Scandinavian savings tax model promoted in tax paper

A "schedular system under which various types of income from savings are taxed separately to other income, and are taxed at relatively low, flat rates," is one centrepiece of the discussion paper on tax policy reform, released yesterday.

A schedular system is a "dual income tax (DIT) system. Because a DIT system separates the labour and capital income tax bases, allowable deductions relating to capital income can only be deducted against other capital income," Treasury observes in the paper.

"Variants of the DIT system have been operating in Norway, Finland, Sweden and Denmark for the last 20 years.

Giving a little history, the paper says that "in the late 1980s Norway's savings levels were low, the return to investment was low, and the investment allocation was seriously distorted.

"There was a strong concern that the tax settings induced excessive borrowing for socially unprofitable investment.

"The introduction of the dual income reform in 1992 was to achieve a moderate taxation of capital income that is also neutral in a broad sense, while maintaining the distributional role of the progressive tax on labour income."

Taking a warm view of this record, Treasury says in its paper: "These days the two pillars of Norway's income tax system consist of a progressive labour income tax schedule, with a base rate of 32.1 per cent and top marginal rate of 47.2 per cent, and a 27 per cent flat capital income tax rate for interest, rental income, royalties and capital gains."

Under this model, the returns on superannuation in Australia - now concessionally taxed at 15 per cent - may rise.


Tax rates on bank interest may fall.