The Swedish face of inequality

Submitted by dfabbri on Thu, 01/17/2019 - 10:19

Social Europe (17.01.2019) Sweden used to be revered for stemming inequality through progressive taxation and universal welfare. Now tax breaks for the wealthy and ‘free choice’ in public goods such as education cocoon the rich from the rest.

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What does inequality look like? In Sweden, rising inequality can be easily detected in data on income distribution. According to the latest available comparable data, no other country has seen a faster increase in inequality since the 1990s.

But income data reveal just part of the story. Over the past few years, a number of policy changes have enabled dramatic inequalities in lifestyles to emerge in Sweden. The result is that the rich lead increasingly different lives. In a society which once was a symbol of equality, the changes are staggering.

Not long ago, only the super-rich could afford to have housemaids and send their kids to private schools. Nowadays, this is the norm among not only the top 1 per cent but the top 10 per cent of income earners. A couple of decades ago, only the super-rich had several mansions. Today, a typical top 10 per cent household owns a flat in the city, a summerhouse in the archipelago and a cottage at one of the ski resorts or a beach bungalow in Thailand.

Cheaper to be rich

The policy changes which have triggered these changes in lifestyles are of three kinds.

First, the rich have benefitted from massive tax cuts. As in many other OECD countries, inequality has been fuelled by the abolition of a number of heavily redistributive taxes. Today, Sweden does not levy taxes on gifts or endowments, it has no property tax and there is no other wealth taxation. In addition, the right-wing government in power from 2006 to 2014 introduced a series of earned income tax credits (EITC, jobbskatteavdrag), which substantially lowered tax rates for the rich. Those of the top 10 per cent who earn their income as business owners benefit from one of the lowest corporate tax rates in the European Union.

Second, on top of the tax cuts, the right-wing government introduced tax rebates skewed towards high-income earners. Those who can afford a mortgage are entitled to a rebate on their interest payments (ränteavdrag). All kinds of expenses related to maintenance and refurbishment of private homes are tax-deductible (ROT-avdrag), as are household services including cleaning, laundry and babysitting (RUT-avdrag). Indeed, housemaids are not only re-emerging for the first time since the 1950s—they are subsidised.

From 2014 until 2018, Sweden was governed by a red-green minority government, consisting of the Social Democrats and the Green Party. With the support of the Left Party, it introduced reforms to increase equality—for instance a substantial increase in universal child benefits. It also capped some of the tax rebates (for instance, that on household services was limited annually to 50,000 SEK, or €4865). But it did not reintroduce any taxation on wealth and it did not substantially raise income taxes for the affluent.

As a result, inequalities have continued to grow. Take housing. The continuation of tax deductions for maintenance and refurbishments of private homes, despite the current economic boom and severe labour shortages within the construction sector, have helped increase the costs of construction workers, plumbers, electricians and carpenters. Neither the tax rebate for interest payments on housing credits nor the one for maintenance is available to tenants, so they have faced higher rents, as landlords have to pay non-tax-deductible and inflated prices whenever they renovate or rebuild flats.

In short, it has become more expensive to be poor, and cheaper to be rich.

‘Choice’ and segregation

Third, high-income earners have greatly benefitted from fundamental changes in the Swedish welfare system during the past two decades. Most important has been the introduction of a voucher system for schools, primary health care and elderly care. Arena Idé recent published a report on its effects on schooling. Aided by freedom of establishment, the voucher system has channelled public money to private, for-profit schools, primarily in privileged neighbourhoods, at the expense of municipal schools in disadvantaged areas. Moreover, it has created a market for corporate schools which have specialised in making profits by attracting the well-prepared, ‘cost-effective’ children of well-educated native parents, while leaving the more costly kids of low-skilled, immigrant parents to the local, council-run schools.

As my colleague German Bender wrote last month, the voucher (or ‘free choice’) system is not cost-effective: it leaks public funds to private profits and has contributed to increasing inequalities in access to public services—and, hence, in health and educational outcomes. But its most severe impacts might be on how these changes have widened the lifestyle gaps within Swedish society.

In many ways, members of the top 10 per cent are now able to live lives which are radically different, and increasingly distant, from those of the rest of the population. How will widening social distances affect the values and attitudes of the affluent? How will it affect their willingness to contribute to social solidarity? These questions are at the core of a research project recently launched by the Irish think tank TASC in co-operation with the Foundation for European Progressive Studies. Progressive think tanks based in Ireland (TASC), the UK (Compass), Spain (Fundación Alternativas) and Sweden (Arena Idé) will combine data analysis with in-depth interviews with a strategic sample of the top 10 per cent income earners.

In the Swedish case, we will study a society where the social distance between the top 10 per cent of income earners, on the one hand, and the remaining 90 percent, is growing rapidly and radically.

Sweden’s new face

Today, the Swedish face of inequality rests on a person whose everyday life is spent on what is in many ways a different planet. It is someone who no longer has to cook, wash the dishes or carry groceries—whose shirts are washed and ironed by paid (and tax-deductible) labour. The face of inequality is a person who can afford to take a mortgage on not just one home but a second one too, and who gets a tax rebate for having his or her often spacious dwellings cleaned and maintained. It is a person who—without having to pay a tuition fee—can send his or her kids to socially segregated schools, where well-prepared, motivated children are taught by the best-prepared teachers. It is a person who qualifies for private health insurance, which makes it possible to jump the queue for examinations and treatments—also at tax-funded clinics and hospitals.

At this stage of the project on the values of the top 10 per cent, we cannot know what the affluent will tell us about their attitudes and political preferences. But it is likely that the dramatic divergence of living conditions will have political implications.

For one thing, people who spend their weekdays on the top 10 per cent planet will have limited understanding of the living conditions of the rest of the population—who struggle not only to make ends meet with a dwindling share of the nation’s total income, but to find time for household chores which the rich have long forgotten how to do. An even greater threat to social solidarity may be that these widening lifestyle gaps between the rich and the rest risk undermining the willingness of the affluent to contribute to society.