Part II Developments in the Member States

The ratio of taxes on labour to GDP, standing at 25.9 %, is invariably the highest in the EU, followed by Denmark
(24.6 %) and Austria (23.8 %). In the region, only Norway (17.8 %) oscillates around the EU average of 17.1 %.
S Admittedly, a clear downwards trend can be observed in Sweden in the last decade (change of -4.9 percentage
w points). Similarly, the implicit tax rate on labour declined steadily from its peak level in 1998, to reach a new
record low of 39.0 %. Again, this can mostly be explained by all the measures taken in the recent years to decrease
e tax burden on labour (See: section "Personal income tax").
d
e The implicit tax rate on capital in Sweden has been fluctuating in the period under consideration. In 1995 it stood
at 19.9 % and rocketed to peak in 2000 (42.7 %). So did the revenues from capital taxes (10.0 and 16.3 % of total
n taxation respectively). This rapid increase was largely due to high economic growth. Since then the ITR was
decreasing steadily and entered a sinusoidal trend in 2004. In 2010 it rose by 2.6 percentage points year-to-year
(34.9 %). This increase could have been driven by higher revenues from corporate taxes, which in 2010 picked up
alongside economic growth. As a matter of fact, Sweden was amongst the few EU countries that saw increasing
revenues from corporate taxes in 2009 and 2010

Environmental taxes as a proportion of GDP (2.8 % in 2010) are in line with the EU-27 average (2.6 %). Their
level has been rather constant over the period under consideration. As a share of total taxation, revenue from
environmental taxes remained equally stable at a rather low (as compared to other EU Member States) level of
6.0 % in 2010, and consists mostly of energy taxes.

Current topics and prospects; policy orientation

In 2010 Sweden's economy observed a healthy GDP growth of + 5.6 %, the highest in the EU. Moreover, such a
recovery was done without running up vast budget deficits. In fact, the 2010 budget closed with 0.2 % of surplus
(matched only by Estonia). This resistance to the global economic downturn lay within strong public finances. The
main focus has been on increasing employment and reducing social exclusion. In 2010 the Swedish government
introduced the fourth stage of the earned-income tax credit, reducing over four years the tax due by a total of SEK
71 billion (€ 7.77 billion). A possible fifth step is planned (even though temporarily adjourned), coming up to an
estimated total of SEK 82.1 billion (€ 8.99 billion).

The unemployment rate dropped from 9.3 % at the beginning of 2010 to 7.4 % at its end. The youth and non-EU
immigrants unemployment rates in Sweden (both above the EU average) remain nevertheless a concern. To
mitigate this problem, the Swedish 2012 bill included a reduced VAT on restaurant and catering services.

Main features of the tax system

Personal income tax
Since 1991 Sweden has a dual income tax system; on earned income, individuals pay the national income tax and
municipal income tax. The national income tax rate of 20 % applies to income above SEK 401 100 (€ 43 890) and
25 % to income above SEK 574 300 (€ 62 842). A municipal income tax applies at a flat rate which varies between
municipalities. The weighted average for 2012 is 31.6 %. This tax is not deductible in computing tax liability at the
national level. Broadly defined capital income is taxed at a flat national rate of 30 %. There is no tax-free amount,
no municipal tax and capital losses are deductible from capital gains.

The tax payer can deduct a personal tax allowance from the income earned. For 2012, standard allowance is SEK
18 700 (€ 2 046) for taxable income up to SEK 44 000 (€ 4 814). The allowance is gradually increased to a
maximum of SEK 33 900 (€ 3 709) for a given income bracket and then gradually reduced to SEK 12 900 (€ 1
411) for income above SEK 346 700 (€ 37 937). Basic tax allowance is higher for individuals over 65 years old,
ranging from SEK 55 800 (€ 6 105) for a given income bracket, through the standard allowance of SEK 43 200
(€ 4 727) for income up to SEK 43 900 (€ 4 803) to the lowest SEK 26 400 (€ 2 888) for income above SEK 537
300 (€ 57 688). Spouses and children are taxed separately on their own income.

158 Taxation trends in the European Union