LONDON — The Swedish government is being forced to refund billions in taxes after Swedes deliberately paid too much as a consequence of the negative interest rates being implemented in the country.
According to data released by the government on Wednesday, Sweden ended 2016 with a budget surplus of 85 billion kroner (£7.6 billion; $US9.5 billion), and around half of that was down to individuals and businesses paid more tax than they needed to as a means of actually making money.
“The development of Sweden’s central government finances is still affected by excess deposits in tax accounts,” a report from the Swedish National Debt Office said.
With interest rates in the country at -0.5%, holding cash in bank accounts and other savings vessels provides little to no return, and in many cases actually costs people money.
However, thanks to the way Sweden’s taxation system is setup, Swedes can earn interest by paying more tax than they need to and leaving it in their taxpayers’ payment accounts. These accounts pay interest of 0.56%, far in excess of bank interest rates in the country.
This quirk may be a benefit for Swedes trying to save money, but it is set to cost the Swedish government a substantial amount in interest payments. It is discouraging the practice as a result.
“We cannot do anything [further], it is simply a consequence of current interest rates,”Marten Bjellerup, the office’s head of forecasting, said on Wednesday, according to a report from the Financial Times (where we first noticed Sweden’s tax quirk.)
Sweden’s tax issues are just another example of the impact that unprecedented negative interest rates are having. Initially launched as an attempt to spur output and wage growth, negative rates have been widely criticised, with many citing their usage so far as something of a failure.The central banks implementing negative rates however, have consistently argued for their efficacy.