A natural next step to strengthen Swedish competitiveness would be to reform and lower capital income taxes, write Jan-Olof Jacke, CEO, and Karin Johansson, Deputy CEO, on DI Debatt.
In recent weeks, we have once again had a debate about how Swedish taxes risk driving businesses, investments and owners out of the country. An area where we have an unfortunate tradition and where Swedish tax policy has historically caused great damage to the economy and business.
This time it is about the venture capital industry and a series of consecutive decisions that have hit a number of players. The Swedish Tax Agency appears to be highly active in the way it pursues these goals and seems to have sought partly new approaches.
The media report on rate hikes totaling SEK 1.6 billion. A large number of lawsuits have been ongoing for a very long time and extensive resources have been expended on both sides.
Swedish Business and Industry has no idea about individual cases, but the development we see is ominous. Unpredictable, internationally high and distorting taxes damage the economy and its growth potential.
The long, unmanageable and largely unpredictable processes also raise questions about legal certainty.
Firstly, because it clearly risks having consequences for where these activities are conducted, which underlines that Swedish taxes are not internationally competitive. The risk of operations moving could be perceived as exaggerated, if it weren’t for the fact that we have historical as well as contemporary examples of how Swedish taxes have driven such a development. It is serious for Swedish ownership, for access to capital and for Swedish jobs.
The long, unmanageable and largely unpredictable processes also raise questions about legal certainty. Regardless of the outcome, the tax system runs a significant risk of losing legitimacy. When the ambition should be to make the tax system as simple and predictable as possible, these very protracted processes pull in the complete opposite direction. It also affects the business climate.
Secondly, because we have a general competitiveness problem with excessive taxes on both labor and capital. Marginal taxes of over 50 percent make it difficult to supply skills and cause a gap and a tension against capital taxation, which is also high in international comparison. The general debate – which often claims wildly and inappropriately that Sweden would be a “tax haven” – rarely expresses this. Swedish taxes on investments are simply high in an international comparison.
An extensive survey carried out by Deloitte on behalf of Swedish Enterprise of 15 competitor countries showed, for example, that Sweden’s general capital tax of 30 percent is clearly higher than the rest of the world. There, the average is closer to 20 percent. Several countries also apply different types of reductions, for example in a number of countries such as Estonia, Belgium, Great Britain, Italy, the USA and Canada tax exemption was offered for dividends or capital gains in full or up to several million amounts and for certain types of investments.
We cannot afford to drive capital, investors and an internationally competitive venture capital industry out of the country.
Thirdly, because the debate does not take into account the importance of the risk capital sector for the Swedish economy. Sweden has a developed venture capital industry, whose success is not only reflected in the fact that a number of investors and entrepreneurs received a return on the risks they took.
Between 2007 and 2022, various venture capital players invested in nearly 4,000 Swedish companies to a value of almost SEK 500 billion. Directly and indirectly, just over a quarter of a million people are employed, which corresponds to just under 5 percent of Sweden’s total employment. This also includes the important function of capital access for startups and young growth companies.
Analyzes show that venture capital-owned companies have a strong productivity trend. It is absolutely crucial both for economic growth and good real wage development. The fact that the companies concerned have become stronger and more competitive has also contributed to higher employment growth.
Strengthened productivity becomes important over time for the size of the economy. Already today, tens of billions in increased wealth can be attributed to these companies’ stronger competitiveness and productivity.
In recent decades, Sweden has carried out a number of reforms that have taken us out of the most destructive parts of a tax system that hit investments, entrepreneurship, work, savings and economic growth.
The abolition of inheritance, gift and wealth taxes almost 20 years ago has improved the investment climate and increased entrepreneurial activity. The same applies to several of the improvements to the entrepreneur’s tax, i.e. the regulations that cover small businesses. Sweden today has a better tax climate for entrepreneurs and investments. It has benefited our country.
A natural next step to strengthen Swedish competitiveness would be to reform and lower capital income taxes. This is also in the Tidö Agreement. It is time for the government to move from words to action and at the same time ensure the predictability of the regulations.
Competitive and stable conditions for all forms of ownership benefit Sweden’s future.
We cannot afford to drive capital, investors and an internationally competitive venture capital industry out of the country.
Tax on ownership Legal certainty in the tax area
