Francesco Canepa and Terje Solsvik
OSLO (Reuters) -Sitting in his lakeside villa in Lucerne, Switzerland, Borger Borgenhaug misses his grandchildren and the smell of the Scandinavian sea on a clear summer night.
The carpenter who became a property mogul says this is the price he pays to escape Norway’s strengthened wealth tax – an annual tax that drives hundreds of millionaires abroad while underpinning one of the world’s most equal societies.
“The political climate in Norway has become increasingly hostile towards business owners,” Borgenhaug, who leaves in 2022, told Reuters.
With a wealth tax dating back to 1892 and a culture of openness that allows citizens to see others’ tax returns, Norway has more experience than most in squeezing the rich. His model offers lessons for countries discussing similar moves, from Britain to France and Italy, even a city like New York.
The takeaway: A wealth tax might scare some millionaires away, but if set broadly enough the returns could still be worth it.
EXIT OF THE RICH
Tax was a decisive issue in Norway’s elections in September, which brought the Labor Party back to power. The party had increased taxes and tightened exit rules in its previous term.
Individuals pay 1% on net worth between 1.76 million and 20.7 million kroner ($174,000 – $2 million), and it has been 1.1% above that amount since 2022. In 2023, exactly 671,639 people (about 12% of the population) made payments.
Base homes enjoy a 75% discount on assessed value; shares and business properties receive 20%. Foreign assets are included but liabilities are deductible.
Leaving Norway would trigger a 37.8% exit tax on unrealized capital gains above 3 million kroner (for example, notional gains from shares that have increased in value but have not yet been sold). Loopholes that allowed immigrants to defer payment indefinitely were closed in 2024.
The changes turned a trickle into a stream. Data from conservative think tank Civita shows 261 residents with assets over 10 million kroner ($973,000) remaining in 2022 and 254 residents in 2023; That’s more than double the typical rate before the raise.
In the business magazine Kapital’s list of Norway’s 400 richest people, it is seen that 105 people currently live abroad or have transferred their wealth to relatives living abroad. Some of his photographs hang on the “wall of shame” in the offices of the small opposition Socialist Left party.
SITUATION: EQUALITY AND INCOME
Supporters argue the tax serves as a basis for redistribution in a country that abolished an inheritance tax in 2014 and is among the richest in the world thanks to its oil, shipping and fishing.
Norway funnels all revenues from its oil and gas industry into a sovereign wealth fund and limits annual withdrawals to 3% of the fund’s value under a self-imposed fiscal rule.
This means he has to find other sources of income.
“The wealth tax makes the overall personal tax system more progressive than the income tax alone,” Deputy Finance Minister Ellen Reitan told Reuters.
Income from here has increased despite immigration and now stands at 0.6 percent of GDP; This is not an insignificant amount. For context, Britain’s Labor government is seeking similar sized savings to help meet its fiscal targets.
Research from the Norwegian statistical office shows that entrepreneurs have enough liquidity to pay, and the burden largely falls on the shoulders of the richest. Another study suggests that taxes can encourage investment in human capital.
Norway continues to be among the world’s most equal countries and ranks high for ease of doing business.
“These findings suggest that a wealth tax does not directly inhibit investment or employment at the firm level,” said Roberto Iacono, a professor at the Norwegian University of Science and Technology (NTNU).
A survey conducted by the Response agency for newspaper Aftenposten just before the September election showed that 39% of Norwegians want the wealth tax to be maintained or increased, 23% want to see it reduced and 28% call for its abolition.
Norway’s Labor government wants a grand bargain on tax reform within the next two years and is inviting all parties to the table. Capture? The wealth tax remains in some form.
COUNTERCASE: CAPITAL FLOW AND START-UP COOLING
Critics say the model penalizes domestic ownership and risks draining Norway’s entrepreneurial base.
“The wealth tax system makes it difficult for companies to compete with the rest of the world,” said Knut-Erik Karlsen, who made his fortune from fish oil supplements and recently moved to Switzerland.
Unlike Switzerland, Norway taxes capital gains and imposes higher taxes on its labor force than the OECD average.
According to Princeton researcher Christine Blandhol, about 40% of immigrants are business owners. Blandhol estimates that the latest tax changes will reduce Norway’s output by 1.3% in the long run. Others think the tax hinders firms’ performance.
The wealth tax is particularly painful for startup founders, who pay out capital long before profits come in.
Are Traasdahl left Norway in 2000 to market Europe’s mobile technology in the US; He later founded and sold several technology companies, including the app now known as iHeartRadio.
“There is no chance of me building in Norway what I built in the United States,” he said.
OECD data shows Norway has one of the lowest levels of venture capital in Europe in terms of share of GDP; Half the size of Sweden and far behind the United States.
Heirs often leave without gaining control of the shares. Laurence Odfjell, now based in Singapore, says staying there during the downturn that followed the global financial crisis in 2008 could have caused the shipping group to lose control.
“I wasn’t going to let our company fail on my watch because I had no capital,” he said.
CAN IT BE COPYED OR IS IT UNIQUE NORWAY?
So far, no new countries are following the Norwegian route.
French lawmakers ditched the headline-grabbing 2% tax on fortunes over 100 million euros, settling instead for a narrower tax on personal assets parked in holding companies; This measure is expected to raise only 1 billion euros.
Across the Channel, Britain’s Labor government has ruled out a formal wealth tax but insists it will continue to lean on the “broadest shoulders”.
Italy, on the other hand, remains allergic to inheritance increases but is quietly tightening its fixed regime for wealthy foreigners.
Meanwhile, millionaires are still voting with their feet. Norway is on track to lose another 150 people this year, according to Henley & Partners, which advises wealthy clients on relocation, and New World Wealth, which uses public sources including LinkedIn; This is quite a big departure for a country with a population of only 5.6 million.
The UK tops the global list with 16,500 departures expected following the removal of tax breaks for foreigners. UAE, USA and Italy are among the top gainers.
Norway’s social cohesion and oil wealth may make its model difficult to replicate. But economists say this shows that any such tax involves a trade-off between its economic and political dimensions.
“Not having a wealth tax leads to greater inequality, having a tax means less capital for startups,” NTNU professor Iacono said. he said. “Politics needs to strike a balance.”
($1 = 10.2757 Norwegian kroner)
(Writing by Francesco Canepa in Frankfurt; Editing by Mark John and Alison Williams)
