File photo: Stefan Leijon/Flickr.
File photo: Stefan Leijon/Flickr.

Loan interest tax deduction cuts would affect low-income families

1:16 min

Some 65,000 Swedish households could be seriously affected if tax deductions on loan interests (ränteavdrag) were cut or scrapped, as Sweden's Central Bank's governor Stefan Ingves and an increasing number of political parties are recommending.

These households fall below the national poverty line and benefit from tax deductions on their loans worth more than SEK 500 per month. More than half of them are families with children.

Tax deductions on loans mainly benefit high-income households in large cities, but according to a report by Statistics Sweden published by Swedish Radio, figures from 2013 show that many people with low income are also profiting from them. Most of them deduct taxes on their mortgages.

"If the deduction was to be reduced totally from one day to another, then it would have a significant effect, but I would say that my best guess is that if it is abolished, it would probably be reduced by one percentage point, perhaps two percentage points a year. That means that the effect on the household economy is quite small to begin with," Nordea chief analyst Torbjörn Isaksson tells Radio Sweden.

Sweden's largest political parties, the Social Democrats and the Moderates, have long been against any changes in these deductions, but the number of parties supporting it is growing. Until very recently, only the Left Party was asking to reduce or eliminate them, but now the Greens, the Liberals, the Sweden Democrats and the Center Party are also in favor of a change.

The governor of Sweden's Central Bank, Stefan Ingves, has been the main advocate of suppressing the deductions, because he believes Swedes are too indebted.

"Risk has definitely increased in the Swedish economy given the swift rise in household debt and the swift rise in house prices. And I think it's good that something is done," Isaksson says.

Tax deductions on loan interests allow Swedes to recover 30 percent of their interests in their tax declaration. In practice, this means that they can afford to take bigger loans, since the loan costs become lower.

Our journalism is based on credibility and impartiality. Swedish Radio is independent and not affiliated to any political, religious, financial, public or private interests.
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