For eight years, Aina Borsch was the Labour mayor of Lakselv, a remote coastal village that sits at the mouth of one of Norway’s largest fjords. A “social democrat to the core”, she believes in paying fair taxes to fund schools, hospitals and infrastructure. Yet she has a stark warning to all her centre-left soulmates in Britain: do not bring in wealth taxes.
Despite contributing pretty insignificant amounts to state coffers, these levies have dominated the debate heading into Monday’s knife-edge general election. Labour, having ramped up these taxes during its four-year term, stands accused of driving away swathes of their super-rich along with the next generation of ambitious wealth creators. And now, in Britain, the Left is considering doing the same thing.
Borsch does not pay wealth tax herself. But she admits her eyes were opened to Norway’s stifling bureaucracy and over-regulation after buying a stake in a local hotel — surrounded by salmon-filled rivers and steep mountains — four years ago. “We need these entrepreneurs,” she says, arguing that taxes must be fair. “And we need billionaires too. We want people to live in the whole of Norway — but if we want to stimulate businesses, then it has to be made affordable for people.”
Norway, one of the planet’s most prosperous nations, is propped up by the world’s biggest sovereign wealth fund thanks to its North Sea oil and gas. This cash, which supplies about one quarter of state revenues, ensures it has run a budget surplus every year this century — in sharp contrast to most other debt-laden Western nations and despite very heavy spending on benefits for its 5.5m citizens. All these energy riches, however, failed to prevent the current government, led by Labour’s Jonas Gahr Støre, from driving up their supposedly “redistributive” wealth taxes, sparking an exodus of many of its richest and most ambitious citizens.
Annualised wealth taxes have been a feature of Norway’s tax system since the late 19th century — and despite ditching inheritance tax, the country has clung to the concept. Defenders of the tax system like to claim that Norway is just promoting equality with its progressive Scandinavian system. Yet in reality, it shows with striking clarity why these outmoded wealth taxes have been ditched in almost all developed countries that adopted them. They drive away the very rich, the risk-takers and the entrepreneurs — the lifeblood of any economy.
Even as Britain considers wealth taxes, eight of the 12 OECD countries using such imposts have abolished them since 1990 — including, in 2007, neighbouring Sweden after IKEA founder Ingvar Kamprad and tennis champion Bjorn Borg joined their rich fleeing abroad. “It’s not sustainable to keep taxes that radically diverge from other countries,” said Sweden’s then-finance minister, Anders Borg. “Not if you want the money to stay in the country.” He hailed the move as “a step on the way back toward making Sweden an entrepreneurial society”. Kamprad was among those who returned home from tax exile.
The issue caught fire in Norway after Støre’s coalition ramped up capital gains tax three years ago from 31.64% to almost 38%, while bumping up the annual wealth tax. An individual with worldwide wealth of 1.76m krone (about £126,000) is taxed at 1% above this threshold, a rate that rises marginally on assets above 20m. At the same time the government — arguing that some of the richest citizens, since they had no income, paid no tax towards the wildly-generous Swedish welfare state — slashed rebates that lessened the load on corporate capital which, combined with raised taxes on dividends, effectively doubled wealth taxes for many business owners.
The problems are two-fold. First, it is easy for the highly-mobile super-rich to move — and at least 100 of Norway’s 400 top taxpayers have left, largely to Switzerland. About £30bn is estimated to be controlled by Norwegians living abroad — and the owners of half this wealth have moved out in the past four years. Second, entrepreneurs pay tax on the paper valuation of their assets, including any offices, factories or stock. This is a complex calculation for unlisted companies, especially challenging for fledgling firms since injections of capital are taken into account, regardless of profitability. As a result, they are often forced to take out cash or even sell assets in order to pay taxes — neither of which is good for growth.
Among the most prominent to leave as a result was Norway’s biggest taxpayer, the billionaire industrial tycoon Kjell Inge Røkke. His relocation to Lugano costs about £13m a year just in lost taxes. Tord Ueland Kolstad, a wealthy property and salmon farming investor, moved to Lucerne. “This was not what I wanted, but the toughened and increased tax rules of the current government means that I have no choice,” he told TV2, a Norwegian broadcaster. Meanwhile, Norway’s biggest bank has set up a special branch in Zurich and one tech innovator told me how he attended a recent party in Lucerne at which there were at least 200 Norwegian tax exiles. Like it or not, targeting fat cats comes with collateral costs.
One of the key figures in this debate is Fredrik Haga, the founder of a successful Norwegian start-up. Haga declared he was moving to Switzerland in a social media post that went viral after being shared by Elon Musk. Haga said that despite living in a two-bedroom flat in a cheaper area of Oslo, he would have had to pay significant wealth tax on the high “paper” valuation of his cryptocurrency data business, even when it was loss-making. “No politician ever told me how I’m supposed to pay the bill”, he said, later widening his attack onto the state’s spendthrift approach to “green virtue-signalling”. “I hope at least Norway can be a cautionary tale for other countries for how much of a self-inflicted wound taxing unrealised gains can cause,” he said last month.
