Response to interpellation 2023/24:295 on the compensation for so-called hidden value-added tax
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
The debate concerns the compensation for hidden value-added tax. KD argues that the flat-rate compensation of 6 percent aims for competition neutrality 1 and that the system creates reduced administration 2. KD points out that some operations are favored while others are disadvantaged 2, but argues that no changes are needed as the government follows the developments 1 3. KD questions why S did not act during its eight years in power 4 and is willing to contact S to agree on measures if needed 3. S believes that more should have been done than what the social democratic government did previously 5 and argues that the minister should be more humble 5.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Statsrådet Erik Slottner (KD)
Madam Speaker! The previous interpellation debate went somewhat faster than I had anticipated, but I managed to get into the chamber just in time.
Madam Speaker! Niklas Karlsson has asked the Minister for Finance what measures she intends to take to correct the overcompensation of value-added tax described in the interpellation. The work within the government is distributed such that it is I who shall answer the interpellation.
Municipalities and regions receive state compensation for value-added tax on purchases within healthcare, school, and elderly care in their own operations. Private providers have the same cost for value-added tax in these activities but receive no state compensation. Instead, municipalities and regions receive a flat-rate compensation, normally 6 percent, to compensate for the fact that private providers' prices are higher. The purpose of the flat-rate compensation is thus to prevent value-added tax from determining whether municipalities and regions choose to conduct activities in their own or external management. The investigation for the review of compensation to municipalities and county councils for so-called hidden value-added tax (SOU 2015:93) concluded that the flat-rate compensation was too high and proposed a reduction to 5 percent. I can state that the previous government chose not to proceed with the proposal.
The flat-rate compensation of 6 percent is common for all activities. The actual level of value-added tax differs, however, partly depending on the labor intensity. For activities with a large share of personnel costs, the compensation for hidden value-added tax becomes too high in relation to the flat-rate compensation. The investigation found that this was the case but considered a flat-rate compensation to be preferable to other designs of the compensation. It is also within labor-intensive areas that the municipalities have chosen to corporatize their activities. In that context, I want to emphasize that the compensation is aimed at precisely competition neutrality, not at the municipalities corporatizing their activities.
The calculations that formed the basis for the proposal were based on costs from 2013. A considerable amount of time has passed since then, and it cannot be ruled out that the developments since then have brought about changes, for example as a result of an increased proportion of use of hired personnel or technical aids and equipment. The flat-rate compensation should, as far as possible, correspond to the actual costs, and a discussion on an adjusted compensation level would therefore need to be based on a more current basis.
Currently, no proposals regarding changes to the flat-rate compensation are being prepared, but the government is following the developments in this matter.
Niklas Karlsson (S)
Madam Speaker! Thank you, Minister, for the answer! I can state that what the Minister and the government present in the question is weakly positive, albeit a bit vague and non-committal.
This issue of hidden added value can seem quite technical and complicated. It is about the fact that when municipalities choose to conduct part of their activities in private hands, whether outsourced or own, the conditions should be the same as if they were conducted in a company or in municipal hands. It is a fundamentally reasonable position, if one believes that market logic should govern the production of welfare.
This is an interpellation submitted by me not primarily to have a debate on the ideological principles but in the sense and meaning of actually finding a system where precisely that neutrality, which both I, the Minister, and the government call for, shall exist in reality. It is clear that we have different views on privatizations, regarding both merits and consequences. But when they do exist, when we do have this system, we must have the neutrality that we both speak of.
What the Minister presents in his answer, I perceive as, as I said, weakly positive. The Minister shall have the opportunity to comment on it. But at the same time, the Minister chooses in his answer to say that the question is being followed but that it is otherwise not being addressed by the Government. Then I wonder what this answer is actually worth. It is a bit positive, but one is not prepared to do anything.
If the Minister means what he says in his answer, that the purpose of the compensation is fundamentally competition neutrality and not that the municipalities should corporatize their activities, I mean that it would be reasonable for the government not only to follow the issue but also to do something about it. If the data that have formed the basis for the proposal that previous governments have worked out are no longer adequate, if they are old and need to be updated, it becomes an additional argument for why one should not just follow the issue but actually also prepare it.
Given the Minister's answer, I wonder if the Minister truly sees and understands the problem. Does the Government agree with the assessment I make in my interpellation that the system we have today rather becomes an incentive for precisely that corporatization which we both express in this debate that it should not be? If that is not the case, what should we do? Should we not, in that case, be clear and honest about what perception we actually have?
