Property tax in Sweden to be abolished in 2008

The Swedish government has announced that (residential) property tax is to be abolished from January 1st 2008. The tax is to be replaced by a council charge of 4,500 kronor (about £350) per home, or a maximum of one percent of the taxable value. The charge for apartment complexes will be a maximum of 900 kronor per apartment. On Tuesday the four governing parties agreed on a framework for the abolition of property tax. A government working group has been charged with analysing the results of the reform. If the proposal has undesired effects, the working group is free to test other alternatives. Any changes must however be financed from within the residential sector.

This looks similar to the Council Tax in Britain, but seemingly, the Swedish government has not looked at its disastrous effects on local government finance. There is no need to wait to see what the undesired effects will be. The public sector will be left short of funds and property prices will rise. This is completely predictable and is observed whenever this policy has been applied.

Sweden is known for the high quality of its public services, but these cost money requires high taxes. There is nothing wrong with that in principle - you can't have what you don't pay for and the poor standard of the public realm in Britain is an important element in the sense of depression that hangs over the country. The governement just has to tax the right things and leave untaxed that which ought not to be taxed - people's earnings.

So the Swedish government's decision will ultimately be to the detriment of the country, and, meanwhile, the reduction in property taxes will drive up property prices, raising the bottom rung of the property ladder. What a pity that these politicians have not looked elsewhere to see what actually happens when property taxes are held down or abolished.

If governments do not tax property then they have to tax earnings. Sweden's high taxes have driven abroad such high earning celebrities as Ingmar Kamprad, founder of IKEA. This shouldn't happen. If you tax land instead, the goverment picks up the money it needs and people are not driven to live in tax havens - people are mobile but land is fixed and cannot be hidden. Can't politicians anywhere learn this lesson?

Property tax in Sweden to be abolished

It is nice to know that for once, the experts concur with my analysis. The Organisation for Economic Co-operation and Development (OECD) has criticized the Swedish government's decision to abolish residential property tax. Sweden needs to reduce tax on labour, not property, according to the OECD. "There are other tax cuts that are much more important. In general, Sweden is a country with higher taxes than other OECD countries, but not when it comes to property tax," Jens Lundsgaard from the OECD's Swedish office told news agency TT. Lundsgaard bases his criticism on a thorough appraisal of the proposal presented by the government on Tuesday. "What the government is doing is favouring housing over work and enterprise, and one has to wonder why that is. "There is a far greater need for tax cuts that address unemployment and tackle exclusion on the labour market than reducing residential taxes," he said.