Former Finance Minister, Erik Åsbrink: Introduce a flat tax model

I have previously written a blog post about the Central Bank’s Jubilee Fund’s and Skatteadademin’s (The Swedish Tax Academy’s) tax seminar in December at which Magdalena Andersson presented her thoughts regarding the overview of the tax system she now, very clearly, wishes to see implemented. After the current Finance Minister’s presentation, the former Minister Erik Åsbrink, that is the Minister who implemented the 1990 tax reform, made his presentation. Åsbrink showed no mercy in his criticism of today’s tax system and repeated his opinion that a flat tax model should be introduced. This implies a uniform tax rate of approximately 30 percent.

The following points were included in his speech which was presented under the heading,”Capital taxation contra tax on labour –Time for a new tax reform!”.

25 years after the 1990 tax reform

• Approximately 600 changes have been implemented.
• Level of general welfare is now threatened.
• There is an increasing number of exemptions and a greater degree of complexity.
• Increasing degree of lack of fairness in the system and increased tax avoidance.
• Currently there are six different tax rates on income from capital and three different tax rules/levels of tax on labour income.
• 3:12-rules: The interval between the tax rates on capital and income from labour has increased from 21 to 40 percent.
• Increasingly larger amounts of income are being covered by the low-tax 3:12 rules with 20 percent tax.
• A high income earner retains 29 percent of his or her annual income and an owner of a closely held company retains 62 percent.
• The declining inflation rate has reduced tax on real capital income.
• Increasing difference in income levels.
• In addition, there is an immense amount of dividends and capital gains, SEK 500 billion, which could be taxed at 20 percent.
• The 3:12-rules are a ticking time bomb threatening the entire tax system and has created new, unmotivated tax-favoured groups.

Åsbrink’s own conclusion is that a flat tax rate should be introduced! If the income tax rate on labour is eliminated, then the 3:12 rules can be done away with.

The decrease in income levels and increased income differences between high and low income groups which, according to Åsbrink, will be a result of this, should be compensated for on the basis of the following social and welfare measures for improved income redistribution.

• Introduce a progressive real estate tax.
• Re-introduce inheritance tax and tax on gifts.
• Enhance taxation of salary-related benefits.
• Limit deduction of interest on debt.
• Increase tax on the finance sector.
• Introduce uniform VAT rates.
• Increase environmental taxes.
• Increase child care and housing subsidies.

Is such a reform possible?

According to Åsbrink, a reform is not possible just now but he adds that if we could accomplish the impossible in 1990 and implement the 1990 tax reform, we should be able to do it again. Such a reform can increase tax revenues, strengthen the framework of social and welfare measures for improved income redistribution, and can decrease tax avoidance.

Comments

One could say that it will be only the “survivors” of the struggle who will be around to see the results. Even if a flat tax model is not introduced during the next few years, Åsbrink’s argumentation and criticism of the Swedish tax debate, including the 3:12 rules, which are being looked at, and other regulations important to entrepreneurs, will have an impact.

Åsbrink does not allude to the disappearance, more or less, of the terms income from capital and income from services during recent years, with the knowledge society replacing the industrial society, and which was a premise on which the 1990 reform was based, as having an impact on developments. If he has an opinion in this context, he refrains from airing it.

It is perhaps of interest to mention that the undersigned wrote, in 1998 and together with Henrik Mitelman, a book entitled, ”Flat Tax Rate – Tax vision for a new era”. This book was jointly published by Företagarna (The Swedish Federation of Business Owners) and TCO (The Swedish Confederation of Professional Employees). Företagarna wanted at that time to do away with the 3:12-rules and TCO wanted to decrease tax on labour. Both wanted to simplify the tax system.

A flat tax model is now also being discussed, once again, in the US in conjunction with the forthcoming Presidential election.