Robin Hood’s trap: How the progressive wealth tax chases Capital of Norway

Norway is known to the world for its picturesque fjords and a high standard of living, possible because of the successful extraction of natural resources and a unique social model. In recent years, the country has also attracted attention because of the change in its tax policy. Particularly discussion is the measure introduced in 2022, when the government significantly increases taxes on « super -rich ». This measure, which affects only the most wealthy taxpayers, raises questions about the potential effects on the overall investment climate and the labor market. While some politicians and analysts see a tool for social justice in it, others warn that it may have negative effects on the country’s economy in the long run.

Wealth tax in Norway is not a new phenomenon – it has existed since 1892 and is an important part of the tax system argued with the pursuit of reduction of inequalities. Nowadays, only a few countries in the world still apply this type of taxation – among them are Switzerland, Spain, Colombia and France, with France using it in a significantly reduced version – only for real estate.

Since 2022, the rate has been increased from 0.85% to 1.1% for the value of assets above a certain limit, with the threshold being 1.7 million Norwegian kroner (about 160,000 euros). This tax is paid by about 10% of the population of Norway – the richest households and persons with significant financial assets. An important feature of the tax is its distribution – the revenues are shared between the central government and the local municipalities. Until the increase in 2022, the central government collects 0.15%and the municipalities – 0.7%. After the reform, the central government received 0.4%and the municipalities – 0.7%. This means that most of the tax continues to remain in the municipalities that use it to fund local projects and improve public services.

Social justice, according to Nordic Model, implies a balance between the market economy and the significant redistribution of resources through social programs and progressive tax policies. Ideally, this means that the rich contribute more to the financing of public goods, guaranteeing a high standard of living, good infrastructure and equal opportunities for all citizens. No matter what the declared goals, however, the increase in the tax burden on the so -called. « Over -rich » can adversely affect Norway’s economic activity and competitiveness. The increase can lead to the expiration of capital and investment to countries with more favorable tax conditions, which in turn would weaken the local economy and limit job creation.

Also, high tax rates on owned assets can discourage entrepreneurship and innovation because they reduce potential incentives for risk investment and new endeavors. These effects can put Norway in a less favorable position in global talents competition and access to funding, which in turn can harm the country’s sustainable development and economic prosperity in the long run.

For comparison, in the eight years of the reign of the former Prime Minister, Erna Solberg (2014-2021), the number of emigrants of the same status is 79, with a wealth of about 27 billion kroner.

While the national government increased the tax rate, the Municipality of BO in Northern Norway took a measure in 2021, significantly reducing the local wealth tax from 0.85% to 0.35%, becoming the first Norwegian municipality since 1978, which unilaterally took such a step.

This action by Bo, inspired by the practices of offshore tax shelters, leads to positive results for the local economy. According to the analysis of IONOCON and SHEDSVIC (2024), the 1 percentage point in the tax rate has led to an increase of about 60% in the average taxable wealth – all properties, deposits, shares, cars and other assets that are subject to tax – owned by the residents of BO municipality. This means that after a decrease in the tax rate, the average amount of assets owned by a resident of BO municipality has grown by about 60% compared to the period before the reform.

In the richest inhabitants, the effect is even more pronounced, with the increase reaching nearly 68.7%. One of the most important results of this reform is the attraction of wealthy citizens from other regions of the country, which has led to a significant rise – over 67%, of the share of taxable assets owned by new residents.

The main reason for the increase in average is the relocation of people with much larger capital. This in turn has positive effects not only on tax revenue, but also on opportunities to promote and accelerate local economic activity. Although such a tax reduction could raise concerns about possible losses for the municipal budget, the Bo results are positive – the economy is revived, the population is increasing, and the risk of depopulation of the municipality has been successfully mastered. It is important to note that wealthy citizens from other parts of the country actually go to live on the territory of the municipality, not just documented.

The analysis further proves that the locals who lived in BO before the reform also enjoy a moderate increase in their wealth thanks to the overall economic revival. The BO reform proves that the purposeful and reasonable reduction in wealth taxes can be an effective tool for attracting investment, enhancing well -being and stimulating local development without leading to a large -scale capital leak at national level.

According to the Laffer Curve – an economic concept that illustrates the connection between the amount of the tax rate and the revenue that the state actually collects from taxes, the increase in tax rates to a certain point increases the revenue, but after reaching the options, the additional increasing of the taxes and the income and the demonstration of the economic activity, promotes the escape. In the context of the Norwegian tax policy, the overall increase in wealth tax in 2022 and 2023 clearly demonstrates this effect – the high rates expel the wealthy investors and lead to the outflow of capital and jobs from the country.

This confirms the logic behind the Lafer curve that tax policy must find a balance in which the state not only collects sufficient revenue but also maintains a favorable environment for investment and economic growth. Otherwise, excessive tax burden leads to negative consequences such as exporting capital and loss of economic potential.

Although the increase in wealth tax in Norway in 2022 is motivated by the pursuit of greater justice and an increase in public revenue, the results indicate the opposite effect on the state budget.

According to Statistisk Sentralbyrå (SSB), the revenue from the net wealth tax has shrunk from 1,500 million NOK in 2021 to 1,200 million NOK in 2023, which is a decrease of 20%. This happens despite the increase in the 0.85% rate to 1.1% for the richest households with over 20 million NOK net wealth.

First of all, this decline reflects the direct loss of revenue only from the tax on wealth itself, which in itself questions the effectiveness of the measure. In addition to these losses, leaving the richest Norwegians also leads to the export of assets and capital-a process that has a much wider effect on fiscal. When wealthy people leave the country, the state does not only lose the revenue of wealth tax, but also from all other direct and indirect taxes that they and related businesses would pay – as taxes on income, on dividends, corporate taxes, VAT from consumption, etc.

Brussels Report analysis estimates that instead of earning about 1.5 billion NOK, the state loses approximately 5.9 billion NOK from unrealized tax revenues, precisely as a result of this « tax migration » – capital, entrepreneurs and high -tax income. Another negative effect on the economy is that Norway drops to 19th in the Tax Foundation tax competitiveness index (2024), and investments as a share of GDP decreased from 5.2% (2021) to 4.2% (2022) according to the OECD, or a clear signal for delay in investment activity.

This situation clearly shows that excessive increase in wealth tax can lead to tax base erosion, reduced investment and outflow of entrepreneurship, which in the long run damages the budget, the labor market and the investment climate.