Studies by organisations such as the OECD and the IMF point to a clearer connection between long-term growth and the structure of tax and benefit systems than any direct relationship between the tax burden and potential growth. However, this is an area to which Sweden by virtue of its high taxes must pay continued attention. Economic policy must be focused on finding ways to reduce the distortional effects of the tax system, not least as regards people’s willingness to work. High marginal taxes can reduce the motivation to work, thus hampering the economy’s potential growth. This applies particularly when the benefit systems are linked to income. At an individual level, this could mean that someone who is offered a job and at the same time must pay higher tax and receive lower benefits may come to the conclusion that it is more rewarding to remain outside the labour market. This dampens the labour supply and thereby also the economy’s long-term potential growth. Growth issues and particularly the labour supply now appear to be increasingly in the spotlight, which is positive provided that it also lays the foundation for further reform. Having said that, it is pleasing to note that several reforms have been introduced recently with a view to decreasing the distortional effects of the tax system, in particular among low-income groups. This applies perhaps primarily to the steps that have been taken to abolish individual social security contributions, thus reducing marginal taxes among low- and medium-income groups and raising thresholds for state income tax.
The road we have travelled these almost six years has formed an institution which has developed with the challenges it met. It has fine-tuned its processes and its machinery and I think it is well placed to face challenges today and further down the road. |9