Statsrådet Erik Slottner (KD)
Madam Speaker! There are many issues that the government follows without concrete measures being available here and now. We follow many issues in order to potentially take concrete measures later. I therefore do not think it is strange that I answer the interpellation by stating that we are following the issue but that there are currently no concrete proposals or initiatives on the table. It is nothing strange. It applies to many issues.
I can think that the criticism is somewhat strange. The government has now been in power for just over a year. The previous government received an investigation that had proposals for a correction of the flat-rate assessment. It was sent out for consultation. Then the previous government chose to do nothing about this. Seven years passed from the time the investigation was received, went out for consultation, and there was a change of government and the government had to resign - it did, in fact, have to resign a couple of times during those years. During those seven years, the Social Democrats chose to do nothing about the issue.
If this government were to come to the conclusion that a correction of the flat-rate compensation needs to be made, it must be preceded by a new investigation or at least some form of assessment. The figures that form the basis for the previous investigation, which was received in 2015 by the Social Democratic government, are too old today. We must also remember that there was criticism of those figures from some actors, who felt that the figures did not quite match. And some referral bodies criticized that the basis was deficient. We therefore cannot proceed directly based on that investigation. Too much water has flowed under the bridges since then.
There can be many different reasons why a municipality chooses to corporatize, for example, its elderly care activities. I have also read articles about how some municipalities use this as an argument. But there are also other arguments for choosing to corporatize. It should also be said that it concerns a few municipalities. One can choose to corporatize, to outsource to a contractor, and to apply choice systems according to LOV. There are many different ways to conduct different types of social activities. But a few municipalities absolutely use this as an argument. It is clear that it sends a signal about something.
I am absolutely not closing the door to reviewing the system and the flat-rate compensation because it exists to create competition neutrality. Then we know that there are pros and cons with a flat-rate compensation. The disadvantage is that it does not become as precise as it would need to be, which means that some operations tend to be favored by a flat-rate compensation while other operations tend to be disadvantaged. We can see that in this case as well. At the same time, a flat-rate compensation creates a simple system. And the administration decreases. There are therefore both pros and cons with flat-rate systems.
I nevertheless note that both the previous government and this government have chosen to keep the system. If we are to make a change, a new review needs to be conducted.
Niklas Karlsson (S)
Madam Speaker! I am not primarily seeking to be polemical in this interpellation debate. I will therefore not express that I am disappointed, but I had nevertheless hoped for somewhat better answers from the Minister. I am not engaging in criticism but am instead trying to engage in a description of the problem, which, according to the Minister's interpellation answer, we agree upon.
I become thoughtful and do not quite understand why the Minister and the government do not choose to do anything. I am not looking to be polemical. I think that we should do something about this.
When that competition neutrality, that the conditions should be equal, which we both embrace – I in my interpellation, and the Minister in his answer – is not present, we should do something about it. In that case, I do not think the responsible Minister can simply say that one is following the matter and is prepared to potentially take concrete measures.
The Minister claims that the data which previously formed the basis for making a change are no longer relevant. That alone is reason to update that data, to look at what reality looks like today in order to then potentially adjust so that the competition neutrality we both say we want can emerge again.
I simply wonder if the Minister does not see the seriousness of the problem. If the Minister and the government do, then one cannot express that one is absolutely not closing any doors. One should express that we should look into this, partly because we are to update ourselves according to reality and update the information that is no longer relevant.
We should also consider the consequences this has. I will take a calculation example. The municipalities receive an overcompensation in the value-added tax system with the hidden value-added tax. We know that it exists, and it would probably show even if we update the figures. We are therefore getting a "cuckoo chick" in the public system. One cheats through tax planning on the state's coffers. It is not reasonable to have it that way. It also creates incentives for precisely the corporatization that we say should not occur because of these reasons.
My home municipality, Landskrona, has chosen to corporatize its care services, precisely in order to be able to strengthen the municipal treasury. The assessment is that if one corporatizes the operations in a municipal company, it frees up 15-20 million kronor in the municipality's coffers. They say they need that money. But it is the state that sends them in overcompensation.
If you count backwards, those 15-20 million in a city with approximately 45,000 inhabitants amounts to between 350 and 450 kronor per inhabitant. Four municipalities in our country have initiated this process. If that journey continues and all 290 municipalities want to do this, it is about 10 million inhabitants times 350-450 kronor. It will be enormous sums - billions - that the state will have to send to the municipalities.
