The principles of simplicity and uniformity that characterized Sweden’s 1991 major tax reform have, according to many observers, been lost among the hundreds of new amendments, deductions and special taxes. The SNS Economic Policy Council 2013 recommends a reform of Sweden’s tax code with the aim of creating a simple system that can be understood by the average citizen and that can be stable over time.
Make tax rates more uniform
The reports includes an assessment of the effects of various potential reforms including a lower tax rate on earned income, more uniform tax rates and the elimination of deductions.
The council’s evaluation shows that Sweden’s income tax rate could be cut to almost the same level as the corporate tax rate with no change in tax revenue if the tax base is expanded by eliminating deductions, including for interest and private pension savings.
Self-financing reform
In evaluating one of the alternative tax reforms, the council aimed to show what options are available to offset the negative consequences of lower tax revenue in the form of wider income distribution. This would include introduction of higher child and housing benefits as well as reinforcement of the social security net. A higher property tax would also be introduced. The council’s calculations indicate that such a reform would be self-financing.
The SNS Economic Policy Council recommends that the Swedish government undertake a broad overview of the tax system with the aim of creating s simpler system with more uniform tax rates and broader tax bases.
Simplify the earned income tax credit
Until a more comprehensive tax reform is introduced, the Economic Policy Council proposes the following measures to make it easier for citizens to understand the Swedish tax system:
SIMPLIFY THE WAY THE EARNED INCOME TAX CREDIT IS DESIGNED. The interview survey commissioned by the council indicates that Swedes have little knowledge about the earned income tax credit. It can therefore be seriously questioned whether the aim of the reform, to strengthen the incentive to work, has been achieved.
MAKE INVISIBLE TAXES VISIBLE. The payroll tax rate should be clearly reported to individual workers and the government’s budget proposal should show how this is calculated.
BETTER INFORMATION. Information to citizens about the tax system should be improved, for instance, by setting up a website where citizens can calculate the tax effect of different choices.
The SNS Economic Policy Council consists of
LENNART FLOOD, Professor of Econometrics, University of Gothenburg (Chairman)
KATARINA NORDBLOM, Associate Professor of Economics, University of Gothenburg and Uppsala University
DANIEL WALDENSTRÖM, Professor of Economics, Uppsala University.
Questions
Lennart Flood, lennart.flood@economics.gu.se mobile: +46 (0)70 676 43 09
Review copies and other questions
Contact Nina Bruce, Public Relations Officer, nina.bruce@sns.se, phone: +46(0)8/507 025 74 or mobile phone: +46(0)70/734 87 83
Conference
The report was presented at a seminar on January 17 2013. Hans Lindberg, Undersecretary of State at the Ministry of Finance and Urban Bäckström, Managing Director of the Confederation of Swedish Enterprise were discussants.