As a result of the COVID-19 pandemic, the economies of many countries have been significantly damaged. In Sweden, GDP is expected to fall by 4.6 percent in 2020, despite the country’s lack of business and school lockdowns. In August, Sweden’s unemployment rate was 9 percent. Unsurprisingly, Sweden’s economic recovery is a priority in the upcoming budget, which was released Monday.

Sweden’s Liberals and Centre Party have presented income tax cuts for the upcoming 2021 budget. The cuts make up part of Sweden’s economic recovery spending, which will exceed SEK 105 billion (US $11.10 billion) in 2021 and SEK 85 billion ($8.99 billion) in 2022.  Some funding for the spending is expected to come from the EU Recovery Fund. The income tax cuts are directed at low- and middle-income individuals and will impact roughly 7.2 million of Sweden’s 10.3 million population.

A permanent tax cut will be phased in, with a reduction of SEK 1,500 ($158.61) in 2021, SEK 1,880 ($198.79) in 2022, and SEK 3,000 ($317.23) in 2023 per full-time worker. The costs of the permanent tax cuts are expected to climb from SEK 8.5 billion ($898.80 million) in 2021 to SEK 17 billion ($1.80 billion) in 2023.  

While some cuts are permanent, a temporary tax cut on earned income will also be applied in 2021 and 2022. The temporary tax cuts are expected to cost Sweden SEK 5 billion ($528.70 million) per year.

Annie Lööf, the current Centre Party chairman, says that the tax cuts are motivated by a desire to increase the economic security of Swedes as well as a desire to get more people to move up from part-time to full-time work. 

Measures to get more people to work will also be tackled from the employer side. The new budget lowers employers’ social security contributions for young people, which will cost Sweden SEK 7.52 billion ($79.51 million) in 2021 and SEK 8.95 billion ($94.64 million) in 2022. Tax reductions to promote investment and on labor income will also be implemented.

Income taxes for people over the age of 65 will be reduced, costing another SEK 2.36 billion ($24.96 million) annually. A new pension supplement will also be introduced. The supplement is anticipated to be worth SEK 2.17 billion ($22.95 million) in 2021, SEK 6.19 billion ($65.45 million) in 2022, and SEK 5.86 billion ($61.96 million) in 2023.

The tax cut in the 2021 budget follows Sweden’s removal of its top personal income tax rate in 2020. The top rate had added a 5 percent surtax to incomes exceeding SEK 703,000 ($74,336).

Sweden currently levies a flat tax rate of 20 percent as well as a varying municipal tax rate. The current average municipal rate is 32.19 percent.

The new budget, which was released Monday, also contains measures to combat climate change, which include subsidies for electric cars and money for improved public transportation systems. New tax deductions for solar panels and charging boxes will also be made available. Additionally, the limit for how much energy solar farms can produce tax-free will also be raised. Investments to protect natural areas, which make up a significant portion of environmental spending, will be worth SEK 1.59 billion ($16.81 million) in 2021, SEK 1.67 billion ($17.66 million) in 2022, and SEK 0.61 billion ($6.45 million) in 2023. Climate spending in the budget will be worth 9.7 SEK billion ($1.03 billion).

The budget outlines an aggressive plan to both cut income taxes in a permanent manner alongside multiple other tax cuts and spending increases. Sweden is clearly taking a big picture approach in the 2021 budget, which Minister for Finance Magdalena Andersson termed “historic” for its high levels of spending.

Original Article Posted at : https://taxfoundation.org/sweden-2021-budget-permanent-income-tax-cuts/