If one wants to strengthen the municipal coffers with additional billion-dollar investments, which I think is reasonable, they should be included in the general state grant system and not come through by the municipalities tax-planning to get money from the state. At the same time, it then becomes an incentive to steer a development where one privatizes and corporatizes the core of the welfare activities. We should do something about this if we now have a common understanding that neutrality does not exist.
Statsrådet Erik Slottner (KD)
Madam Speaker! It is relatively common for the interpellator and the opposition to desire better answers from the government. It is a criticism we often have to receive in the interpellation debates, so I take it quite lightly.
Niklas Karlsson has asked me a question about when - if I remember correctly - the government is going to do something about this. In that case, I must still ask a counter-question. If the Social Democrats are now so eager regarding this - why did they do nothing during the eight years they held government power? An investigation was completed seven years before the change of government. Why are you rushing that this must happen now? You had the opportunity to do something until October 2022. I find that strange. I take the liberty of asking that counter-question. Where does this sudden eagerness come from when one was completely passive for seven years?
The flat-rate compensation of 6 percent that exists now seems to overcompensate certain activities and undercompensate other activities, according to what the investigation shows. In the eagerness not to overcompensate, we must be careful and not reduce the flat-rate compensation so much that it becomes a disadvantage for private operators and a competitive advantage to conduct activities in municipal form.
If one were to lower the standard deduction from 6 to 5 percent, my impression is that it corresponds to 1.3 billion kronor that would then be withdrawn from the municipal sector. It is clear that 1.3 billion kronor are not huge sums if one looks at how much municipalities and regions turn over in total. But it would still mean a reduction of 1.3 billion kronor to the municipal sector, which of course can risk having consequences for welfare. Therefore, I think one must not rush forward in this.
I say again that I am not closing any door to review this issue again. We do have a common understanding that competition neutrality should prevail between private and public ownership. I welcome that the Social Democrats now also stand behind this. It has been a bit hit and miss around the country and there have been tendencies in many left-led municipalities to rather overcompensate municipal activities in relation to private ones. I think that is unfortunate. If we can have a common view that there should be competition neutrality between the private and municipal sector, I welcome that announcement.
Niklas Karlsson (S)
Madam Speaker! It is naturally the case that when we now have the system of market logic and allow corporatization and privatization even in public welfare production, neutrality must prevail. It is clear that we have a common view, but it must be neutral on both sides. There should be no advantages for either the private or the public sector. There are such advantages today, and it is a concern because one receives an overcompensation that we need to rectify.
Madam Speaker! I think the Minister should read the interpellation again, for the memory is obviously short and faulty. I did not ask when measures are intended to be taken, but which ones. The only answer I get is that one is following the issue but otherwise is not prepared to do anything, even though one realizes that the data that exists is old and needs to be updated before one can take the next step.
That the Social Democratic government did nothing is a truth with qualifications. One had an investigation that became a referral to the Council of Legislation but which never became a government bill, but only a regulatory change. So, something did happen. In hindsight, I can state that more should have been done of it.
I am not out to nail the bourgeois government - at least not in this issue because we have a common understanding. The Minister should therefore be more humble and say that we can do something together. I am extending a hand. I think the Minister and the government should take it, not engage in attacks as the best defense and raise the tone when one stands completely naked in the political debate.
Here we can do things together, and we can do them better. Let us do that! The Minister can respond with a short "of course" in his post.
Statsrådet Erik Slottner (KD)
Madam Speaker! I appreciate that the opposition suggests what I should say in my final contribution, but I will be a bit more multifaceted than that. I apologize – there is a lot in my head. It was not asked about when, but about what measures the minister intends to take.
I gladly accept an outstretched hand. I apologize if I am too polemical in this debate. That was not exactly the intention, but sometimes one can also have a bit of punch in this speaker's chair.
I do not want to build up any unnecessary polemic in this issue. It is very good if we agree on the basic assumptions that there should be competition neutrality between privately and publicly run operations.
As far as I know, nothing has happened in the last year, that is, during the time I have sat as Minister with responsibility for these issues, that would justify us making a change now that could not as easily have been made during the previous mandate period. I was just looking to get an answer to a serious counter-question about why nothing was done with the investigation that came out. It was just a question in the context of that one had so many years to do this.
I can promise that we will continue to follow the issue. If we judge that measures need to be taken, we can contact the Social Democrats and agree on this together. There shall be competition neutrality between private and municipal providers.
This is also an appeal to the municipal politicians in the 290 municipalities, regardless of government, to treat public and private management in the same way. There, it actually falters a bit from time to time. I can say that from my own experience.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.