Sweden Should Cut Payroll Taxes in Deprived Areas, Study Says

Sweden should reduce payroll taxes by more than half for businesses in deprived areas to create more jobs and lower unemployment, a government-appointed commission recommended.

The employment tax rate for businesses established in areas that have low levels of employment and education and many people on welfare should be cut to 10.2 percent from the standard 26.3 percent starting in 2014 for as many as seven years, the group recommended in a report to the Finance Ministry. Annual subsidies would amount to as much as 3.4 million kronor ($507,000) a year per company, according to the report.

“The purpose of the measure is to stimulate the establishment of new companies and give existing companies better opportunities to grow in deprived areas,” Christer Sjoedin, head of the commission, said in a statement today.

Swedish unemployment rose to 8.8 percent in June, matching a two-year high as the export-dependent country suffers from weak demand from Europe where countries are cutting spending to reduce debt. Prime Minister Fredrik Reinfeldt has identified unemployment, especially among the young and people born outside of Sweden, as one of the nation’s main challenges.

The payroll tax cuts are targeted at companies with less than 50 employees and annual sales of 10 million euros ($12.4 million). At least 25 percent of the employees must also live in the specially designated areas, the commissioned recommended.

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