Sitting in his lakeside villa in the Swiss city of Lucerne, Borger Burgenhaug, less than his children, enjoys the smell of the North Sea on a clear summer night. The carpenter-turned-property tycoon claims this is the price he has to pay to escape Norway’s crippling heritage tax, an annual burden that has led to hundreds of millions living abroad, as he attacks one of the world’s most egalitarian societies.
“The political climate in Norway has become increasingly hostile toward business,” says Reuters Borgenhaug, who will leave the post in 2022.
With a heritage tax dating back to 1892, and a culture of transparency that allows citizens to review tax returns from others, Norway has more experience than the majority can express to the rich. Its model offers lessons for countries debating similar measures, from Great Britain to France and Italy, or even a city like New York.
In short: A heritage tax would hurt some millionaires, but if imposed in a large enough way, the income could still be worth the penalty.
Shareholders pay 1% on net assets, which range between 1.76 million and 20.7 million kroner (between 149 thousand and 1.75 million euros), and since 2022, 1.1% above this figure. Exactly, 671,639 people, roughly 12% of the population, will pay in 2023. Prime homes enjoy a 75% catastrophic value discount; Stocks and commercial real estate get 20%. Foreign assets are included, but the amount is deductible.
Leaving Norway triggers an exit tax of 37.8% on unrealized capital gains exceeding 3 million kroner (253,000 euros), as well as latent gains from shares, which have increased in value but have not yet been sold. Legal lakes that allowed immigrants to pay indefinitely will be eliminated in 2024.
The changes turned a small amount of output into a torrent. Data from the conservative Civita think tank show that 261 residents with assets exceeding 10 million kroner (846,000 euros) will leave in 2022 and 254 in 2023, more than double the usual rate before the increase.
Ranking of the 400 richest people in Norway prepared by Business Magazine capitalit appears that 105 is now living abroad or has transferred his assets to the family members who created him. Some of his “Wall of Shame” photographs appear in the workshops of the small opposition party of Izquierda’s Socialist Party.
The asset tax was a crucial issue in the Norwegian elections in September, which returned the Labor Party to power. The party increased taxes and tightened exit criteria during its previous term.
Supporting arguments
Advocates say the tax acts as a redistribution protection mechanism in a country that abolished the inheritance tax in 2014 and is one of the richest countries in the world thanks to oil, shipping and fishing.
Norway transfers all income from the oil and gas industry into a sovereign wealth fund and limits annual withdrawals to 3% of the value of the fund due to a self-imposed fiscal rule. This means that you need to look for other sources of income.
“The asset tax means that the personal tax system in general is more progressive than the individual income tax,” Deputy Finance Minister Ellen Reitan told Reuters.
Income from this tax has increased despite the mass exodus, and now stands at 0.6% of GDP, which is not insignificant at all. To put it in context, the British Labor government seeks to commit horrors of similar scale to achieve its financial goals.
A study by Statistics Norway shows that entrepreneurs have enough cash to pay and that the burden falls largely on the rich. Another study suggests that the tax can drive investment in human capital.
Norway remains among the most equal countries in the world and ranks prominently in terms of ease of doing business.
“These results suggest that the tax on assets does not directly hinder investment or employment at the business level,” said Roberto Iacono, a professor at the Norwegian University of Science and Technology (NTNU).
Survey conducted by the Diary Response Agency Aftenposten Immediately before the September elections, it was found that 39% of Norwegians wanted to maintain or increase the tax imposed on their assets, while 23% wanted to reduce it, and 28% wanted to abolish it.
The Norwegian Labor Government is seeking to reach a major agreement on tax reform in the coming years, and is inviting all parties to the negotiating table. Is it the trick? The tax on assets remains in place, in one form or another.
Arguments against
Critics claim this model penalizes national ownership and risks undermining Norway’s business base.
“The property tax system makes it difficult for companies to compete with the rest of the world,” said Knut Erik Carlsen, who spent his fortune solely on acceptable fish supplements and recently moved to Switzerland.
Norway records capital gains, unlike Switzerland, and imposes higher burdens on its workforce than the average of OECD member states.
About 40% of immigrants are business owners, according to Christine Blandhall, a researcher at Princeton University, who estimates that the latest fiscal changes will reduce Norway’s output by 1.3% in the long term. Others believe that the tax hurts corporate income.
The asset tax is particularly harmful to startup founders, who repay their capital long before they realize profits.
Hull Trasdal left Norway in 2000 to market European mobile technology in the USA, and has founded and sold several technology companies, including the app now known as iHeartRadio. I say: “I could not build in Norway what I built in the United States.”
Norway has one of the lowest levels of capital risk in relation to Europe’s GDP: Sweden’s share and lags far behind the United States, according to data from the OECD.
The shepherds walked sullenly before taking control of the proceedings. Lawrence Odvigil, now in Singapore, claims he can remain in control of his ship group during the recession that followed the 2008 global financial crisis.
Are you exclusively Norwegian?
So far, no country has followed Norway’s example. French lawmakers ignored a 2% tax that would affect those with wealth exceeding 100 million euros, choosing instead to impose a lower tax on personal assets deposited in holding companies, a measure that is expected to raise only 1,000 million euros.
On the other side of the English Channel, Britain’s Labor government has ruled out a formal heritage tax, but insisted it will continue to support those “with the biggest shoulders”.
Italy, for its part, continues to respond to increases in inheritances, but is secretly working to tighten its fixed tax system on wealthy foreigners.
Meanwhile, millionaires continue to emigrate. Norway is on track to lose another 150 people this year, a significant loss for a country with a population of just 5.6 million, according to Henley & Partners, which advises wealthy clients on relocation, and New World Wealth, which relies on public sources such as LinkedIn.
Gran Bretaña tops the global list with 16,500 planned departures after tax breaks for foreign residents were scrapped. The United Arab Emirates, the United States and Italy are among the main beneficiaries.
Norway’s social cohesion and oil wealth may make its model difficult to imitate. But economists say that this indicates that any tax of this type involves compensation with economic and political dimensions.
“Not imposing a heritage tax creates more inequality; imposing it means less capital for them. Start-ups“Politics has to find a balance,” said Iacono, a professor at NTNU.