On the surface, Sweden’s budget balance is improving quickly because of higher-than-expected tax income.

But digging deeper, part of the inflow could be a result of households and companies taking advantage of higher interest on savings at the tax authority than the zero or negative interest offered at the biggest banks.

Sweden posted a budget surplus of almost 17 billion kronor ($2 billion) in January, when the Swedish National Debt Office had forecast a deficit of 6 billion kronor. Tax income was about 18 billion kronor higher than forecast, “primarily due to increased payments of preliminary taxes concerning 2015,” it said Friday. Its “assessment is that part of these are non-recurring.”

The increase in preliminary taxes probably stems from the fact that accounts at the Swedish Tax Agency offer interest of 0.56 percent, which is “very attractive given the alternatives,” Michael Grahn, an analyst at Danske Bank A/S in Stockholm, said. “This may of course reverse at some stage.”

Swedes can’t expect to get much, or any, interest on traditional savings accounts at the largest banks after the Riksbank lowered rates well below zero last year. As the banks have to pay to deposit excess cash overnight at the central bank, they have cut interest on savings to or close to zero to try to limit costs, while refraining from charging clients for deposits. Some large companies have to pay to deposit cash at some banks.

One-Off Effects

“We can’t say that there are many who use their tax accounts as savings accounts, but there may be some,” said Magnus Wallin, head of a unit at the business department at the tax agency.  

While the agency doesn’t have any indications that it’s systematic, they are looking into that possibility in order to provide correct information to forecasting authorities such as the debt office, Wallin said. The January numbers were affected by one-off effects, a large company transaction, and the rising deposits in tax accounts also match up with larger profits for businesses and in the housing market, Wallin said. 

Thomas Olofsson, head of debt management at the debt office, also said that they “can’t exclude” that people are placing their money at the tax office to get a higher interest rate.

For the full year of 2015, Sweden reported a smaller-than-expected budget deficit of 32.7 billion kronor, compared with the debt office’s forecast for a deficit of 45 billion kronor. “The difference is mainly explained by higher tax income,” it said Jan. 12.

Grahn at Danske Bank said that while inflows of deposits probably help explain the better-than-expected January numbers, “the strong improvement in tax revenues seen in the past year is probably more related to the improving Swedish labor market boosting wage taxes and strong consumption growth boosting VAT revenues.”

That suggest that the debt office may have to reduce its current forecast for a 33 billion-krona deficit for 2016, which could result in less bond financing, he said.

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