Swedish Budget Cuts Taxes

by Ulrika Lomas, Tax-News.com, Brussels

26 September 2008

In the 2009 budget speech aimed at reviving Sweden’s flagging economy, Finance Minister, Anders Borg, revealed the government’s key initiatives at the heart of the Budget Bill: cutting taxes and benefit payments to increase work incentives whilst increasing public spending.

The government has confirmed a total tax cut of SEK32bn (USD4.8bn, or 1% of GDP) for the coming year, intended to lower income and corporate taxes and boost spending on research, schools, roads and railways. Despite fears of narrowing the budget surplus from an estimated 2.5% of gross domestic product this year to 1.1% in 2009, the government stands firm that the plans will help achieve their goals and maintain household spending.

Unveiling the measures to parliament on Monday, Borg announced a cut in income tax of SEK15bn to be achieved via an extension of the in-work tax credit system combined with a reduction in the state income tax paid by middle and high earners.

In order to cut corporate taxes by nearly SEK16bn, the tax rate will be reduced from 28% to 26.3% and the employers’ social security contributions lowered by 1% from 32.4%. Lower payroll taxes will be offered to employers who hire people under the age of 26 as an incentive to employ more young people. This tax had previously been cut for companies employing certain immigrants, the disabled and those younger than 25 or older than 65, making it cheaper and consequently more attractive to hire staff.

Overall, the government expects the economy to grow 1.5% this year, 1.3% in 2009 and by 2010 it predicts a 3.1% growth.

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