Norway and Spain are among the few countries in the world that still have a levy on net wealth. In 2021, Spain modified the wealth tax collected and administered by the regional governments. The wealth tax rate on wealth above EUR 10.7 million ($11.8 million) — the top wealth bracket — was increased by one percentage point from 2.5 percent to 3.5 percent.
In 2022, Norway increased the net wealth tax rate from 0.85 percent to 0.95 percent for net wealth exceeding NOK 1.7 million ($0.19 million); it was NOK 1.5 million ($0.17 million) in 2021. Additionally, for net wealth exceeding NOK 20 million ($2.3 million), the tax rate is 1.1 percent.
These wealth tax reforms can potentially exacerbate the distortions created by this tax. Given that wealth taxes collect little revenue and have the potential to disincentivise entrepreneurship, harming innovation and impacting long-term growth, perhaps Spain and Norway should repeal the tax altogether.
In the case of Austria, to compensate for the income and corporate tax reliefs and to comply with the European Union’s green transition agenda, Austria will start to tax CO2 emissions at EUR 30 ($33) per ton from July 2022 and gradually increase it to EUR 55 ($61) per ton by 2025.
The government is also looking into a series of measures to offset the additional burden on taxpayers caused by carbon pricing, including an investment allowance of up to EUR 350 million ($385 million) to improve businesses’ energy efficiency and help them become more environmentally friendly.
Norway’s 2022 budget proposal was set to increase taxes on CO2 emissions that are not part of the European Union Emissions Trading System by 28 percent to NOK 2,000 ($228.53) per metric ton in 2030. However, in 2022, the CO2 emission tax on diesel and heating oil increased by almost 30 percent and was set to NOK 2,005 ($229.11) per metric ton, above the 2030 target.
To offset the additional burden on taxpayers caused by carbon pricing, the government proposed a general travel deduction of NOK 1.65 ($0.19) per kilometre. Nevertheless, in 2021, after discounting credits and subsidies, oil and gas tax revenue almost tripled compared to 2020 due to high gas prices in the year’s second half.
Reducing personal income tax can increase workers’ disposable income, raise consumption, and potentially contribute to economic growth. Additionally, individual income tax parameters need to be indexed for inflation. Otherwise, higher levels of inflation can artificially increase individual tax burdens. The delay in implementing these tax cuts will postpone growth and labour market impacts intended to be achieved with these tax reforms.
While transitioning from income taxation to carbon taxation might positively impact employment, relying too heavily on carbon taxation at a time when energy and fuel costs are at one of their highest levels might undermine economic recovery.
Instead, countries could consider full expensing to increase private investment and move towards a permanent and neutral corporate tax. As governments are moving towards budgetary stability, policymakers should focus on consumption taxes and make them more efficient and impartial by broadening the tax base, lowering the tax rate, and eliminating unnecessary tax exemptions. Countries might also want to put in place compensation measures for poorer households.
Policymakers should work to ensure that their tax systems are geared towards investment, jobs, and economic growth for the long term.
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