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Norway’s exodus of billionaires | Financial Times

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Several colleagues have asked me about some curious recent news: the exodus of billionaires from Norway. As our Nordics correspondent Richard Milne has reported, what used to be a tiny trickle of very rich Norwegians moving to Switzerland has turned into a (relative) flood in the past year. And they blame Norway’s wealth tax, a levy paid annually in proportion to individuals’ net worth.

Free Lunch readers know that I take a close interest in both wealth taxes and in Norway. So here, by popular request, is an attempt to make sense of the world’s least important migration crisis.

Norway has had a net wealth tax for a very long time and remains one of few countries that still levy one. But it has recently gone up. The centre-left government that came into power in late 2021 has raised the rate from 0.85 per cent to 1.1 per cent on the largest fortunes, and reduced the valuation discount for stocks. They also raised the tax-free allowance, but for the richest the changes will have meant significantly more wealth tax.

So is this what is driving the rich away, and if so, is it a bad thing? Above all, is it an argument against wealth taxes?

First, a superficial puzzle. You would think that if the wealth tax is the reason for moving, you would not move to Switzerland, which is one of the few other countries that have one. But the rate is lower in Switzerland. (That rate varies by canton, from about 0.1 per cent in the lowest-taxing ones to a top marginal rate of about 1 per cent in Geneva, which is similar to the Norwegian rate. No prizes for guessing that Geneva is not where Norway’s tax exiles choose to go.) Not only that, Swiss cantons can, in practice, exempt foreigners with no Swiss income from a real wealth tax by applying it to a deemed wealth level that is unrelated to actual wealth.

But that has been the case for some time. Yet, there was no billionaires’ exodus before now. A Norwegian government commission appointed to examine the tax system, including the wealth tax, delivered its report right before Christmas. Among its many findings was that emigrants with a net worth above NKr100m ($10mn) numbered 130 in the whole decade up to late 2022 — less than 5 per cent of the whole group with such wealth — and 115 immigrated. But much of that happened in the past two years, and judging from press reports, a lot more people will soon be registering as emigrants with the tax authorities.

So it stands to reason that tax changes have something to do with it. And it is not just the wealth tax that has gone up. The government raised taxes on excess profit in high-rent industries such as power generation and fish farming. It has also proposed tightening the taxation of corporate owners’ use of the property their companies own, making it more expensive to hold luxury houses or boats, for example, through corporate structures. All this taken together has clearly made the very wealthy feel less loved than they think they deserve.

But it is, above all, the wealth tax they complain about — at least those among the exiles willing to admit to newspapers to be motivated by tax at all. So let us take their word for it. It is not a good look, especially in contrast with another group of very rich people heading for the Swiss mountains recently: the campaigning group of “patriotic millionaires” who went to Davos not to complain about wealth taxation but to plead for more.

The Norwegian tax exiles do not, of course, say that they just want to pay less. Rather, they pose as geese that lay golden eggs: they move because the wealth tax forces them to take capital out of their companies to pay it, and that, in turn, is bad for growth, business development and employment where their companies are based. We do it for the sake of the jobs we have created, in other words. Or perhaps: nice economy you’ve got there; it would be a shame if something happened to it.

There are two problems with this argument, though. One is that even if wealthy owners did have to take out larger dividends from their companies in order to pay the wealth tax, there is little sign that Norwegian companies themselves suffer from a lack of access to capital. The difference is just that more capital will come from other sources than the original owners, and it may be precisely this dilution that rankles, especially for self-made entrepreneurs or family businesses.

The other problem with the golden goose argument is that if owners’ liquidity really was an issue, the government could easily remedy this not by lowering the wealth tax but by allowing payments to be deferred — even to the point of sale, realisation, or bequest. And, in fact, deferral was allowed for a few years in the past decade, but hardly any wealth tax payer chose to use this liquidity facility for the very rich. That rather suggests that few of them struggled to find the cash to pay without raiding their companies’ coffers. One study found that seven out of eight wealth tax payers owned liquid assets (that is, apart from company ownership) worth more than 10 times their annual wealth tax liability.

In short, I have little sympathy for the tax exiles’ complaints. It is an honest if unadmirable matter to want to pay less tax. But the golden goose defence is not credible. Norway’s economic growth has not suffered from the wealth tax before and it will not suffer now — in fact, there is a case to be made that taxing net wealth is better for productivity than other ways to tax capital. In any case, whatever capital drought was supposedly imposed on these people’s companies before has presumably been relieved by their self-sacrificing moves to Switzerland. The deferred payment facility should be permanently reintroduced and expanded, however, to remove any remaining possibility that the wealth tax starves companies of capital.

This does not mean the government need not worry about the billionaires’ exodus. It will presumably lead the tax base to shrink modestly. And it is politically toxic — particularly for an advanced economy and welfare state based on high levels of mutual trust — to leave an impression that it is in practice optional for the very rich to pay certain taxes.

So I find it astonishing that, to my knowledge, there has been no consideration in Norway of taking a leaf from the US book and tie the wealth tax to citizenship instead of just residence. The US shows the viability of worldwide taxation even if it does not have a wealth tax. Norway could aim for a similar system applied to its wealth tax, imposing it (with deductions for wealth tax paid elsewhere) on those with Norwegian citizenship or long-term residence permits.

Citizenship-based wealth taxation is admittedly not entirely straightforward. It may require renegotiating some tax treaties (in particular with Switzerland), and it is possible, if much more costly, to relinquish citizenship as well. But if either complication arises — with tax treaties or with the rich queueing to hand in their passports — it is possible instead to impose a high exit tax on net wealth when someone abandons their tax residence or otherwise moves their wealth beyond jurisdictional reach.

Given how longstanding the wealth tax is, it is striking that these policy tweaks have not been thoroughly analysed and readied for implementation. But better late than never. They would not, of course, address some rich people’s feeling that their tax burden is unfair and that the government fails to accord them their due respect and admiration as wealth creators. But they just may lead some to think Switzerland was not all it was cracked up to be.

Other readables

  • Speaking of patriotic millionaires, I interviewed one last year, and just this week one more has written in indignation at a former UK chancellor’s tax troubles.

  • Adam Tooze’s Chartbook newsletter gives an excellent state of play of the European Central Bank’s approach to inflation.

  • As the ECB and other central banks raise interest rates, they find themselves paying billions to banks with large reserve holdings. Paul De Grauwe and Yuemei Ji point out that there is no need for these subsidies if central banks include required reserve ratios in their monetary policy toolbox.

  • David Pilling dives into Africa’s indomitable experiments with charter cities.

  • And David Skilling observes that transitory (yes!) inflation is giving way to wartime inflation.

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