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Sweden's Property Tax Next On Government's Reform List

by Ulrika Lomas,, Brussels

10 April 2007

Hot on the heels of its proposal to axe the wealth tax, Sweden's centre-right coalition government has pledged to continue its reform of the tax and welfare system by proposing to abolish the unpopular property tax, replacing it with a so-called 'communal tax.'

Under the current property tax system, homeowners must pay 1% of the taxable value of their dwelling if they live in a house, and 0.5% if they live in an apartment. However, the tax is particularly unpopular with Sweden's middle classes, and Christian Democratic leader Goran Hagglund said in a recent Associated Press report that the levy makes it "very difficult for people to plan their lives."

"It makes it especially difficult for people with small margins, who live in areas that are considered attractive," he noted.

While property tax reform was a key pledge in the governing coalition's election manifesto last year, and was perhaps the policy which most helped sway the electorate away from the Social Democrats' long domination of government, there has been much debate within the coalition over how the tax's elimination should be financed. But it would appear that an agreement has been reached on a new flat rate system, known as the 'communal tax' which would commence next year. The new tax would lead to a charge of about SKR4,500 (EUR485) or a maximum of 1% of the property's taxable value. The shortfall in revenue would then be made up through higher capital gains tax when homes are sold.

Prime Minister Fredrik Reinfeldt's Swedish government has already signaled its intent to increase Sweden's attractiveness as a place in which to invest by pledging to scrap the wealth tax in the upcoming budget, due to be announced on April 16. Sweden remains only one of four countries in the OECD that levies a wealth tax and the current government has blamed the levy for contributing to high levels of capital flight and low levels of investment and entrepreneurship.

Currently, Sweden's wealth tax is 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. In 2005, the tax raised around SKR4.5 billion in revenues from a mere 2.5% of all taxpayers. Supporters of the tax's removal argue that the move would a negligible impact on the public budget.

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