Sweden Finland Austria

3.2.
Changes in the Swedish tax/benefit system. 1991-1997
Introduction
The Swedish tax/benefit system has been changed considerably in the 1990es. It started
with the tax reform in 1991, where marginal tax rates were lowered significantly and the
overall structure of the tax system was simplified.
The first benefit scheme to be reformed was sickness benefits, the reform started during
1991 and there have been regular changes since. Unemployment benefits, pensions,
parental benefits and students allowances followed from 1993, and the process is expected
to continue in coming years, although at a reduced pace.
The purpose of this section is to give an impression of the major changes and their implica-
tions. This can be done in many ways. Here it will be in a very simple fashion, by using the
calculations for 1991-1996 from section 3.1 supplemented with 1997 calculations for
Sweden from chapter 2.
Personal taxation
In 1992, the year after the tax reform, there were no changes. In 1993 the ’default’ deduc-
tion in income (related to work expenses, transportation etc.) of 4,000 SEK was abolished

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and only transportation costs above 4,000 SEK and other costs (membership of unemploy-
ment insurance etc.) over 1,000 SEK could be deducted in the annual income return. The
first mandatory employee paid social contribution for sickness insurance was introduced,
0.95 per cent of the income (up to the usual ceiling, which is 7.5 times ’basbeloppet’). The
contribution is deductible in taxable income.
In 1994 the personal allowance was diminished and another social contribution, this time
for unemployment insurance, was introduced. It was 1 per cent of the income (up to the
usual ceiling) and also deductible. The personal allowance was only applicable for local
government taxation in 1994.
In 1995 it was only transportation costs above 6,000 SEK which were deductible. The state
tax rate was increased from 20 to 25 per cent, and the personal allowance was reintroduced
for central government taxation. The social contribution for sickness insurance was aug-
mented to 2.95 per cent of the income and the contribution for unemployment insurance,
cf. also the section on U.B. was ’replaced’ by a contribution for pensions of 1 per cent.
In 1996 the employee paid social contribution for sickness insurance was increased to 3.95
per cent of the income and the personal allowance was decreased from 0.25 ’basbelop’ to
0.24 ’basbelop’ (basic cases).
In 1997 the social contribution for sickness insurance was increased to 4.95 per cent and
the minimum state tax was increased from 100 SEK to 200 SEK.
What was the effect of these changes? The single ’production worker’ does not experience
them all, he or she does not pay central government tax (beyond a nominal 100 SEK; 200
SEK from 1997), but table 3.3 contains the average tax for the ’production worker’ (APW)
over 7 years.
Table 3.3.
Average tax for single APW, 1991
1997. Income at APW level.
1991
1992
1993
1994
1995
1996
1997
1)
Gross wages, SEK
162,400
171,000
173,900
183,100
190,260
204,714
209,214
Tax + soc.contr., SEK
45,548
47,901
51,246
56,198
62,032
69,069
72,220
Average tax, %
28.05
28.01
29.47
30.69
32.60
33.74
34.52
Tax rate, local gov. %
31.15
31.04
31.04
31.05
31.50
31.65
31.66
1)
Preliminary calculation (’Elements’).
The average tax for the APW increased by almost 6.5 percentage points in the period.
Simultaneously a significant reduction in the employer paid social contributions from
approx. 38 per cent to approx. 33 per cent of the wage bill was implemented. This trend
with a switch from employer to employee paid social contributions will continue, e.g. be-
cause of the new pension reform, cf. the section on pensions. The increased tax burden is

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of interest in its own, but it is also of importance when the impact of ’social events’ is
calculated, depending on how the benefits are taxed.