Finance Minister Siv Jensen has indicated for the first time that Norway’s conservative government coalition may back away from its efforts to eliminate the country’s controversial tax on net worth, known as formueskatt (literally, “fortune tax”). The retreat may be necessary, she told newspaper Dagens Næringsliv (DN), as part of a broader effort in Parliament to reform Norway’s tax system.
Both Jensen’s Progress Party and its government coalition partner, the Conservatives, made campaign promises last year that they’d immediately start cutting fortune taxes and eventually abolish them. Their state budget proposal followed through on the promises, as it took the first major step towards cutting the fortune tax rate, but the proposal met massive resistance from opposition parties and even the government’s own support parties in Parliament. The proposed reduction was, eventually, reduced itself.
Proponents of fortune tax claim it evens out wealth disparity in Norway, by taxing the county’s wealthiest citizens harder than “ordinary” Norwegians. With the sharp rise in property values in recent years and greater affluence in general, however, increasing numbers of Norwegians have been subject to the tax.
Business owners, meanwhile, have long complained that the tax, imposed year after year, prevents them from reinvesting in their companies and that they often have to drain capital accounts to pay it. Even the head of the opposition Labour Party, Jonas Gahr Støre, who inherited millions in wealth from his family’s business operations, can face fortune tax payments that amount to more than his annual salary as a Member of Parliament. The Conservatives recently pointed out that Støre must (willingly, he claims) take out dividends or tap into savings accounts to pay his annual tax bill.
This week, though, a commission appointed by Støre’s own former left-center government to evaluate Norway’s corporate income tax ended up presenting a report to Jensen’s still-new conservative government that proposed not just reduction of taxes on corporate profits but massive reform of Norway’s entire tax system. Portions of the overhaul seem welcome by most of the political parties in Parliament, while others signal widespread debate that’s likely to continue for the next several years. Among them is the issue of fortune tax, but Jensen has now indicated willingness to maintain it in return for other sweeping reform that would lower taxes in general.
Won’t go into the trenches
Asked whether the fortune tax could be retained, as part of broader tax reform negotiations, Jensen told DN “that can well happen.” She stressed that it’s “a bit early” to make any conclusions on that right now, but added that the government “must look at the overall picture, and not least evaluate what comes out of hearings” on the proposed tax reform. “There’s no point to hunch down in the trenches around this (fortune tax) issue now,” she told DN. “We must rather create a tax system that’s competitive (internationally).”
Pressed on the fate of Norway’s fortune tax, Jensen acknowledged that she and her party “went into the election campaign with the intent of doing something about fortune tax, and I stand by that, but I also went into the election with the intent of doing something about the overall tax pressure. That’s the ultimate goal.” The government, she said, “must sit down and discuss how we can best accomplish our main job, to provide a competitive tax system for Norwegian business.”
Opposition politicians noted that the commission’s report did not provide Jensen and her government with any “professional ammunition” to do away with fortune tax. Jensen told DN the government still wants to “build down” fortune taxes, but also will attempt to achieve a broad political settlement on tax issues in Parliament.
Reform will take time
All agree that a major overhaul of Norway’s tax system will take time. Hans Olav Syversen of the Christian Democrats, leader of the Parliament’s finance committee, predicts it will take several years before the proposals from what’s being called the “Scheel Commission” are studied and ready for a decision in Parliament.
“I think chances are 50-50 that we’ll get a firm proposal from the government during this term (which runs until 2017),” Syversen told DN. “And then there’s a new election, and tax reform can be postponed further.” Many of the commission’s proposals, including the elimination of most all tax deductions for everything from union dues to special tax relief measures for people living in the northernmost counties of Finnmark and Nord-Troms, are politically controversial. So are the commission’s proposals for new property taxes, to offset lower overall income tax rates. Debate and negotiations can drag on for years.