Norway’s exodus of billionaires | Financial Times

A number of colleagues have requested me about some curious latest information: the exodus of billionaires from Norway. As our Nordics correspondent Richard Milne has reported, what was a tiny trickle of very wealthy Norwegians transferring to Switzerland has changed into a (relative) flood prior to now yr. And so they blame Norway’s wealth tax, a levy paid yearly in proportion to people’ web price.

Free Lunch readers know that I take an in depth curiosity in each wealth taxes and in Norway. So right here, by common request, is an try and make sense of the world’s least necessary migration disaster.

Norway has had a web wealth tax for a really very long time and stays considered one of few international locations that also levy one. Nevertheless it has not too long ago gone up. The centre-left authorities that got here into energy in late 2021 has raised the speed from 0.85 per cent to 1.1 per cent on the most important fortunes, and diminished the valuation low cost for shares. Additionally they raised the tax-free allowance, however for the richest the modifications can have meant considerably extra wealth tax.

So is that this what’s driving the wealthy away, and if that’s the case, is it a nasty factor? Above all, is it an argument in opposition to wealth taxes?

First, a superficial puzzle. You’ll suppose that if the wealth tax is the explanation for transferring, you wouldn’t transfer to Switzerland, which is among the few different international locations which have one. However the charge is decrease in Switzerland. (That charge varies by canton, from about 0.1 per cent within the lowest-taxing ones to a high marginal charge of about 1 per cent in Geneva, which has similarities to the Norwegian charge. No prizes for guessing that Geneva will not be the place Norway’s tax exiles select to go.) Not solely that, Swiss cantons can, in observe, exempt foreigners with no Swiss revenue from an actual wealth tax by making use of it to a deemed wealth stage that’s unrelated to precise wealth.

However that has been the case for a while. But, there was no billionaires’ exodus prior to now. A Norwegian authorities fee appointed to look at the tax system, together with the wealth tax, delivered its report proper earlier than Christmas. Amongst its many findings was that emigrants with a web price above NKr100m ($10mn) numbered 130 in the entire decade as much as late 2022 — lower than 5 per cent of the entire group with such wealth — and 115 immigrated. However a lot of that occurred prior to now two years, and judging from press studies, much more folks will quickly be registering as emigrants with the tax authorities.

So it stands to purpose that tax modifications have one thing to do with it. And it isn’t simply the wealth tax that has gone up. The federal government raised taxes on extra revenue in high-rent industries resembling energy technology and fish farming. It has additionally proposed tightening the taxation of company homeowners’ use of the property their firms personal, making it costlier to carry luxurious homes or boats, for instance, by way of company buildings. All this taken collectively has clearly made the very rich really feel much less cherished than they suppose they deserve.

However it’s, above all, the wealth tax they complain about — at the very least these among the many exiles keen to confess to newspapers to be motivated by tax in any respect. So allow us to take their phrase for it. It’s not an excellent look, particularly in distinction with one other group of very wealthy folks heading for the Swiss mountains not too long ago: the campaigning group of “patriotic millionaires” who went to Davos to not complain about wealth taxation however to plead for more.

The Norwegian tax exiles don’t, after all, say that they only wish to pay much less. Relatively, they pose as geese that lay golden eggs: they transfer as a result of the wealth tax forces them to take capital out of their firms to pay it, and that, in flip, is unhealthy for progress, enterprise growth and employment the place their firms are primarily based. We do it for the sake of the roles we now have created, in different phrases. Or maybe: good economic system you’ve obtained there; it will be a disgrace if one thing occurred to it.

There are two issues with this argument, although. One is that even when rich homeowners did should take out bigger dividends from their firms with the intention to pay the wealth tax, there may be little signal that Norwegian firms themselves endure from a scarcity of entry to capital. The distinction is simply that extra capital will come from different sources than the unique homeowners, and it could be exactly this dilution that rankles, particularly for self-made entrepreneurs or household companies.

The opposite downside with the golden goose argument is that if homeowners’ liquidity actually was a problem, the federal government may simply treatment this not by decreasing the wealth tax however by permitting funds to be deferred — even to the purpose of sale, realisation, or bequest. And, in actual fact, deferral was allowed for just a few years prior to now decade, however hardly any wealth tax payer selected to make use of this liquidity facility for the very wealthy. That quite means that few of them struggled to seek out the money to pay with out raiding their firms’ coffers. One study discovered that seven out of eight wealth tax payers owned liquid property (that’s, aside from firm possession) price greater than 10 occasions their annual wealth tax legal responsibility.

Briefly, I’ve little sympathy for the tax exiles’ complaints. It’s an sincere if unadmirable matter to wish to pay much less tax. However the golden goose defence will not be credible. Norway’s financial progress has not suffered from the wealth tax earlier than and it’ll not endure now — in actual fact, there’s a case to be made that taxing web wealth is better for productivity than different methods to tax capital. In any case, no matter capital drought was supposedly imposed on these folks’s firms earlier than has presumably been relieved by their self-sacrificing strikes to Switzerland. The deferred cost facility ought to be completely reintroduced and expanded, nonetheless, to take away any remaining chance that the wealth tax starves firms of capital.

This doesn’t imply the federal government needn’t fear concerning the billionaires’ exodus. It is going to presumably lead the tax base to shrink modestly. And it’s politically poisonous — significantly for a sophisticated economic system and welfare state primarily based on high levels of mutual trust — to depart an impression that it’s in observe non-compulsory for the very wealthy to pay sure taxes.

So I discover it astonishing that, to my data, there was no consideration in Norway of taking a leaf from the US guide and tie the wealth tax to citizenship as a substitute of simply residence. The US reveals the viability of worldwide taxation even when it doesn’t have a wealth tax. Norway may goal for the same system utilized to its wealth tax, imposing it (with deductions for wealth tax paid elsewhere) on these with Norwegian citizenship or long-term residence permits.

Citizenship-based wealth taxation is admittedly not totally easy. It might require renegotiating some tax treaties (particularly with Switzerland), and it’s potential, if rather more pricey, to relinquish citizenship as properly. But when both complication arises — with tax treaties or with the wealthy queueing handy of their passports — it’s potential as a substitute to impose a excessive exit tax on web wealth when somebody abandons their tax residence or in any other case strikes their wealth past jurisdictional attain.

Given how longstanding the wealth tax is, it’s hanging that these coverage tweaks haven’t been completely analysed and readied for implementation. However higher late than by no means. They might not, after all, deal with some wealthy folks’s feeling that their tax burden is unfair and that the federal government fails to accord them their due respect and admiration as wealth creators. However they only could lead some to suppose Switzerland was not all it was cracked as much as be.

Different readables

• Talking of patriotic millionaires, I interviewed one final yr, and simply this week one more has written in indignation at a former UK chancellor’s tax troubles.

• Adam Tooze’s Chartbook e-newsletter offers an excellent state of play of the European Central Financial institution’s strategy to inflation.

• Because the ECB and different central banks elevate rates of interest, they discover themselves paying billions to banks with massive reserve holdings. Paul De Grauwe and Yuemei Ji level out that there’s no need for these subsidies if central banks embrace required reserve ratios of their financial coverage toolbox.

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

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

Numbers information