Swedish Economists Push for Reform in Interest Deductions as Politicians Hesitate
Economists in Sweden call for reform of interest deductions while politicians delay action due to election fears.
Key Points
- • Economists argue interest deductions inflate debt and housing prices.
- • The Swedish government spent 61 billion SEK on interest deductions in 2024.
- • Calls for gradual phase-out of deductions similar to Finland's model.
- • Political hesitance attributed to fear of public backlash before elections.
Economists in Sweden have voiced strong criticisms of the current interest deduction policy, claiming it contributes to increased indebtedness and soaring housing prices. In 2024, the Swedish government allocated 61 billion SEK towards interest deductions on housing loans, prompting calls for reform from various experts in the field.
Prominent economists, including Roine Vestman of Stockholm University, suggest a gradual phase-out of the deduction over a period of ten to twenty years, paralleling Finland's approach. This comes amid rising interest rates, which Vestman believes necessitates a more extended timeframe for any such transition. Meanwhile, Hans Lind, a property economics professor, recommends capping deductions for home purchases at 3.5 million SEK, differentiating between necessary and luxury housing expenses. Both experts agree that the economic climate is stable enough to initiate changes gradually, avoiding drastic disruptions.
The debate on interest deductions is not new, with some arguing for their elimination at various points, particularly when property tax was abolished or during periods of negative interest rates. Former finance ministers Anders Borg and Göran Persson have echoed similar sentiments for reform post-tenure. However, the current political landscape shows reluctance from major parties, primarily caused by fears of public backlash as the next election approaches. According to a recent SVT survey, only three political parties are open to discussing the interest deduction but prefer to delay any action due to concerns about placing additional financial burdens on households.
Vestman commented that while it may seem unwise to impose new constraints during a perceived economic crisis, the current economic landscape is stable enough for change. Lind described the political hesitance as 'political cowardice,' emphasizing the unequal ability of households to cope with reduced deductions. The interest deduction allows taxpayers to decrease their taxable income based on interest payments, segmented proportionally to different tiers of interest costs.
Amidst a backdrop of ongoing discussions, the position of Swedish policymakers remains cautious, highlighting the delicate balance between necessary economic reforms and the potential backlash from voters in an election cycle.