The OECD has today recommended that Norway reduce its wealth tax, a thorny issue in the Scandinavian country, as part of a broader tax reform.
Introduced as early as the late 1800s, Norway is one of the few countries in Europe to have kept its levy on relatively wealthy individuals.
The tax currently applies to those whose net worth (assets minus debts) exceeds 1.9 million kroner (€171,500).
Above that, individuals are subject to a 1% tax on their assets, which rises to 1.1% in the top band for those with a net worth over 21.5 million kroner. The thresholds are doubled for couples.
“While they have a considerable redistributive effect, net wealth taxes could discourage investment, particularly in small or family-owned firms, as taxing capital can result in negative after tax returns on investment,” the OECD noted in a report on the Norwegian economy.
“The net wealth tax should be reduced in favour of stronger immovable property and inheritance taxation,” the organisation said, as residences are lightly taxed in Norway and the country’s inheritance tax was abolished in 2014.
The recommendations come as the country’s minority Labour government plans to present a tax reform by 2027.
The wealth tax is one of the main points of contention between the country’s left-wing parties, which favour it, and the right-wing opposition parties, which either want to reduce or abolish it.
Supporters argue that it is important for the wealthiest to contribute to the country’s generous welfare state, while critics claim that it drives entrepreneurs away and discourages innovation.
While noting that “Norway remains among the world’s most prosperous and equal economies,” it warned that growth is slow, inflation is high and the country to a greater extent relies on its sovereign wealth fund to cover budget deficits.
The wealth fund, the largest in the world, is fuelled by the country’s massive oil and gas revenues and now stands at almost 22 trillion kroner.
Withdrawals from this fund, which is heavily invested in stock markets around the world, now account for 27% of public spending, compared to 3% in 2001, the OECD noted.
Faced with the risk of financial market turbulence, “a lasting decline in fund value could pose considerable problems for fiscal policy,” the organisation noted, while arguing for a plan to limit spending growth and contain spending excesses.
Source: AFP
