Report of the Tax Committee Handed over to the Minister of Finance

The head of the Tax Committee, Mr. Arne Skauge, today presented the Committee’s proposal to the Minister of Finance, Mr. Per-Kristian Foss. The Committee proposes that tax reductions of NOK 10 billion should be used for reducing the tax on labour income and halving the wealth tax. At the same time, the Committee proposes increased tax on housing and real property. The Committee also proposes replacing the split model with taxation of dividends exceeding an opportunity rate of return.

The mandate of the Committee has been to assess objectives of, and principles applicable to, the tax system, and the need for changes thereto. The Committee was requested to address the scope for reducing the tax rate differential between labour and capital income, and for abolishing the split model in whole or in part. Furthermore, the Committee has assessed whether the tax system is sufficiently adapted to the increasing level of internationalisation, with higher cross-border mobility. The Committee has also been requested to assess the role of the wealth tax within the tax system. The Committee has worked with two alternative sets of assumptions: One model that would have no net effect on net tax revenue, and one model offering net tax reductions of NOK 8 -10 billion. The main proposals of the Committee entails overall tax reductions in the region of NOK 10 billion.

Some of the main features of the proposal are:

• Tax rate on ordinary income (including company profits) to remain at 28 percent.
• Wealth tax should be phased out in the long run, and be halved in the short run, whilst taxation of homes and property should increase.
• Lower tax on labour income, by, amongst other things, reduction of the surtax and abolition of the extra employer’s social security contributions on high salaries.
• Income from shares (dividends and capital gains) in excess of risk-free rate of return to be taxed as ordinary income.
• It is recommended that the split model be abolished for active shareholders.
• Lower tax for those with low labour income, and simplification of the taxation of pensioners. These changes imply an overall tax reduction of NOK 6.2 billion.

- I will now consider the proposal of the Committee in its entirety. In order to achieve a stable and predictable tax system, it is important that the principles underpinning the tax system, and any changes thereto, enjoy broad support.

- The Government has implemented tax reductions worth a total of NOK 19 billion. We will continue to give priority to reducing direct and indirect taxes. Such perspective will inform our evaluation of the Committee’s proposals. At the same time, I wish to refer to the Sem declaration and previous pronouncements by the Government on easing the taxation of imputed rents from owner-occupied houses, says the Minister of Finance, Mr. Per-Kristian Foss.

- The report will now be sent to interested parties, who will be invited to submit comments within 3 months. On the basis of such comments as well as the Ministry’s own review of the recommendations of the Committee, the Government will during the autumn session submit a white paper to the Storting, says the Minister of Finance.

The Tax Committee was appointed in January 2002. This expert committee has been chaired by Mr. Arne Skauge, who heads the Norwegian Financial Services Association. In addition, a reference group has been appointed, comprising members from employee and employer organisations. The Director General of Statistics Norway, Mr. Svein Longva, has chaired the reference group.

The Committee’s own press release is enclosed.