One of the cuts would be a further extension of a tax cut aimed at low- and middle-income earners. This will be up to a maximum of 2,820 kronor per year in 2022 for those earning over 265,000, with smaller reductions for those on lower salaries.

Another proposal is to increase the tax reduction for sickness and disability benefits, reducing the gap between taxes on those benefits and earned incomes. Currently, people who receive these benefits pay around 10,000 kronor more in tax on average when compared to a working person on the same income level, and Andersson said the change would lead to “increased fairness in society” by supporting a “financially vulnerable group”. 

The third proposal is a tax reduction for payments to unemployment insurance funds (a-kassor), equal to 25 percent of the annual fee or a tax reduction of roughly 400 kronor per year for most members of these funds. The goal of this change is to encourage more workers in Sweden to join the funds, which pay members who become unemployed. 

So how much more would you get in your wallet if the proposals go through?

Andersson presented examples showing that a retired person on a pension of 240,000 kronor for example, would benefit to the tune of 1,668 kronor each year, and that a family made up of an assistant nurse and shop assistant (with annual salaries of 371,920 and 362,880 kronor respectively) would have 3,432 kronor extra after the changes.

“I think it’s not enough to be considered as a promise aimed at winning votes [in the September 2022 election], it doesn’t have enough impact on the wallet. But we’ll see what the rest of the budget will consist of. After all, this is a small part of the total budget,” Emma Persson, a private economist at Länsförsäkringar, told the TT newswire.

“The winners in this are those who are part of an unemployment insurance fund, live on sickness benefits and low- and middle-income earners who get to see a small boost to their wallet. Even if it is not a huge tax cut, for a person who earns 25,000 kronor, it is about 110 kronor a month,” she added.

In order for the cuts to actually come into effect, the government will need to get its budget passed by parliament in a vote. 

That’s not necessarily guaranteed, given that the margins between the different blocs are extremely thin and a previous alliance with the Centre and Liberal parties collapsed earlier this year. 

Passing its budget would require the government to get support from both the Centre and Left parties, who were both positive about Wednesday’s announcement.

However, the Centre’s economic political spokesperson told the TT newswire the reduction was “completely insufficient” to convince the party to vote in favour.

The Left Party said it would need to hear more about plans for financing the proposals, with their spokesperson welcoming the change to sickness benefits, but noting: “If you lower taxes, there will be less money for grandma’s elderly care and for healthcare that needs more resources. In the long run, it is unsustainable, so we expect this to be financed by raising taxes for those who have large capital incomes, large fortunes or large incomes in general.”

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STATISTICS

Income inequality in Sweden higher than at any time in nearly 50 years

Income inequality in Sweden rose sharply in 2021, hitting the highest level since records began nearly 50 years ago, according to a report from the country's statistics agency.

Income inequality in Sweden higher than at any time in nearly 50 years

According to Statistics Sweden’s latest income report, Sweden’s Gini-coefficient rose from 0.31 in 2020 to 0.34 in 2021, overtaking the levels seen in the run-up to the 2007 global financial crisis, and higher than at time since the agency started tracking income inequality in 1975. The Gini coefficient starts at 0 for perfect equality and rises to 1 in the most unequal distribution of incomes possible.

“This means that incomes in Sweden have not been divided so unequally since at least 1975,” said Johan Lindberg, one of the statisticians behind the report, said in a press release

Here’s Statistics Sweden’s table showing the Gini-coefficient for economic standard, with the light blue line excluding capital gains, and the red excluding all gains from capital investments. 

The Gini coefficient for economic standard. Photo: Statistics Sweden

The sharp rise in income inequality in 2021 came mainly because the incomes of the top 10 percent of households in Sweden rose in 2021 by over 16 percent, compared to less than 4 percent for each of the bottom nine deciles of Swedish households. 

“The decile of the population with the highest incomes saw their incomes rise significantly more than the rest of the population during 2021,” Lindberg said. 

Here’s Statistics Sweden’s chart showing how incomes increased in 2021 in the various deciles of earners. 

Photo: Statistics Sweden

Daniel Waldenström, an economics professor based at Sweden’s Research Institute for Industrial Economics, said that the sharp jump in income for the most well-off could be explained mainly by them selling shares, property, and other assets after the exceptional rises in prices that year.  

“These are incomes of a one-off nature,” he told the TT newswire, arguing that the rise was more “a manifestation of differences which already existed”, rather than a genuine increase in real inequality. “If you take a broad-brush view, inequality in Sweden hasn’t risen that much for 10-15 years.”

He said that Sweden had seen the sharpest rise in inequality during the Swedish Financial Crisis in the 1990s. 

“It was an extreme situation then, with high unemployment, low economic growth, and a bad economy,” he said.

And here’s the Gini-coefficient going back to 1975, using three different ways of measuring it. 

The Gini-coefficient as measured since 1975. Source: Statistics Sweden

Mikael Damberg, who was finance minister in 2021, told TT that the rise in inequality in 2021 was not the result of any political decisions, and was likely to be reversed in 2023, as share prices and property prices fall. 

“On paper, it’s going to look like a great year for equality, but at the same time, we’re seeing reports that schoolchildren are eating more food at school and families are seeing help from charities,” he said. 

Although economic inequality increased in 2021, even poorer people in Sweden were better off, with the median economic standard after inflation rising by 2.7 percent compared to 2020, something Lindberg said was “the greatest rise between two years since 2015”. 

 
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