Experts agree that it is bad for long-term economic health, deterring investment while doing little for equality. “Realistically, this is a business tax, and thereby a tax on the country as a whole,” said Ole Gjems-Onstad, professor emeritus at the Norwegian Business School. Gjems-Onstad believes such measures are particularly harmful in the post-digital world. “The net wealth tax makes it impossible to scale up modern businesses that may run for years without making a profit but still be very valuable, as shown by a company such as Amazon. Swedish successes such as Klarna, Spotify and Skype are simply not possible in Norway.”
Inevitably, seeing the startling exodus, Støre’s government responded with the imposition of hefty exit taxes. “I was afraid they would lock us in,” said one entrepreneur who moved to Switzerland three years ago. “And once they have locked you in, they can keep raising it. It is a financial prison.” Professor Gjems-Onstad argues that this is the natural consequence of these fiscal measures. ‘‘If you have a net wealth tax, then you need an exit tax, since this is the only way to stop people from leaving,” he said. “The tax is dependent upon domicile. As long as you leave, the company can stay in Norway. So the advice for young entrepreneurs is to leave Norway before they are visible on the radar, before there is a third-party evaluation that has resulted in anyone investing in the company. The ambitious young go to Sweden.”
The belief is that in order to thrive, ambitious young Norwegians must leave the country. The view has been widely shared — and mocked — on social media in the run up to the election. Among those causing a stir was Christer Dalsbøe, founder of a tech startup. Dalsbøe performed a song that went viral, slamming high taxes and “insane” politicians. “Don’t come to Norway,/ We will tax you till you’re poor./ And when you have nothing left,/ We will tax you a little more,” he sang, sitting at a piano. Such videos, along with diatribes on TikTok and X, helped yield a shock result in this week’s mock election in Norwegian schools: the Right triumphed despite Labour’s slim lead in national polls. It suggests that the traditional Left-wing bias of teenagers is being eroded by the populist Right — a phenomenon seen in many other countries. “We’re going into the election on a platform of lower taxes and fees, more freedom within schools and perhaps the most important of all, a thicker wallet for all Norwegians,” said Simen Velle from the hard-Right Progress Party, which more than doubled its vote share over 2021 and backs the removal of wealth taxes. “I think most youth agree with all that.”
Not everyone does agree, however. One Left-wing party created a “wall of shame” showing images of all their wealthy fellow citizens who have moved abroad, while Store condemned the exodus in parliament. “When you’ve made your wealth in Norway, put your kids in school, benefited from the healthcare system, driven on the roads and reaped the rewards of its research, it’s a breach of the social contract,” he said. Yet Jens Stoltenberg, the finance minister, has called for a review of all Norwegian taxes, including on wealth, after the election — and if his party wins, he is expected to invite all main parties to participate.
“The traditional Left-wing bias of teenagers is being eroded by the populist Right.”
As Sir Keir Starmer weighs up demands from union chiefs and Left-wing MPs to introduce similar taxes, even those who support such a regime advise caution. “If you want a wealth tax it requires a lot of information about individuals and companies, along with a very savvy tax authority and information system,” said Kristoffer Berg, a Norwegian economist and tax specialist at Cambridge University. “It is a very complicated tax to do well. I think Norway does it reasonably well, but there are still problems and loopholes in the assessments.” He declined to answer when I asked if he thought Britain had “a very savvy” tax information system.
The faults of wealth taxes are being discussed across Norweigan society. “Suddenly there are so many people engaged on this as an issue,” said Mathilde Fasting, an economist with Civita think tank. “People who do not pay wealth taxes have become much more interested. Many people think it is stupid. And this mood has grown because of the unfairness, since Norwegian companies end up paying much more than foreign ones. People ask: why should Norwegian companies pay more tax than foreign firms?” Like many economists, Fasting argues that wealth taxes can deter investment while doing little for equality. “If you take them away, you would get an increase in the Gini co-efficient that measures inequality of just 0.001%. This is negligible — especially in Norway, when you have such heavy spending on schools, healthcare, welfare systems and pensions.”
Norway shows the risks of playing with crude wealth taxes and adopting crowd-pleasing efforts to “soak the rich”, especially in Europe’s polarised political climate. A move that was intended to be a modest financial tweak to placate the Left has turned into a costly lesson for the country in capital flight, the mobility of the super-rich and the need to nurture precious wealth creators in this digital age. Given his stumbling government, Starmer might be tempted by such measures — but given the state of the struggling economy, this would be unwise. “This tax does nothing,” said Fasting. “I would advise your Labour party strongly against doing a wealth tax.”
