The country’s super-rich have long suffered from an outmoded levy
“A difficult decision has been made. “I’ve moved from Asker in Norway to Lugano, Switzerland.” Kjell Inge Rokke, Norway’s largest taxpayer and the largest shareholder in investment firm Aker ASA wrote an open letter to the board last September.
An industrial tycoon, Mr Rokke has an estimated net worth Nkr 19.6bn (PS1.5bn). He is one of 50 billionaires and millionaires who have fled Norway in the past year due to higher wealth tax rates.
The Labour-centre coalition raised wealth tax rates by 0.1%, resulting in record numbers of people fleeing the country. This has resulted in the government losing tens of thousands of dollars in tax revenue. According to Norwegian newspaper Dagens Naeringsliv, the 50 highest earners have a combined net worth exceeding Nkr 40bn (PS3bn). This is more than the number of people who left the country for Switzerland in 2009.
The tax raid that was implemented last November is expected to cause even more Norwegians to flee the country.
The Treasury may notice the exodus of Norway from the OECD, one of only four countries that still impose a wealth-tax.
The country’s wealth tax is a long-standing problem for the super-rich. It is one of a few OECD countries that impose a wealth-tax on the global net worth of its citizens – defined as total assets minus total loans.
Twelve OECD countries levy wealth taxes in Europe. They were all established in 1990. These taxes were repealed by most countries in the 1990s and 2000s because of growing concerns that the wealthy might move their wealth to other parts of the world. According to New World Wealth research, France was the last country to abolish its wealth tax in 2017. It had lost an estimated 60,000 millionaires between 2000-2016.
Norway, Spain, and Switzerland are the only European countries that impose a wealth tax.
This is despite the fact wealth taxes raising surprisingly little for government. About 1pc of Norway’s total tax take, according to the OECD, comes from wealth taxes. Dan Neidle, of Tax Policy Associates, a nonprofit, stated that Norway is “probably the developed country with most significant wealth taxes, but it’s still very small.”
This is partly due to the discounts that are available for primary residences and unlisted shares.
These rules can have “weirdly distortive” effects on behavior, according to Mr Neidle. This creates an incentive not to list your business and to invest as much of your net wealth into your home as possible. These are not good outcomes for policy.
Norway’s tax policy imposes a 1pc tax on all income above the threshold for individuals with worldwide net worth above Nkr1.7m (PS130,000). The state receives 0.3 percent and the municipality the rest 0.7pc. The rate for those with more than Nkr 20m (PS1.5m), is 1.1pc. The state receives an additional 0.1 percent.
Rokke didn’t give financial reasons for his decision, but said that Lugano was “neither the most expensive nor the least taxed” and that it is “a fantastic place in central Europe”.
Tore Ivar Stettimoen, the co-founder and CEO of Feyr battery company, is another wealthy individual who has recently left Norway. Ninja Tollefsen was born to Ivar Tollefsen (property investor). Fredrik Haga (31-year-old founder of cryptocurrency data company Dune) has also moved to Switzerland. Haga, who holds most of his wealth in the rapidly expanding company, was concerned that his next tax bill might be many times his income.
It might seem odd that so many Norwegians are moving into Switzerland, which has its own wealth tax. Switzerland actually makes more money from wealth taxes than Norway, accounting for around 4pc of total tax revenue. The country has many deals that foreigners can take advantage of, making it a top choice for wealthy people looking to move abroad.
A person living in Switzerland but not working can choose to pay a lump-sum tax that is based on their income and lifestyle.
Norway is looking into the possibility of an exit tax, where individuals will be taxed on their capital income when they leave the country. This was in desperate attempts to stop high-tax payers from leaving the country.
The government took a significant step last November to stop the flow of wealth from the country. It repealed the “five-year rule,” which meant that wealthy Norwegians could sell shares and not pay tax on any gain, if they lived in another country for more than five consecutive years.
Norway is now led by a Labour-Centre coalition government, since September 2021 when the parties won by a huge margin. This brings an end to eight years of Conservative Party rule led by Erna Solander.
Many left-leaning parties welcomed the state budget of the centre-left government last autumn that raised wealth taxes. Jonas Gahr Store was the prime minister and told Labour Party members at the September national meeting: “Shifting power within society never happens without friction or some noise. People with less means should be challenged by a fairer tax system. That is what we must be ready for.”
The OECD warned that wealth taxes can have a negative effect on long-term growth and damage entrepreneurship as well as risk-taking.
There are growing concerns in Scotland that an increase of 1 percentage point in the top rates of income taxes will cause a “brain-drain” across the border. The higher rate in Scotland is now 41pc and 42pc respectively, while the additional rate has risen from 46pc up to 47pc. The additional rate in England, however, is only 45pc.
Members of Labour have called Sir Keir openly to introduce a wealth tax. Although the Labour leader denies he plans to introduce such a tax, he does plan to target certain forms of wealth.
Sir Keir would like to abolish private schools’ charitable status which means they lose their VAT exempt status. This could cost families thousands of pounds per year in private school fees. Waverton Investments estimates that a family paying PS31,310 per year to send their two children to private school each year would see their costs rise by PS6,262 every year if the VAT exemption were removed.
The party also pledged to end the “nondom status”, which allows UK residents to live overseas and not pay UK tax on income earned abroad. Labour is expected to significantly reduce the time period before the status expires from the 15-year current window. Experts in tax have warned that the reduction of the status could cause the exodus of the elite economic class.
It is believed that Labour wants to increase tax for second homeowners, blocking them from a planned freeze of council tax and increasing capital gain tax rates in line income tax rates.
Mr Neidle stated that the UK’s proposed wealth taxes were not yet known. However, if current wealth taxes are detrimental to growth, then proposals for higher-end wealth taxes would be likely to be even more destructive.