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By Marcus Hoy
April 27—Sweden's left-leaning government announced April 15 that it will end preferential tax treatment for companies that hire younger employees. In effect in various forms since 2007, the system allows employers a significant reduction in payroll tax liability if they employ younger workers. The stated aim of the existing system is to reduce youth unemployment.
Under the current model, employer payroll tax is levied at 2.53 percent of an employee's salary if that employee is age 25 or younger. For employees age 26 to 65, the employer tax rate is 10.15 percent, and for employees over 65 there is no payroll tax liability. Beginning Aug. 1, 2015, the employer tax liability for younger employees will rise to 7.3 percent, and effective July 1, 2016, employers will be taxed at the full 10.15 percent for these employees. Presented as part of the spring budget plan, the proposal enjoys a parliamentary majority and is expected to be enacted this June.
Although the existing tax rebate is popular with industry, it has been criticized by employees' organizations such as the Swedish Trade Union Confederation (LO), which believes that the resources needed to fund the exclusion could be better employed elsewhere. Alternative suggestions include paid education for the unemployed and a proposed “90 day guarantee” that would provide job offers to all young people within three months of redundancy.
In an April 22 statement provided to Bloomberg BNA, LO economist Tobjorn Hallo said that his organization supports scrapping the current scheme.
“The unemployment rate has actually increased since the payroll tax reduction was implemented,” Hallo said. “The rate among young people was around 19 percent in 2007 and was about 23 percent in 2014.”
“Unemployment among those with no secondary education is more than twice as high as among those with an education,” Hallo said. “It́s therefore important to implement policies to ensure that young people get a good education. By abolishing the reduction, it will be possible to better fund the education system.”
In an opinion published April 7, the Confederation of Swedish Enterprises (SN) pointed to figures from the Institute for Evaluation of Labor Market and Education Policy, which estimates that around 15,000 jobs have been created by the payroll tax relief and that its abolition could place some 19,000 jobs at risk. While the government estimates the cost-per-job at around 1 million kroner ($114,000), SN said, this calculation does not take into account potential expenditure on unemployment benefits and other intangible advantages provided by employment.
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Further details of the revised payroll tax are available at http://www.regeringen.se/content/1/c6/25/72/51/e0e2d181.pdf, the April 7 SN statement at http://www.svensktnaringsliv.se/fragor/ungdomsarbetsloshet/regeringens-jobbpolitik-for-unga-under-attack_614637.html, both in Swedish.
For more information on Swedish HR law and regulation, see the Sweden primer.
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