A recent investigation by SVT Nyheter has shed light on the skyrocketing cost of the interest deduction in Sweden over the past three years, coinciding with rising interest rates. In 2024, the total cost reached 61 billion SEK, compared to 51 billion SEK in 2023 and 27 billion SEK in 2021.
The interest deduction is a tax reduction given to individuals who pay interest on loans, such as mortgage loans, personal loans, or car loans. For most loans, especially mortgage loans, individuals are entitled to a 30% deduction on interest costs up to 100,000 SEK per year, and 21% on the excess amount. This makes the interest deduction one of the most extensive tax subsidies in Sweden.
However, starting on January 1, 2025, special rules for private and collective loans will be implemented. For these loans, the right to deduction will be limited to 50% of the interest cost in 2025, and the deduction is planned to be completely phased out by 2026.
To provide a more detailed picture, Statistics Sweden (SCB), on behalf of SVT, analyzed the data for 2023. It revealed that the interest deduction is predominantly utilized by high-earning men. A staggering 43% of the total deduction went to individuals with a monthly income exceeding 52,000 SEK.
The wealthiest municipalities in Sweden, Lidingö and Danderyd, topped the list for the highest average interest deduction per municipality. In Lidingö, men with an annual income above 440,000 SEK received an average of 35,216 SEK in interest deduction, while in Danderyd, the corresponding figure was over 40,000 SEK.
On the flip side, the data showed that elderly women in less affluent parts of the country received significantly lower deductions. For instance, women over 65 in Filipstad with an annual income below 234,000 SEK received an average of only 1,506 SEK in interest deduction.
Hans Lind, a professor of real estate economics, proposes that the interest deduction should only apply to home purchases that do not exceed 3.5 million SEK. The aim is to reduce the opportunity for deductions on loans tied to “luxury consumption.”
“If you want to help young families who want to buy something relatively cheap, that’s one thing. Everything else is luxury consumption – you shouldn’t be able to deduct that,” he told SVT.
As Sweden grapples with the implications of the soaring interest deduction costs and the disparities in who benefits from them, the debate over the future of this tax policy intensifies. Will policymakers heed calls for reform to make the system fairer and more equitable, or will the status quo prevail, perpetuating inequalities in the tax code? Only time will tell.