A Review of the Swedish Taxation System

Executive Summary

Sweden’s tax system has lost both fairness and fiscal strength. Decades of cuts to income and employer taxes have eroded redistribution, widened inequality, and constrained welfare provision. Since the 1990s, successive reforms have prioritised lower tax rates financed by shrinking public services, leaving the social model weaker and growth increasingly reliant on household debt and asset inflation.

Unequal taxation of earned income undermines equity and trust. Wages, pensions, and allowances are taxed at sharply different rates. For example, SEK 28,000 in parental allowance is taxed more than three times as heavily as the same amount in pension income. These disparities have no economic rationale; they weaken trust in institutions and penalise work relative to other forms of income.

A fairer and more efficient labour tax system can raise revenue and employment. Equalising the taxation of all earned income, modestly increasing employer contributions, and introducing a linear marginal tax rate would yield roughly SEK 150 billion (2.3 % of GDP) annually. Phased implementation would protect disposable incomes while simplifying administration and removing distortions that discourage work or hiring.

Reinvesting revenues can rebuild welfare and support long-term growth. Additional resources should strengthen education, health, and social security — the public goods that underpin Sweden’s productivity and competitiveness. A fairer labour tax system is not a drag on growth; it is the precondition for a sustainable, cohesive, and high-trust economy.

Policy recommendations

1. Equalise taxation of all earned income, ensuring identical treatment regardless of income source or status.

2. Raise employer social security contributions to 33.5 %, reflecting firms’ reliance on public infrastructure and welfare services.

3. Introduce a linear marginal tax system that removes thresholds and exemptions and rewards transparency.

4. Phase in reforms gradually to maintain stability and protect household incomes.

5. Reinvest new revenues in welfare and social protection to restore equality and long-term growth.