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Sweden To Cut Income Tax

by Ulrika Lomas,, Brussels

21 September 2007

Sweden's centre-right government pledged to continue its tax reform plans earlier this week, announcing cuts in personal income tax worth about US$1.6 billion (around SKr11 billion).

Presenting his government's programme at the opening session of parliament on Tuesday, Prime Minister Fredrik Reinfeldt told lawmakers that the latest round of tax reforms was aimed at creating more incentives to work, thereby cutting Sweden's rate of unemployment.

“Most people in work will have approximately SKR1,000 kronor ($150) per month more in take-home pay" as a result of the tax cut, Reinfeldt stated.

Presenting the government budget on Thursday, Finance Minister Anders Borg explained that the new tax reforms were designed to help 200,000 people back to work by the end of the government's term.

"This is a budget to put more people into work and to find more and broader ways back for those who are outside the labour market," he reportedly announced.

In other actions that will chip away at Sweden's huge welfare state, the government will reduce sick pay in the first year by 5% to a maximum of 75% of salary, and allow employers to forgo social security contributions if they hire employees who have been out of the labour market due to long-term sickness.

The four-party conservative coalition came to power in 2006 pledging to reduce the size of Sweden's welfare state and accompanying high taxes, and hit the ground running with a US$5.8 billion package of tax cuts in January 2007.

"Our vision contrasts with that of the former government, which ran a political agenda that resulted in that Sweden's low- and middle-income earners were the most taxed in the world," the four party leaders wrote in an opinion article in Stockholm daily, Dagens Nyheter.

The government has also promised to eliminate Sweden's wealth tax, charged at 1.5% on savings of over SKR1.5 million (US$214,000) for single people, and at the same rate on savings of more than SKR3 million for couples, and reform an unpopular system of property tax, replacing it with a so-called "communal tax".

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