Can a wealth tax work? A view from Norway

Over the last few decades, taxing wealth has fallen out of favour in most Western countries. Today, Norway, Switzerland and Spain are among the few nations to persist with a levy.

The arguments against tend to revolve around administrative complexity, the risk of capital flight, weakened willingness to invest and relatively low revenues compared with other taxes. Nevertheless, there are some signs that wealth taxes may be making a comeback – and the topic is a talking point in Norway’s parliamentary elections, to be held on September 8th.

Norway – controversial, but not abolished
Since 1897, Norway has had a tax on wealth above a certain value. Now, ahead of the election, the debate about the effect of the wealth tax on investment and capital flight is intense. The opposition comes particularly from business leaders and politicians on the right.

What seems clear is that the wealth tax will not disappear completely in the next parliamentary term. Even Norway’s Conservative Party has only promised to gradually remove it for shares and business wealth.

Norway ranks low in the OECD area when it comes to total taxation of capital stocks. This reflects the fact that Norway has no inheritance tax and has relatively low property taxes.

However, there is one argument, in particular, against the wealth tax that is gaining traction: that this is unfair to Norwegian owners who have to pay a tax that foreigners who own businesses in Norway are exempt from. With that in mind, all non-socialist parties are now in favour of gradually removing the tax on business wealth. The Labour Party's popular and respected finance minister, Jens Stoltenberg, has also opened the door to changes in a possible new tax reform agreement with the right. It is interesting that there have been no audible protests from the left against Stoltenberg's new orientation.

Can the wealth tax return?
So what does this mean internationally? Could wealth taxes return? In the wake of growing economic inequality internationally, especially after the financial crisis and during the COVID-19 pandemic, the debate on wealth tax has flared up again. Several countries, including the UK, are facing popular calls to tax large fortunes. Britain’s Labour government has discussed reintroducing a variant of wealth tax, and in the US, high profile politicians such as Elizabeth Warren and Bernie Sanders have proposed different models for taxing the very wealthy.

In many countries, we see that populist movements – both on the left and the right – point to increased taxes on wealth as a solution to financing welfare and reducing economic disparities. The debate is linked to questions of justice, social contract and the responsibility of the rich elite.

Various international organisations have also initiated a debate on wealth taxes to finance global, public goods. The UN and the OECD have discussed the possibility of an international minimum taxation on companies, and a global tax on the very richest has also been highlighted. The idea is that a global wealth tax could help finance climate transition and health preparedness – areas that require joint efforts across national borders.

The way forward
The wealth tax can provide increased revenue to finance public investments, but the quid pro quo is that one must be willing to accept lower private investment. Voters' views on the balance between these two considerations may be in flux.

It is challenging to determine tax values correctly, and the risk of capital flight is real if several countries do not introduce similar taxes at the same time. Nevertheless, increased international cooperation and better technological solutions may make it easier to enforce such taxes in the future.

Political pressure for greater redistribution may lead to an unexpected comeback of the wealth tax – either carried by new anti-elite political movements or carried by the traditional parties precisely to prevent populism from gaining political power.

Roger Schjerva served as State Secretary (deputy minister) in Norway’s Ministry of Finance between 2005 and 2013. He is an Associate Director at Rud Pedersen Norway.