Thursday, September 13, 2012

The Swedish government will lower the corporate tax rate to 22 percent

Stockholm Sep. 13, 2012
The The Swedish government will lower the corporate tax rate to 22 percent, from the current 26.3 percent. The reduction applies from January 1, 2013.

The reform is expected to be financed partly by the tighter deduction rules for the internal interest. The Swedish government says that: "The significant reduction in the corporate tax rate is expected to strengthen the investment climate and growth in Sweden." To further strengthen the conditions for entrepreneurs the Swedish Government announced that it will introduce an investment deduction. This will allow natural persons investing in businesses to make a fifty percent deduction in their tax return.

Prime Minister Fredrik Reinfeldt said at a press conference that the entire year's budget work has been done in an environment where "Sweden is different from the rest of Europe. We are in a position where we can discuss how we can strengthen Sweden's competitiveness. An important part of this is the corporate tax rate, which is now lowered." It is "probably the most harmful tax of all," he said. 

Corporate tax is clearly in focus even for governments that may not have room to lower it, but they choose to lower it anyway to enhance competitiveness, for it is "extremely important for investment," he said.

The minister for enterprise Annie Lööf said that after cutting the corporate tax rate Sweden is below the average for both the OECD and the EU, and it strengthens the conditions for higher employment and higher growth.

Monday, September 10, 2012

US should learn from how big government damaged Swedish society

The Swedish author Nima Sanandaji has produced a new report in defense of the free markets. He shows that an over-bearing welfare state, along with high taxes, has damaged the economy in Sweden as well as undermining its social capital. It suggests that it is only through focusing on increasing economic freedom and introducing more choice in public services that the Alliance for Sweden has rebuilt the country's economy.  This report contradicts everything that Democrats believe about Sweden.

Here is a summary:

Sweden did not become wealthy through social democracy, big government and a large welfare state. It developed economically by adopting free-market policies in the late 19th century and early 20th century. It also benefited from positive cultural norms, including a strong work ethic and high levels of trust.

As late as 1950, Swedish tax revenues were still only around 21 per cent of GDP. The policy shift towards a big state and higher taxes occurred mainly during the next thirty years, as taxes increased by almost one per cent of GDP annually.

The rapid growth of the state in the late 1960s and 1970s led to a large decline in Sweden’s relative economic performance. In 1975, Sweden was the 4th richest industrialized country in terms of GDP per head. By 1993, it had fallen to 14th.

Big government had a devastating impact on entrepreneurship. After 1970, the establishment of new firms dropped significantly. Among the 100 firms with the highest revenues in Sweden in 2004, only two were entrepreneurial Swedish firms founded after 1970, compared with 21 founded before 1913.

High levels of equality and favorable social outcomes were evident before the creation of an extensive welfare state. Moreover, generous welfare policies have created numerous social problems, including high levels of dependency among certain groups.

Descendants of Swedes who migrated to the USA in the 19th century are characterized by favorable social outcomes, such as a low poverty rate and high employment, despite the less extensive welfare state in the USA. The average income of Americans with Swedish ancestry is over 50 per cent higher than Swedes in their native country.

Third World immigrants have been particularly badly affected by a combination of high welfare benefits and restrictive labour market regulations. In 2004, when the Swedish economy was performing strongly, the employment rate among immigrants from non- Western nations in Sweden was only 48 per cent.

Since the economic crisis of the early 1990s, Swedish governments have rolled back the state and introduced market reforms in sectors such as education, health and pensions. Economic freedom has increased in Sweden while it has declined in the UK and USA. Sweden’s relative economic performance has improved accordingly.

Download the report here

Sunday, September 2, 2012

The Swedish healthcare model has a grim outlook

The Swedish welfare state is forcing its citizens to pay 44.4 percent in tax revenues on the gross national product to pay for its from cradle to grave entitlements. Compared to the U.S. tax burden of only 24.8 percent its a staggering number. The tax pressure on the Swedish middle class exceeds 60 percent and this is not enough to cover the shapely raising costs for the socialized healthcare system.

The Swedish socialized healthcare model is a proof of that the ObamaCare system is an utopian idea. The Health care bill in Sweden is growing steadily every year. A sharp increase by 13 percent more in tax, or significantly increased fees will be necessary to meet the needs, according to the Swedish economists Stefan Ackerby. To increase the tax pressure up-to 74 percent on the middle class would be impossible. But the political class making the decisions shy away from taking a stand. 

Each year the Swedes pay more money on health care. Between 1993 and 2008 health care spending increased by 70 percent (from 149 billion to 256 billion Krona in real terms). This represents an increase from $2,700  to $4,230 per Swede. Anders Klevmarken, emeritus professor of econometrics, and Björn Lindgren, professor emeritus of health economics, has analyzed the demographic change and concludes that health care costs could increase by another 270 percent by 2040 – that is almost a tripling of spending. Such an increase would mean that every Swedish need to shell out an additional $8,500 per year, or $710 per month. This impossible to pay for the Swedish middle class. In debate variations of private funding are proposed, since its almost impossible to increase the tax burden. It may be through higher fees when you go to the doctor, or the cost ceiling will be raised.

Already now Swedish patents has to pay all kinds of non-deductible fees up to $1,000 altogether. And the social health insurance does not cover the fees per day when hospitalized. The worst effect of the socialized health care system is the rationing causing patients to wait in line for month, if they can survive, to receive the treatment they are imagining that have paid for to get instantly. For the citizens that are better off its common to buy a private insurance for medical treatment in time, which is the smart way to go ahead in the queue. Since 2007, the market for private health insurance increased sharply by 58 percent. Medical insurance is paid to 80 percent by employers and as a benefit for employees. From an employer's perspective, private health insurance makes it possible for the employee to quickly return to work, thus reducing production loss. For the employee, a private health insurance contribute to a faster recovery and increased security for the economy and health.

After half a century of big socialist government and lack of personal accountability Sweden is in fact gradually forced to move away from the direction the USA is moving towards. The Americans are moving towards less economic freedom and a destroyed foundation for economic growth. The citizens of U.S. are risking the same development as the Swedes faced between 1960 and 1990, when income taxes for the average Swede doubled from approximately 30 to 60 percent. Is ObamaCare something the American middle class is willing and prepared to pay for?