As a direct result of Sweden’s tax laws in conjunction with negative interest rates by the central bank, Sweden’s citizens now purposely overpay their tax bills in record amounts as a savings vehicle.
Here’s the peculiar result: The Swedish Government Complains it Collects Too Much Tax.
Data released on Wednesday showed Sweden’s government generated a budget surplus of SKr85bn ($9.5bn) in 2016, with approximately SKr40bn coming from tax overpayments. The government will have to repay more than £3.5bn to businesses and individuals who purposely paid too much tax in 2016.
The government wants to discourage further overpayments but the national debt office has admitted its efforts will probably not be enough.
While bank interest rates plummeted, Swedish tax rules meant that excess deposits in taxpayers’ payment accounts continued to earn a minimum of 0.56 percent annual interest, leading many people to use them like makeshift bank accounts.
Most governments would be pleased with an annual budget surplus more than twice the forecast size. But Stockholm has complained that this “involuntary borrowing” from residents will cost it around SKr800m more over 2016 and 2017 than if they had borrowed the money at market rates.
Unfortunately for the debt office, there is little chance that the problem will go away anytime soon. At its latest policy meeting last week the central bank said it was more likely to cut rates further into negative territory than increase them in the short term.
Given negative interest rates, even if Sweden paid zero percent on overpayments, the Swedish government would lose money vs. borrowing from the central bank.
I suppose the government could charge money for excess payments, but officials might be worried about voter backlash.
Mike “Mish” Shedlock