Economists Critique Sweden's Interest Deduction Amid Political Apathy
Economists criticize Sweden's interest deduction policy, linking it to rising debt and housing costs, while politicians remain hesitant to reform it.
Key Points
- • Economists link interest deductions to rising debt and housing prices.
- • The Swedish government allocated 61 billion SEK to interest deductions in 2024.
- • Some economists propose phasing out deductions gradually, inspired by Finland.
- • Political parties display reluctance to change due to fear of voter backlash.
Swedish economists are increasingly vocal about their concerns regarding the country's interest deduction policy, which they say is contributing to unsustainable debt levels and inflated housing prices. In 2024, the Swedish government allocated a staggering 61 billion SEK for these deductions, primarily benefiting mortgage holders. This financial support has drawn significant scrutiny from notable economists, who propose that the government consider enacting reforms to curb this costly policy.
Economists like Hans Lind and Roine Vestman have called for a gradual phase-out of the interest deduction, suggesting a model similar to Finland's 10-year approach. Lind specifically advocates for capping the deduction on loans to 3.5 million SEK, arguing that amounts above this threshold are excessive luxury consumption and do not aid young families seeking affordable housing.
Despite the compelling economic arguments, political leaders show reluctance to reform the interest deduction policy. Lind labeled this hesitance as 'political cowardice,' pointing out that the current economic stability presents a prime opportunity for introducing gradual changes. However, a recent survey highlighted that only three of the political parties are willing to entertain the idea of altering the interest deduction, with current concerns focusing more on the potential impact on households than on economic efficiency. Many politicians fear backlash from voters who benefit from the current system, leading to a paralysis of progress on this issue.
The interest deduction allows taxpayers to reduce their taxable income based on interest paid on various loans, with about 82% of these deductions relating to mortgages. Currently, the deduction stands at 30% on interest costs up to 100,000 SEK and 21% on amounts exceeding that, with no limit on total deductions. This generous structure has drawn criticism from economists who stress that such subsidies drive up both debt and housing costs, pushing homeownership further out of reach for young families. As the political landscape shifts ahead of the next election, the fate of interest deductions remains uncertain, caught between economic necessity and political resistance.