Tuesday, September 20, 2016

Nordic Welfare: An Example of High But Efficient Taxes

Even though the tax system of the Nordic countries is not exempt from criticism (read this article by US News, for example), it is still an interesting case to be studied by economists and sociologists. In this cold region of the world, citizens pay higher taxes compared to many countries, however, the legal control of such money flow is strict and the generous services that the Nordic States provide in return make people pay willingly more than 20% of their income.

Image courtesy Edward Stojakovic | Flickr
It is considered that the welfare model of the Nordic countries is universal. In addition, the benefits are granted individually (for instance, married women have a number of independent rights of their husbands.) In northern Europe, the State is involved in the organization of almost all aspects of society, and the financing of social welfare available to citizens becomes a huge extent if we analyze other countries from the region. For this reason, the Nordic welfare model requires a tax system that includes both a broad tax base as a progressive tax system run by a redistribution of income from the richest members of society to the poorest. Public health care is an important part of the Nordic model, ensuring quality health services regardless of the economic circumstances of the individual.

Some economists who defend this form of Nordic organization argue that this is simpler and understandable in the case of other European nations; nevertheless, in Scandinavia, most welfare tasks are taken over by the state or local authorities, and only in a limited way by individuals, families, churches or national welfare organizations. However, some economists argue that the increase in state interference in all public affairs (and the forced redistribution of income) leave the most productive members of society with a limited income for their work, which is not a positive fact in a market economy. They argue that the system seems to work to be implemented in small countries with a high level of education and a strong ethic that emphasizes the value of work. Interestingly, despite the generous welfare benefits, unemployment levels in the Nordic countries are still among the lowest in the world.

“This social democratic model harmonizes with capitalism and has backed the development of a high standard of living in the area,” says Adam Greene, from Greene & Company LLP. “From any perspective, the welfare model of the Nordic countries is a concept adopted consensually by both political parties of right and left. Sometimes the level of benefits is discussed, but hardly benefits itself.”

Why is this model successful? In first place, this is not a wide-known region and its existence is often overlooked when analyzing many events of Western Europe. In second place, the geographic location is a relevant factor. The three Nordic countries form a triangle in the Skagerrak, the strait that connects the Baltic Sea with the Atlantic waters. In a ground-level, the three Scandinavian countries are one mass of continental land, although the distance the water between Denmark and Sweden is minimal in the Strait of Oresund - the current bridge connecting Copenhagen (Denmark) to Malmö (Sweden) is 7.8 km in length -.

Another feature to note is the general low population. Except for Sweden, with 9.5 million inhabitants, the other three countries are populated by a range of 5 and 6 million people. This factor, at an economic and a political level, is very important: it affects - and we were able to see it in the leaders of these countries - the economic model that such States can develop on the basis of available human resources, as well as appropriate policies based on low populations, compared to other European countries.

The welfare system in these nations is mainly based on two facts: the political and economic intervention and a remarkable political awareness and participation of society. This, over many years, has created a circuit that is constantly fed back and that favors both the correct performance of public actors as the demand levels of society on public policies and progress of the countries as wholes. Something fundamental is that States intervene actively in the national economies. One of those forms of action is through fiscal policy: taxes.

The idea of ​​this State interventionism is that they must redistribute taxes fairly among all people, so that everyone has the same opportunities for development through public education (which is equal for all), universal health care, quality employment, access to housing, social policies for the most disadvantaged, etc. Logically, all these political intentions cost a lot of money; money that should come from somewhere. Of course, the normal route is through taxes.

It is possible that before the great economic changes the world is experiencing, this model also wobbling. But that does not diminish its importance.

Tuesday, September 13, 2016

Understanding The Logic Behind One of the Highest Tax Rates in The World: Denmark

Image courtesy Matt Kieffer | Flickr

Although from the outside, if only focusing on the tax rates themselves, some may think Denmark is way off and it’s simply ridiculous to pay such high rates. The fun fact is that in reality the Danish citizens are nine out of ten pretty happy about paying one of the highest taxes in the world. First of all, let’s understand what it is exactly that Denmark taxes its citizens. Denmark has two taxes: a state income tax and a local income tax. Although the local income tax is a fixed rate, the state income tax is a progressive tax. This basically means that it increases as the person’s ability to pay, or income, increases. They have income tax, land value tax, local income taxes, and VAT. The average annual income in this country is roughly 39,000 euros, almost $43,000, and if we average out all of the previously mentioned taxes it comes out to approximately 45% in income taxes. Now, if someone earns more than 61,500 euros, almost $67,000, they have an additional 7% added on to the aforementioned. From the outside, once again, many may not understand how people in Denmark could pay such high taxes with a smile. The first thing that you have to understand is the mind frame and culture of most European countries. They see taxes as an investment and a straight path towards a better quality of life. The notion that this money will get back to them at some point in the form of quality of life is what gives them peace of mind. Now, Denmark is not alone on this list of high taxes. It is accompanied by Netherlands, Belgium, Japan, Austria, UK, Finland, Sweden and Ireland, all of which are known for being the highest taxed countries in the world. Despite this, some of these countries are also known as the “happiest places on Earth”. So, now let’s get down to understanding why this actually does make sense. 

Image courtesy Alan Cleaver | Flickr


In Denmark, all citizens get free education all through university or college. This is a huge advantage not only thinking about the short term, but the long term. Teens are able to join any college and make their own path, by studying and working hard. Parents don’t have to worry about how they are going to pay their children’s education, which increases their opportunities to lead a happy life. Education is compulsory up to 15 or 16 and from there around 82% go on to study further education. This is one of the reasons why literacy in Denmark for both men and women soars to about 99%. Almost all institutions in Denmark are completely tuition free, and will apply for those that are Denmark-born or have a permanent resident visa or permit, residence permit, humanitarian visa, or if they are from the Nordic Council or any country in the European Economic Area or European Union.

