The wealth tax in Norway: millionaires are not fleeing as much as they say

BarcelonaIf the predictions had been correct, by 2022 there would be no millionaires left in Norway. In 2021, the Labour Party (centre-left) of the current prime minister, Jonas Gahr Store, won the parliamentary elections and entered into a coalition government with the Centre Party. The new executive approved a reform of the formuesskatt, the wealth tax, which increased what the country's richest taxpayers pay.

Both in Norway and abroad, headlines were not long in coming and, despite some exceptions, they followed the same line as the criticisms from the conservative opposition: if the tax were raised, the wealthy would choose to move to another country, which would ultimately cause the Norwegian state to collect even less money than before. According to these arguments, it was better to have a low tax and collect something than a high tax and collect less.

Even one of the international reference newspapers for the left, the British

The Guardian

, joined the bandwagon of the mass exodus of Norwegian millionaires to other countries, especially Switzerland. "The super-rich are abandoning Norway at a record rate due to a slight increase in the wealth tax," the London newspaper headlined.

However, although there is indeed a certain flight of fortunes when new taxes are imposed or existing taxes targeting the wealthiest segments of the population are increased, the reality is that the example of Norway and two of its neighbouring countries, Denmark and Sweden, indicates that mobility is usually notably lower than expected and the increases in revenue are significant.

In the case of Norway, the data confirms this. From the entry into force of the wealth tax reform in 2022, revenue soared by 43.6% compared to the previous year, from 18,415 million Norwegian kroner (about 1,680 million euros at the current exchange rate) to 26,444 million kroner (about 2,420 million euros), according to calculations by the Norwegian consultancy NyAnalyse with figures from the Nordic country's tax agency. In a state with 5.6 million inhabitants (Catalonia has 8.1 million), these are significant figures.

The strong rise in public revenue thanks to the reform of this tax indicates that the departure of the super-rich was relatively small, as the modifications to the tax did not affect the minimum net worth from which the tax must be paid, which remained at 1.7 million kroner (about 160,000 euros). In other words, the same people continued to pay it, and simply started paying more.

Taxing maximum wealth: migratory responses and their aggregate implicationsReduced mobility

Taxing top wealth: migration responses and their aggregate implicationsBut Switzerland’s boring: tax migration and the pull of place-specific cultural capital [But Switzerland is boring: tax migration and the pull of place-specific cultural capital], written by four economists and published by Oxford Academic.

According to the authors, however rich they may be, people affected by these tax changes often prefer to pay more and continue living in their city or country rather than move elsewhere. Another academic article titled Taxing top wealth: migration responses and their aggregate implications [Taxing the wealthiest: migration responses and their aggregate implications], prepared by six economists for the National Bureau of Economic Research, the leading organization for economic research in the United States, points in the same direction: "An increase of one percentage point in the top rate reduces the total number of wealthy taxpayers by approximately 2%."

This article analyzes various changes in similar taxes in Sweden and Denmark. The Nordic countries are especially known for a social democratic tradition of wealth redistribution through tax policies that are based, on the one hand, on very demanding tax regimes for people with high incomes and large assets, and, on the other hand, on high spending on public services such as healthcare, education, or social services. This usually places them among the countries with the highest quality of life and the lowest levels of inequality.

Little effect on growth

According to this latest article, the negative effects of wealth taxes on other aspects of the economy are "quantitatively small". Thus, "an increase of one percentage point in the top rate causes employment to fall by 0.02%, investment by 0.07%, and added value by 0.1%". "These effects are modest, even though the owners of the largest fortunes, many of whom are entrepreneurs, represent a high proportion of economic activity in Scandinavia through the companies they control," the document adds.

Nevertheless, the article argues that "the modest effects of tax-induced migration do not necessarily imply that taxing the rich is an optimal policy." According to the economists' calculations, beyond discussions of equity, taxes on large fortunes improve the country's welfare if the funds raised are used to finance policies with a high economic return, such as support programs for children from vulnerable families. This means, according to the article, that "financing projects for low-income children through progressive wealth taxation has the potential to increase social welfare".