Krona capitalism

9 July 2011

Sweden was a socialist dreamland. But then it woke up

Sweden is iconic, like Marilyn Monroe or Karl Marx. It is supposed to stand for something special: a kind of paradise where socialism and a big welfare state go together with being a successful, rich country. The left use it as a triumphant example: ‘See! It works in Sweden! High levels of equality, a big welfare state, socialism — and it works!’ People think that Sweden proves it is possible for a socialist welfare state to be prosperous, happy and civilised. They think it shows that relatively high levels of tax do not make much difference to economic performance. In fact, for the left, Sweden demonstrates that all that they dream of is possible.

An article in the Guardian of 16 November 2008 (‘Where tax goes up to 60 per cent, and everybody’s happy paying it’) shows the idea is alive and well. The left can’t work out why similar ideas in Britain have never led to the same success.

The main trouble is that, when Sweden was as close as it ever has been to being a socialist welfare state, it went bust. For a while it may have seemed like a great model, but the Swedish government ran out of money.

Why? Because Sweden found, like Britain, that if you pay people to be unemployed, take early retirement or be sick, you get a gradually increasing number of people who claim the relevant benefits. And if you have sky-high taxes, people don’t work as hard, or they cheat, or they leave.

Then came the financial crisis of the 1990s. Unemployment surged, until there were simply too many well-remunerated claimants for too few taxpayers. More than one out of every five people of working age was on one benefit or another.

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Johnnydub

July 11th, 2011 1:40pm Report this comment

And would you care to discuss the immigrant issue around cities such as Malmo?

Robbo

July 11th, 2011 4:05pm Report this comment

A couple of points about tax in sweden.
1) Income tax has two levels. Most people pay local tax to their local government. High earners also pay a national tax. Income tax is thereby very simple for the taxpayer, only two rates and almost no deductions. The localisation of taxation means local politicians carry much more real reponsibility than counterparts in UK.
2) CGT and tax on investment income is also dead simple. One rate, no threshold, no indexing etc.

BTW, there is no minimum wage law, either.

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