Who misses the Swedish inheritance tax?

By Michał Perzyński *

‘’10 years without the Swedish inheritance tax – mourned by no one, missed by few’’ – reads the full title of the publication by Anders Ydstedt and Amanda Wollstad, published by Svensk Näringsliv (Swedish Enterprise). It is a detailed analysis of the reasons for, and the effects of abolishing the inheritance tax, passed unanimously by the Swedish parliament in 2004.

Both authors are experts in fields of tax advising, tax code analysis and economic freedom.

The main message of the article boils down to general praise for this reform. It can be easily proven that thanks to the abolition of the inheritance tax, Sweden has come to a major increase of prosperity; proof of this can be seen in many areas. For instance, conditions of grounding new enterprises have been made easier, especially for expanding and innovative lines of business. Apart from that the chances to receive a better education have increased, and probably the most important issue – it made creating capital easier.

‘’The inheritance is a thing of past’’ – preaches one of the subtitles in the article. It is hard to disagree, when it comes to analyzing the history of the inheritance tax not only in Sweden, but also in other countries. After its implementation in 1915 the inheritance tax reached its peak in 1983 when it was 70%. From then on, thanks to the continuous efforts of numerous experts, academics and politicians, a tendency towards the lowering of it could be observed – in 1987 the inheritance tax amounted to 60%, in 1992 30% to be totally liquidated in 2004. The same thing happened in Norway in 2014. In many other European countries such as Germany, Belgium, Great Britain and Finland this subject takes place more and more in public debate. It is only a matter of time until a brand new solution to this problem will be carried out.

But how did the inheritance tax actually work? Why was that so important to eliminate it? What kind of consequences will it bring in the long run?

The inheritance tax was levied on acquired property and inheritances and sometimes on life insurance. This tax brought a lot of urgent problems to Swedish entrepreneurs, and that is why it was sarcastically called the ‘’death tax’’. Apart from that it had a negligible influence on the state’s revenue (only 2,5%). To illustrate the negative effects of the inheritance tax, Ydstedt and Wollstad recall several anecdotes. The story of Maud Spencer, the managing director of Svalson AB is especially meaningful; her company produces and sells electronically operated sliding windows. Her father, who established the enterprise with his brother-in-law, unfortunately died unexpectedly in the initial phase of the company’s development. The inheritance tax in Sweden was still relatively high back then, which caused serious problems to the young firm. Mrs. Spencer had to get a loan in order to save the business. Luckily this decision paid off – Svalson AB recovered and is today a successful enterprise.

Many large enterprises, IKEA and Tetra Pak among others, have decided to emigrate because of the Swedish tax policy, which caused great losses to Sweden’s revenue. After the reform of the inheritance tax, Göran Grosskopf, chairman of IKEA, claims that under today’s conditions it would have been better to leave the company’s headquarters in Sweden. In the meantime this view has been spreading among private entrepreneurs – Sweden has become a very attractive business location.

The fact that the state relinquished its misguided tax policy is significant not only to businessmen, who can now make greater investments instead of paying taxes, but also to legal consultants, both interns and externs, can now focus on different tasks. Tax advising is visibly a lesser part of their work, now they can concentrate more on resources and labor time for innovations and marketing. Leading academics are satisfied for the new jurisdiction – they affirm an enormous improvement and claim that the new law made numerous family enterprises function much easier.

To conclude, it could be said that Ydstedt and Wollstad’s work ‘’10 years without the Swedish inheritance tax – mourned by no one, missed by few’’ is an example of the abolition of the inheritance tax in Sweden clearly proves how important for the economic development of a state is the simplicity and fairness of its tax code. It is also interesting to see how many positive effects the abolition of the inheritance tax can bring in many states. On the end there is only one question remaining: if it has worked so well to not have an inheritance tax in this many places, why then has it not been discarded in many more places yet?

* Michał Perzyński is currently doing an internship at the Austrian Economics Center