The exodus of Norwegian billionaires

Scandinavia is considered the most economically and socially successful region in the world.

Despite the unkind climate, the combination of a functioning welfare state, high population income, and high human development index make these countries enviable.

And among them, Norway is often considered especially privileged.

In addition to all the characteristics mentioned above, the country has benefited for several decades from a flourishing oil industry, which exploits large deposits in the North Sea.

However, the migration of wealthier Norwegians in search of milder climates may threaten much of the national wealth.

In fiscal terms, of course.

In 2021, the most recent data available, about 30 of Norway’s wealthiest citizens emigrated to other tax domiciles.

The estimate is that this number will have almost tripled by 2022, bringing the number of emigrants to 115 in the last two years.

This figure is equivalent to the total for the previous ten years.

The preferred destination has been Switzerland, although there have been moves to other European countries such as Cyprus, Italy, and Canada.

The most recent example occurred at the end of 2022.

Fredrik Haga, the co-founder of cryptocurrency data company Dune, moved the headquarters of his US$1 billion company from Norway to Zug, Switzerland, a region known for its many cryptoactive companies.

In an interview with the Financial Times in late 2022, Haga was – like his countrymen – pragmatic.

“I had to choose between the desire to stay in Norway and the desire for the company to succeed,” he said.

“It’s not about not wanting to pay taxes. It’s about paying taxes with the money I don’t have.”

ECONOMIC IMPACT

This move does not cause social problems.

With typical British humor, the Financial Times calls this migration “the least serious of the humanitarian crises.”

However, ironies aside, tax changes to tax the richest only based on their wealth can cause economic problems and discourage innovation and investment.

Norway’s wealth tax, one of the few still levied in Europe since France abolished it in favor of a property tax in 2018, has long been a source of contention for the country’s wealthy.

To the Financial Times, Erlend Grimstad, secretary of state at the Ministry of Finance, said that the government wants individuals and businesses to prosper but that the wealthiest must pay more to help maintain the generous welfare state.

“People benefit from free education, national infrastructure, free health care, subsidized preschool child care, generous leave rules, and corporate tax in line with other countries. This means that successful people with this social model should contribute more than others,” he said.

The Norwegian tax is levied on all net wealth above US$173,000.

The center-left government that took office in late 2021 raised the rate from 0.85% to 1.1% on the largest fortunes.

Switzerland also has a wealth tax but offers deals for foreigners, and the rate can be as low as 0.1% in some cantons.

Norwegian tax emigrants argue that the wealth tax forces them to withdraw capital from their companies to pay it, which is bad for growth, business development, and employment.

This is the argument of Haga, most of whose assets and income are tied up in the company he founded: the tax structure adopted in 2021 could force him to decapitalize the company to pay taxes.

TAX PROPOSALS

Proposals to levy taxes on wealth have become increasingly popular in recent years, although there is no consensus among their advocates.

Some, like economist Thomas Piketty, advocate taxation to reduce (or even eliminate) income concentration.

In recent years, he has been advocating a progressive global tax.

The lowest tax rate would be 5% levied on those with assets worth more than €2 million and reach 90% on those worth more than €2 billion.

The goal, says Piketty, is that “there are no more billionaires.

For the economist, the wealth tax will be successful if no one is rich enough to pay it and the revenue is zero.

In other words, the function of the tax is only to even things out.

Another strand argues that this tax should be levied to finance public spending.

This is, for example, the position of US Senator Elizabeth Warren, a Democrat from Oklahoma.

Her proposed “Ultra-Millionaire Tax” would levy “2% a year on every dollar of net worth over US$50 million and a 6% tax on every dollar of net worth over US$1 billion.”

However, wealth taxes have become less common despite the recent proposal increase.

In 1996, twelve members of the OECD, the organization of the richest countries, taxed wealth: by 2020, only five countries maintained such rates.

Even France, Piketty’s home country, abandoned its wealth tax in 2017. Britain’s failure shows why.

ROLLING STONES

In February 1974, the Labour Party was elected, promising to “fundamentally redistribute income and wealth.”

They proposed increased pensions, a new child benefit, and reductions in public housing rents.

Their manifesto promised “an annual wealth tax on the wealthy” to help pay for it all.

Even the British Inland Revenue was not optimistic. There was an earlier example.

After World War II, in 1949, the inheritance tax in England was raised to 75%.

However, in the 1960s, ten years after its introduction, it accounted for only 0.6% of revenue.

Taxpayers avoided payment by using gimmicks such as gifts and transferring assets to companies.

In the late 1960s, the Treasury warned that “[The wealth tax] will lead people to seek nonresident status, resulting in a considerable outflow of resources in the form of dividends and interest.”

And it concluded that “employees of foreign companies resident here would be subject to tax, resulting in a major corporate exodus from the UK.”

They had good reason to think this. Britain had launched a top income tax rate of up to 98% of investment income.

This was the era of Tax Exile when most British millionaires – including many artists and athletes – moved to other countries.

The Rolling Stones recognized this with their album Exile on Main Street, partly recorded in southern France in 1971 and 1972.

Guitarist Keith Richards succinctly explained:

“Our business is no longer music; tax laws define it. That’s why we rehearse in Canada and not in the United States. A lot of our moves were decided by tax laws.”

“Where to go, where to put the money. We left England because we would be paying 98 cents for every dollar. And the ones who lost were them. No taxes.”

With information from Forbes

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