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Retired cross-country skier and cultural icon Bjørn Dæhlie is among a group of wealthy Norwegians who now call Bø i Vesterålen home.
The sparsely-populated municipality on a windswept Arctic island is attracting many of the country’s richest citizens by cutting its share of Norway’s wealth tax for 2021 and beyond.
Bø’s conservative mayor Sture Pedersen hoped the tax cut would attract some of the country’s richest and lead to an overall income boost and new economic opportunities in the municipality. While some have decided to move, Bø is now at the centre of a financial controversy.
How Norway’s wealth tax works
In addition to income tax and social security payments, Norway levies a 0.85% wealth tax on a resident’s global assets above 1.5 million Norwegian kroner ($172,000). Of the wealth tax take, 0.15% goes to the state, with the remaining 0.7% going to the municipality in which the individual lives.
Bø has decided that from January 2021, it will charge just 0.2% wealth tax, meaning a drop from 0.85% to 0.35% for its residents. For Dæhlie, the annual tax saving will amount to around 2 million Norwegian kroner ($230,000), according to an NRK estimate.
For Bø, the decision had seemed to make sense. While Norway’s richest will pay less, Bø will still receive far more than it previously did when it charged a higher rate to those with relatively little wealth. For a municipality home to less than 3,000 people, the different could be significant.
“Public authorities abandoned us years ago,” said Pedersen to High North News. “We do this to attract capital to our municipality. We need that to survive and to create jobs.”
The sums don’t add up for Bø
While Bø’s decision will not impact the amount of wealth tax the state receives, it does mean the new residents’ former municipalities will take a financial hit. Norway’s tax equalization rules will help those former municipalities, but will have a consequence for Bø that was not taken into account when the tax cut decision was made.
The equalization process means Bø will not receive the full amount of wealth tax immediately. Combined with the reduced wealth tax paid by residents already living in Bø, the municipality has been left with an income gap they had not foreseen.
A national debate is underway
The conservative-led Norwegian government has offered help to Bø in the country’s 2021 budget, a decision that has left leading figures from the left of Norwegian politics furious.
SV’s fiscal policy spokesperson Kari Elisabeth Kaski said the move was simply “camaraderie between conservative politicians,” while Labor deputy leader Bjørnar Skjæran said that ordinary people throughout Norway must now cover the tax bill for Bø.
Northern Norway has suffered from a stark population drop in recent years. The Bø wealth tax cut had been seen as an experiment that other northern municipalities could adopt if successful. Residents of the rural parts of northern Norway’s vast Troms og Finnmark county already receive an additional deduction on their annual tax return.