Speech by Minister for Finance Magdalena Andersson at Stockholm Tax Conference concerning capacity building
Stockholm, 30 May 2018
Check against delivery
His Excellency President Mbeki,
I would hereby like to welcome you to the Stockholm Tax Conference and to the intensive and important work on capacity-building that we have ahead of us.
Seeing so many of you here makes me hopeful of what we can achieve together. But the agenda is long and our time is short – so let me get right into the topic.
I would like to focus on what, in my experience, is important to create an effective tax administration.
First of all, let me take a step back and talk briefly about taxation as a concept.
What is tax? As US Supreme Court Justice Oliver Wendell Holmes Jr stated in 1927: "Taxes are what we pay for civilized society".
I agree. To achieve a society where we do not resort to the rule of force, but instead can rely on the rule of law, we need taxation.
Our people and property need protection, regardless of income. Police is necessary and territories must be secured, and we must ensure equal justice for everyone.
Taxation is the only way to guarantee this for each of our residents.
But tax is more than that. Tax can also be smart economics. Paying taxes will make us richer in the long run. If – and I mean IF – taxes are spent well and levied well.
To me, tax is spent well when it is providing businesses with infrastructure and helping to educate the workforce. Then taxes are good for our companies and for innovation.
Tax is spent well when it is creating growth that is inclusive – economic growth for the benefit of a good society.
Inclusive growth is created when boys and girls have the right to attend high quality schools, when higher education is accessible regardless of your parents' income, and when affordable healthcare is available for all.
And taxes can have a role in creating a structure that benefits economic growth. Let me give you an example.
Even if we in Sweden have high taxes from a global perspective, our employment rate is the highest that has ever been measured in an EU country.
High female labor force participation is an important explanation.
How did we achieve this?
First, we abolished joint taxation in 1971. With separate income taxation the marginal tax decreased dramatically for families when women started to work. And more women entered the labor market.
Number two, publicly funded parental leave and high-quality child care, and number three – often forgotten – publicly funded elderly care.
This structure makes it possible for women and men to combine family life and working life.
To fund this structure with taxes is smart economics. A structure where women can work increases economic growth and makes it more inclusive.
So, what does spending taxes well have to do with capacity-building? Well, it's about trust.
Trust between the legislator and the taxpayer.
As a taxpayer, not only do I want to know where my money goes, I also want to support this use of the tax money. I want to know it is spent carefully and wisely on things that benefit our society. Then I'm willing to comply with the tax rules.
But not only do I want to support the use of the taxes; the levying of the taxes itself also needs to be fair.
So, let me move on to fair taxation.
When there is a call for tax breaks from a certain group or interest, theories in the field of behavioural economics are useful to test against the broader aim of fair taxation.
Let me explain this by painting a picture.
Imagine two children who you suddenly decide to serve a glass of fruit punch on a sunny afternoon.
One child gets half a glass, while the other's glass is filled to the brim.
Behavioural economics and the prospect theory, developed by Nobel laureate Daniel Kahneman, were crucial in explaining in economic theory what every parent has known for generations.
Namely that you would end up comforting an upset child.
In the same way, the tax system must be fair to maintain its legitimacy.
Everyone needs to pay their fair share of the taxes, which means that we have broad tax bases and few exceptions.
Basically, my aim is to have as neutral a tax system as possible.
As soon as you give one person, company or interest group a tax break, you need to consider the other one standing next to it with a half-empty lass of fruit punch.
This is also the one explanation of my commitment and determination to fight tax evasion. If someone slips through the system, it is very difficult to keep other taxpayers motivated. Fighting tax evasion is crucial for the legitimacy of our tax system.
Quite simply, you need to distribute the fruit punch in a way that is fair and accepted, or you will end up spending a lot of money buying more fruit punch.
But even if the spending of the taxes is supported and tax legislation is fair, there is still one factor left: the relationship between the taxpayer and the tax authority.
And this relationship is also about, yes, trust.
This is something we have spent much time and effort on. In Sweden, in fact, even though we have high taxes, I am very proud to say that the Tax Agency is the most popular government agency in Sweden.
It has been a long journey from a feared tax collector to a popular service agency whose motto is: "Our vision is a society where everyone is willing to pay their fair share."
This journey has happened thanks to its service oriented attitude and professional services to the taxpayers – their pre-printed, simple tax returns and easy access to the Agency by phone.
Few people need to pay for legal advice on their tax return in Sweden.
One key aspect has been the clear context for employees of the Tax Agency that they are working to create a better society. And that citizens who contact the Tax Agency do so because they want to pay their taxes.
So again, it comes back to mutual trust.
This is all capacity-building in practice. Spending taxes carefully and wisely, creating a fair tax system and well-functioning service oriented tax agencies.
Capacity-building is high on the international agenda. The 2015 Addis Ababa Action Agenda on Financing for Development and the 2030 Agenda identify domestic resource mobilization as a key area.
Sweden was one of the signatories of the Addis Tax Initiative that was launched in Addis in 2015.
Sweden offered to host this international conference to contribute to stronger tax administrations across the globe.
The aim is to strengthen the capacity of low-income and middle-income countries and facilitate the implementation of effective tax policies through dialogue and experience exchange.
The conference will feature case studies for mutual learning in plenary as well as working sessions. The emphasis will be on best practices and technical and administrative expertise.
I hope this conference will bring forward the work that started in Addis in 2015.
I hope that we can take with us a lot of good examples to pave the way for more inclusive and efficient work on capacity-building. The base for a civilized society.
Thank you, and welcome once again to the Stockholm Tax Conference.