TCS Daily

More Tax Please, We're Swedish

By Kristian Karlsson - February 21, 2005 12:00 AM

In Sweden - already the country with the highest taxes in the industrialized world - the ruling social democrats are now running for re-election on raising taxes even more. Sweden is certainly an odd bird among civilized nations. The proposal is reflects the sharp left turn the entire political establishment has taken. Ironically, it was initiated by the conservatives.

Until recently, the Swedish political landscape has been more or less invariable since the 1920s. The social democrats have been in power since then, with a couple of brief interruptions of non-socialist rule (1976-82, 1991-94). The tax burden is now 51.4 percent, compared to the EU average of 41.5 percent. Sweden is now the only country where more than half of GDP is channeled through government. Denmark, the first runner up, falls just below 50 percent. Now there's a world record that ought to be shunned.

Traditionally, tax hikes have been sold as necessary to ensure welfare services, but not as something for the election platforms. They have been accepted as necessary, but too risky to run on, even by social democrats.

The center-right parties, on the other hand, usually run for election on lowering taxes. Not to lower them a great deal, but at least roll back the expansion of the last couple of years. At the end of World War II, Bertil Ohlin, leader of the Liberal Party and later Nobel laureate in economics, tried to explain that taxes were too high and needed to be lowered. The tax burden was 18 percent. The ambition is usually to reverse the last year or so of tax hikes. People who dared to suggest larger cuts; reversing, say, the last five or six years of tax hikes, were maligned as cruel, insensitive libertarians without any concern for the welfare of the people.

However, it was always clear that the opposition wanted lower taxes. The man on the street would be able to distinguish between the social democrats and the opposition; the ruling party wanted higher taxes or at least status quo and the opposition wanted lower taxes. Well, no longer.

The conservative party has grown impatient with its unpopularity. After the former party leader was kicked out a year and a half ago, his successor decided to give up the battle for ideas and move the party platform closer to the electorate. The ambition to lower taxes was one thing that was quickly toned down. So far, the move has been reasonably popular among the party members. Since the last election, the party has soared in the polls, up from 15 percent to about 25. No one seems to remember that the numbers were pretty much the same four years ago, when the party still fought for meaningful change.

When the conservatives took such a sharp left turn, the liberal party was suddenly stuck at the far right. That could quickly prove dangerous; being in the middle is important for the party's identity, so a similar left turn quickly took place. Now the liberal party proposes a tax stop; taxes should neither be raised nor lowered.

All of a sudden everyone seemed to agree. The social democrats had to distance themselves from the rest of the crowd - how else could they paint their opponents as heartless libertarians? And what a left turn they took! Prime Minister Göran Persson's new rhetoric echoes a time long past; in a debate in Parliament last week he stated, "How many flat TV screens should there be in our houses, apartments and condominiums, how much more of cars and private consumption and how much should be spent on the common good? That's the issue." So private consumption is out; welfare is being redefined as strictly government funded services. To avoid having people actually spending their money on improving their own lives, more money must be channeled through government. Finance Minister Par Nuder recently explained to the Financial Times: "Contrary to many of my European colleagues I dare to say what is necessary. What people are demanding all over Europe is that we should invest more in the public sector".

How is it possible to run for election on raising taxes? Would that be possible anywhere else in the world? Well, for one thing, many of the taxes are indirect. A high percentage of the middle class marginal voters believe they gain from the massive redistribution and government funded welfare services, and as long as tax hikes mean more money for themselves, they'll vote for them. Also, there is a general skepticism of private profits in the service sector. Healthcare and schools have been socialized for so long that alternatives are virtually unknown. The option open to those who wish to improve their healthcare is to make everyone else spend more on theirs as well (or, for the wealthy, to go abroad).

However, giving up the issue of taxes altogether may well undermine the opposition's call for general reform. With no true opposition, the social democrats have already won the battle for ideas and will win every election, even if the center-right parties get to manage the government apparatus every now and then.

To be sure, there is a chance of actually winning next year's election. It's true that the old ways didn't turn out very successful - the opposition has only won three elections since World War II - so it may well be time to try another strategy. Winning could prove useful in a number of ways - for example, making indirect taxes more visible would prove useful in the long run. Or major reform of the spoils system. Even though central positions in the administration is supposed to be non-political, eight decades of one-party rule has created a clear cut spoils system; directors-general, university principals and ambassadors, for example, are all appointed politically and grow more dependent on the ruling party. But both ideas are probably to gutsy for the alliance of opposition parties.

The sad fact is that a victory for the non-socialist alliance in next years election may be marginally different than the social democrats before last year's leftward turn of the entire political game. Without the slightest ambition of lowering taxes most things would stay the same, albeit under a new lordship. But if the social democrats win again, as they usually do, they have been granted a much worse mandate than before.

It's a high stakes game with status quo as the top prize. Can I trade my chips in before the new deal, please?


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