Sweden has revealed plans to introduce a new bank tax to fund the country’s future increase in defence spending from 2022, as it revamps efforts to counter Russia’s military build-up in the Baltic Sea region.
The announcement by the Swedish Finance Ministry came shortly after the militarily neutral North European country announced it will increase its defence spending from 1% to 1.5% by 2025.
Sweden’s centre-left coalition government of Social Democrats and Greens said on Friday (30 August) they had agreed with the Centre and Liberal Parties, which back them in parliament, to boost defence spending by 5 billion Swedish crowns (€464 million) a year from 2022 to 2025.
“The extra (for defence) for 2022 will be financed by an increase in taxes on the financial sector from 2022,” Swedish Finance Minister Magdalena Andersson told reporters as quoted by Reuters on Saturday (31 August).
“The banks make big profits each year and have been big winners from corporate tax cuts in recent years,” she said but, however, gave no details on how the tax would be constructed.
The Social Democrats have repeatedly raised the idea of a bank tax since taking power in 2014. In 2017 they put such plans on hold after widespread criticism of the way the tax was structured.
Andersson repeated her intentions to introduce a bank tax in the run up to the last election in 2018.
“We will come back with how this tax will be constituted, but it will be different from what has been discussed previously,” Andersson said, adding that the new tax would cover all banks operating in Sweden regardless of where they have their headquarters.
Nordea (NDAFI.HE), the Nordic region’s biggest banking group, recently shifted its headquarters to Finland from Stockholm.
The Swedish Bankers’ Association criticised the plan, saying that the banks already pay high fees to enable the state to handle financial crises.
“The timing is unfortunate,” Hans Lindberg, CEO of the Swedish Banking Association, said in a statement.
According to Lindberg, the planned bank tax would “hit hard on jobs and growth” and would lack a “legitimate basis”.
“We can’t have a tax system that results in the arbitrary taxation of individual operations and sectors,” he said.
Revamping regional defence cooperation
In recent years, Sweden has strengthened its armed forces and is concerned about increasing tensions with Russia in the Baltic region.
Most recently, relations between Russia and its Nordic neighbours became strained in March when Norway and Finland accused Russia of intentionally disrupting GPS signals during NATO-led training exercises in the High North.
Military experts considered it as no coincidence that NATO’s biggest exercises since the end of the Cold War, Trident Juncture, took place in Norway last year, in close cooperation with other Scandinavian neighbours.
Stockholm has also increased its regional defence ties with Finland, Denmark and Norway in response to the change in the security environment after 2014.
Hesitation towards NATO membership over the years has not prevented militarily non-aligned Sweden and Finland from moving closer to NATO and developing their defence cooperation on territorial defence with the Alliance and the US.
Only last year, Sweden said it would buy the Patriot air defense missile system from US arms manufacturer Raytheon Co. (RTN.N) in a 10 billion Swedish crown (€930 million) deal.
In their biannual meeting earlier in June, Northern Group defence ministers discussed military mobility and the practical implementation for the reduction of timelines for cross-border military traffic.
The bilateral defence relationship between Stockholm and Helsinki also involves an increase in joint exercises and joint operational planning.
Additionally, Sweden signed a Memorandum of Understanding (MoU) with the UK in July on the joint development of future combat aircraft capabilities and combat aircraft systems, and with Denmark on enhanced defence cooperation within the air and maritime domain in 2016.