The low interest rate situation has meant that tax accounts are being used as a form of savings by both private individuals and legal persons. To reduce the inflow, the interest rate on tax accounts was reduced from 0.56 per cent to 0 per cent as of 1 January 2017.
Despite this, tax accounts are still an attractive form of investment, especially for companies.
The incentives for companies to invest money in tax accounts are greater than for private individuals. Private individuals are able to obtain a positive interest rate in a savings account with deposit insurance. For companies, which face negative interest rates on investments, tax accounts are attractive since the interest rate is higher; but there are also other advantages. The risk in investing money in a tax account is the same as for buying T-bills.
Tax accounts are also a much more liquid asset than T-bills and other fixed-income
instruments. Depositing a particular sum in a tax account or making a withdrawal is relatively quick matter. In practice the account functions as a bank account with an unlimited deposit guarantee from central government.
Capital investments in tax accounts are an expensive and involuntary form of loan for central government. The Debt Office estimates that capital investments in tax accounts result in an additional cost for central government of around SEK 1.7 billion for 2015–2019, compared with if the Debt Office had borrowed the same sum directly in the market.
The Debt Office considers that it is important to limit the possibility of investing capital in tax accounts. An investigation should be conducted of whether it is possible to find a design that removes the incentive to invest large sums without putting tax collection at risk on that account. One possibility may be to have a floor interest rate of zero per cent that only applies up to a certain monetary limit so as to avoid private individuals and small businesses being affected by negative rates. For more information, see Central government debt management-Proposed guidelines 2019-2022.
Higher income from corporate taxes on account of strong economy
Central government income from corporate taxes has been revised upwards by SEK 3 billion for 2018 and SEK 2 billion for 2019 compared with the June forecast, see table 3.
The strong growth in recent years has led to higher profits in the business sector. Domestic demand is continuing to rise, mainly driven by consumption. Exports are also expected to increase in 2019 and 2020. This provides good conditions for further positive growth of profits.
Forward indicators, such as the export managers index and the purchasing managers index, show that companies remain optimistic even though these indicators are at a lower level than at the start of the year. This strengthens the picture of further good profit growth, but at a slightly more
moderate pace than before. The forecast of profit growth in 2018 is unchanged compared with the
previous forecast. In contrast, the preliminary outcome of tax assessments suggests that the outcome for 2017 was slightly higher than estimated. This means that the levels for 2018 and 2019 will also be slightly higher.
As the growth of the economy wanes, profit growth for companies decreases. Profit growth is judged to already fall back in 2019 and to be below its historical average. However, profit growth in 2019 is judged to be slightly higher than in the previous forecast. In 2020 profit growth is estimated to fall even further.
Higher income from payroll taxes in 2019
Central government income from payroll taxes decreases by SEK 1 billion in 2018 and increases by SEK 3 billion in 2019, compared with the previous forecast. The change for 2019 is mainly due to lower payments of local government taxes than previously estimated. Outgoing payments of local government taxes are based on taxable earned income two years previously and ‘adjustment factors’. Taxable earned income for 2017 is estimated to be slightly lower than previously, which affects payments of local government taxes in 2019 and the final settlement between central government and the local authorities for 2017.
Table 3. Tax income, change from previous forecast
Note: The table shows changes in terms of budget balance.
Figure 6. Corporate gains
Source: Swedish tax agency and the Debt Office.
Higher income from consumption taxes
Income from consumption taxes is judged to rise by SEK 2 billion in 2018 and SEK 6 billion in 2019, compared with the previous forecast. One reason for this revision is that household consumption is judged to increase faster than before.
Higher capital gains for households
The preliminary outcome for 2017 indicates that households' capital gains will be just over SEK 200 billion. This is slightly more than assumed by the Debt Office in its previous forecast and is also an upswing compared with 2016. Capital gains for financial assets increased most between these years. Capital gains from home sales remained high even though the increase between these years appears to be moderate. This means that the slowdown in the housing market that started in 2017 did not have time to have that much effect on gains for the whole year.
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For 2018 and 2019 the Debt Office judges that gains from home sales will decrease. This is an effect of the decline seen in prices but also of a lower number of sales than before. Capital gains for 2020 are expected to level out at around 3 per cent of GDP.
Dividends on state-owned shares rise
Dividends from state-owned enterprises are judged to continue to rise during the forecast period.
This leads to higher income from share dividends for central government. Dividend income is judged to be at around the same level for 2018 and 2019 as in the previous forecast. Prices of iron ore products have risen, which is judged to increase LKAB’s profit. Vattenfall has adopted a new dividend policy, and its dividends are judged to increase between 2018 and 2019.
In total, central government income from share dividends is estimated at just under SEK 15 billion in 2018, just under SEK 18 billion in 2019 and just over SEK 18 billion in 2020. The forecast for dividends from state-owned enterprises is associated with uncertainty and may be affected by decisions to sell assets.
Table 4. Dividends on state owned shares
SEK billion 2018 2019 2020
Akademiska hus AB 1.6 1.6 1.6
LKAB 2.9 3.6 4.0
Telia Company AB 3.7 3.9 4.0
Vattenfall AB 2.0 4.0 4.5
Sveaskog AB 0.9 0.9 0.9
Other corporations 3.5 3.6 3.4
Total 14.6 17.6 18.4
Figure 7. Household capital gains
Source: Swedish tax agency and the Debt Office.
Unchanged expenditure for sickness benefit
Expenditure in social insurance is judged to be unchanged in 2018 and to increase by SEK 1 billion in 2019 compared with the previous forecast. The Debt Office mainly bases its expenditure
forecasts of social insurance on information from the Swedish Social Insurance Agency’s (Försäkringskassan). Expenditure for sickness benefit is judged to be at about the same level between 2018 and 2020. Historically the level of sickness absence has varied a great deal in Sweden. The variation is difficult to explain on the basis of factors such as public health, demography and the economic situation. This makes the forecast of sickness benefit uncertain, especially towards the end of the forecast period.
Child allowances were raised on 1 March 2018, which means that some of the increase will not be seen in the figures until 2019. The number of children is expected to increase, and this also means that child allowance expenditure rises during the forecast period.
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2011 2013 2015 2017 2019
SEK billion
Unchanged forecast for labour-market related expenditure
Labour-market related expenditure, such as expenditure for unemployment benefits and labour market programmes, is marginally lower for 2018 than in the previous forecast. However, a move of expenditure from the migration area to the labour market area in the Budget Bill for 2018 increase the expenditure by just over SEK 4 billion compared with 2017.
For 2019 the expenditure forecast is unchanged both compared with the previous forecast and compared with the previous year. Expenditure then increases in 2020 compared with 2019.