Health care

In Denmark most of the healthcare is financed by regional and municipal taxes. An average of 9.8% GDP is spent on healthcare, and there is 1 doctor for every 294 people in Denmark. Healthcare in Denmark is yet another factor that makes its citizens people with less anxieties and concerns in everyday life. Additionally, it is one of the most advanced countries in health care technology. Electronic Medical Records and Electronic Prescribing are used by most practitioners, but in reality has actually not been able to reach its full potential due to a system fragmentation.

Young and elderly citizens

Denmark, besides offering tuition-free education, the government gives students $900 per month.  As for the elderly, the government invests about 1 billion kroner per year, or approximately $152,000, at a municipal level. A lot of the investment in the health sector is done so with the initiatives that focus on elderly and dementia patients. It also goes towards improved maternity care. 

The quality of life, as you can see, is a huge benefit to the people who live in Denmark, and this comes at a price high tax rates. Which is why, most Danish people see their taxes as an investment, instead of an expense. Whereas, in the states we are still trying to find ways to reduce personal and business taxes, which you can read more about on the Adam Greenville Blog. When most Americans are asked they are not willing to pay higher taxes, despite the advantages this could bring to the quality of life. Some of the main differences between the US government and the Danish government comes down to the role the government itself plays. In Denmark the government spends almost 43% of the country’s economic activity, making it the eighth highest in the world, based on a report published by the World Bank in 2012.  In the US it is 24% making it 65 out of 114.  Of course this spending, will require somewhere to get the money from, which is where heavy taxation becomes essential. In the US, in 2013 the taxes came up to 25.4%, and in Denmark it was 48.6%, almost double to the US.

Tuesday, September 6, 2016

High taxes in Belgium: Are they according to the benefits for the people?

Belgium tax revenue as a percentage raises to 43.2% of the GDP. As a country with a constitution that guarantees "the right to health," Belgium has an especially costly health care system to maintain. With Belgian citizens paying only a small fee, the government bears the bulk of the cost for care. The country also needs high tax revenues to keep up with its expenditures on infrastructure and industry subsidies. Taxes are collected on both state and local level. The most important taxes are collected on the federal level, including an income tax, social security, corporate taxes and value added tax. At the local level, property taxes, as well as various fees, are collected. Belgium enjoys a reputation for being a tax haven for the idle rich, but ordinary working people suffer from some of the highest tax rates in the world. Income tax is calculated by applying a progressive tax rate schedule to taxable income, with rates that go from 25% to a maximum rate 50%. For residents of Belgium, the taxes are irrespective of their nationality and come even from worldwide income.

Between income tax and social security charges, they add up to 65% of their gross pay each month to the government and the top income tax rate in Belgium is a whopping 50 percent. Employees' income tax is deducted at source by their employers, and if you have various sources of income, Adam Greene CPA suggests to employ an accountant or professional tax advisor to complete your tax returns and ensure that you are properly assessed, as the tax system in Belgium is complicated. And because of this, the Ministry of Finance publishes extensive information on income taxes on its website, often in English as well as the local languages. On the Belgian website, there is a link to a tax survey, which is updated as the laws change. There are local tax offices where you can obtain brochures or have questions answered. Tax brackets for the income year 2016 are applicable to net taxable income after the deduction of social security charges and professional expenses.

Corporate Income Taxes

For corporate income taxes, a range of measures has recently been approved, and other measures are currently under review at the Chamber or pending before the State Council. The Program Act of 1 July 2016 has been published in the Belgian Official Gazette on 4 July 2016. It introduces transfer pricing documentation requirements and extended reporting obligations for payments to tax havens. The draft Act providing urgent tax provisions contains measures related to the reduced withholding tax on dividends distributed to non-resident minority shareholders and repeals the current patent income deduction system. Some draft measures concern the implementation of European Directives. The draft Program Act II provides some changes to the tax provisions applicable to the Belgian Regulated Real Estate Company and introduces the new Real Estate Investment Fund.

Income Taxes

Employers withhold salary taxes according to the personal situation and tax status of the employee. This often covers the income taxes due on your salary, but a tax return form must be filed. Investment income, refunds, tax allowances, and liable municipal or community taxes have to be included on your tax return. There are stiff penalties for self-employed individuals failing to make prepayments as well as a surcharge for 'late' payment. Self-employed individuals must make quarterly pre-payments of estimated income tax based on the amount of tax paid the previous year.

Personal income tax is calculated by determining the tax base and assessing the tax due on that base. Taxation is charged on a sliding scale to successive portions of net taxable income. For the income year 2016, the federal tax rates range between zero and 50%. Residents pay municipal taxes at rates that range between nil and 9% of the total income tax payable. The tax calculation contains two major components, notably the federal personal income tax and the regional personal income tax. Belgian regions are now entitled to retain surcharges on 'reduced federal personal income taxation', and also grant tax reductions/tax credits, so the tax liability differs depending on the region in which the residence of the taxpayer is located on the 1st of January of the respective tax year.


When it comes to high taxes in the World, Belgium is high on the charts. The people enjoy a high per capita income and standard of living, and the country consistently ranks high in the quality of life ratings published in the United Nations Human Development Report. The welfare programs funded with the high taxes have kept the poverty rate low, medical benefits, unemployment insurance, family allowance, retirement plans, freedom of education, and disability payments in the event of illness. While the country has a wide social safety net, there are indications that the substantial cost is beginning to take a toll on economic prosperity.