The wealth tax is a popular idea with a long history of failures as Norway is now about to find out.

Norway levies its wealth tax on net assets exceeding NOK 1.7 million for individuals, with higher rates applying to greater wealth tiers, intended to promote equality and fund essential public services, to support Norway’s high standard of living. The maximal nominal tax rate was set to 1.1 per cent.

These recent tax hikes cause mounting capital flight. Prominent entrepreneurs and business owners have relocated to tax-friendly nations like Switzerland, draining intellectual capital and reducing taxable resources. Businesses also face liquidity pressures, as owners may need to liquidate assets to meet obligations. These distortions discourage reinvestment in Norway’s economy, stifling growth and innovation..

The Swedish Experience

Sweden, meanwhile, abolished its wealth tax in 2007 after facing significant economic challenges. The tax was criticized for causing capital flight, discouraging entrepreneurship, and encouraging asset concealment. Wealthy individuals and businesses often relocated to avoid the tax, reducing Sweden’s competitiveness. The repeal aimed to attract investment and retain talent, leading to more robust economic growth and innovation.

Astrid Lindgren, the renowned Swedish author, famously criticised Sweden’s high tax rates, including the wealth tax, in a satirical essay titled Pomperipossa in Monismania. Published in 1976, it humorously described how her tax rate exceeded 100% due to combined wealth and income taxes. This caused a public outcry and a significant political backlash. Her satirical depiction of excessive taxation highlighted the challenges faced by middle-class professionals and creatives. The debate pressured the ruling Social Democrats and led to the loss of their parliamentary majority in the 1976 election, marking their first defeat in decades. Her critique catalyzed broader discussions about tax fairness and sustainability, influencing eventual reforms, including a repeal of the wealth tax.

The former Swedish Finance Minister Anders Borg who oversaw the abolition of the wealth tax in his country in 2007 stated in regards to Norway: “As a Swede, you get the feeling that you are experiencing the same thing we did in the 70s and 80s, when business owner after business owner left the country – at great cost to Sweden.”

What’s the Alternative?

Instead of than targeting the wealthy with punishing taxes, the UK should focus on creating an environment that encourages investment and growth – and not just for the wealthy, but for everyone. This could be done through:

• Reducing Red Tape: Making it easier for businesses to operate and expand would attract more investors and entrepreneurs.
• Lowering Corporate Taxes: This encourages companies to set up headquarters in the UK, bringing with them jobs and economic growth.
• Offering Incentives for Startups: By creating tax breaks or subsidies for new businesses, we can attract fresh talent and innovation, ensuring the UK remains a global hub for entrepreneurship.

These approaches have been proven to work. Countries like Ireland have attracted massive international investment through low corporate taxes and a business-friendly environment. Instead of taxing wealth out of the country, they’ve harnessed it to drive growth. The UK can and should do the same.