Tax Incentives Play A Pivotal Role In Sweden's Reform Program

by Ulrika Lomas, Tax-News.com, Brussels

23 October 2008

The Swedish government has unveiled its reform policy for 2008-2010, designed to mitigate the effects of the economic downturn and minimise the impact on the labour market, by implementing tax relief measures for both businesses and individuals and by strengthening intellectual property, infrastructure and research initiatives.

The Swedish Reform Programme for Growth and Jobs 2008-2010 forms the next stage in the government’s reform strategy, vital to ensuring long-term sustainable economic development and welfare. The fresh measures outlined seek to strengthen competition and improve the business and innovation climate.

At the heart of the strategy is the work-first principle, demonstrating the government’s commitment to combating labour market exclusion.

For individuals, the government proposes implementing the following key tax measures:

• The third stage of the in-work tax credit, which reduces the marginal tax and aims to provide not only a huge incentive to work, but also endeavours to encourage those already in part-time employment to increase their hours and assume full-time employment. As a result, approximately 97% of all those who work full-time will benefit from tax cuts of more than SEK1,000 per month.
• A reduction in state income tax, designed to shelter low- and middle-income earners and again, provide an incentive to work.

For businesses, the reform details the following tax measures designed to make it easier and less costly to employ new staff, encourage investment and provide additional incentives for new enterprises to start up and flourish:

• A corporate tax package that will lead to tax reductions in the region of SEK16bn over the coming year. This includes lowering the rate of corporate tax from 28% to just over 26% and reducing social security contributions by 1%.
• The introduction of a number of simplifications designed to ease administrative costs for businesses, which forms part of the government’s drive to reduce costs by 25% by 2010.

Additional government injections of around SEK15bn - spread over a four year period - aim to boost research and innovation, imperative, it believes, for growth of the economy. Here, the focus will be on research in the areas of medicine, technology and climate.

Other priorities announced include strengthening Intellectual Property rights, which the government considers to be a prerequisite for investing in innovation and creativity.

Included in the strategy are a number of measures pertaining to the environment, contained in the climate tax package. This package seeks the commercialisation and spread of new energy technology, increased energy efficiency and faster planning processes for the production of renewable electricity.

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