Swedish transaction tax was a failure: ex-minister

STOCKHOLM — As Europe debates whether to apply a tax on financial transactions, a former Swedish finance minister says Sweden's experience in the 1980s was so negative it repealed the tax as plunging trading volumes led to disappointing tax revenues.

"The Swedish experiences were negative, both from the point of view of the state's finances and from a general socioeconomic perspective," former finance minister Bo Lundgren, 64 said.

In 1984, the Social Democratic government introduced a tax of 0.5 per cent on each purchase or sale of shares (a level that was doubled two years later) and 1 per cent on options. The tax on bonds varied depending on the maturity, ranging from 0.03 to 0.001 per cent.

The tax was levied on brokerage services.

The Swedish government later introduced a tax on currency transactions in 1989.

But the consequences of both taxes were considered so harmful to the markets that they were soon abolished: the one on currency transactions was removed after just 16 months, in 1990, and the other was removed after eight years, in 1991.

Lundgren, who had the tax on shares, options and bonds abolished when he was finance minister in a centre-right government, said the effects of the currency transaction tax "were

(pictured),

so dramatically negative that all currency trading basically moved from Stockholm to London, so the Social Democratic government (in power at the time) abolished the tax."

Meanwhile, the tax on shares, bonds and options "led to share trading moving abroad but the effects were not as dramatic as the currency transaction tax."

"The year we abolished it, in 1991, the tax revenue amounted to around three billion kronor", or about 375 million euros ($476 million) in today's currency.

"But on the other hand the tax had reduced share trades so much that once it was abolished, trading increased and that in turn led to an increase in brokerage fees which led to an increase in corporate tax (revenues) and other tax (revenues) increased."

"When the tax was abolished we estimated that there was no loss (of revenue) involved, because it led to such a sharp increase in trading."

In his proposal to parlia- ment repealing the tax on shares, options and bonds, Lundgren said at the time that "activity on the Swedish stock market has decreased sharply in recent years which has resulted in a series of disadvantages for Swedish industry."

"The tax on shares and other securities has contributed to this development," he said.

He said Swedish companies suffered from reduced liquidity on the stock market and had a harder time raising risk capital.

Lundgren, who is now the head of Sweden's National Debt Office, and Sweden's current Finance Minister Anders Borg — both members of the conservative Moderate party — have voiced opposition to the European Commission's proposal to tax financial transactions.

The Commission in September proposed a tax of 0.1 per cent on stock and bond transactions and 0.01 per cent on derivatives, aimed at pulling in up to $70.4 billion annually. — AFP