One of the ways of redistributing wealth or income in a country is through taxation. Most countries have a progressive taxation system where a higher rate of tax is paid by the richest in society and the money raised can be used to fund public services for lower-income groups.

The Norwegian government has looked to take income distribution further by introducing a wealth tax.  Norway levies a tax of 1% on a household’s assets with a value of above $326,000 ($163,000 for an individual). There is also a higher wealth tax of 0.4% (this was increased from 0.1% last November) on households with assets valued at over $1.9 million. This is a progressive tax so we can look at how it might affect two households:

Household 1 has wealth of $500,000 they will pay:

$500,000 - $326,000 = $174,000

$174,000 x 0.01 = $1,740 (wealth tax paid)

Household 2 has a wealth $2,200,000 million will pay:

$1,900,000 - $326,000 = $1,899,674

$1,899,674 x 0.01 = $18,996.74

$2,200,000 - $1,900,000 = $300,000

$300,000 x 0.004 = $1200

$18,996.74 + $1,200 = $20,196.74 (wealth tax paid)

Norway’s wealth tax has to be paid by households on top of other forms of direct and indirect tax. The increase in the rate of wealth tax on households with assets worth more than $1.9m has a significant effect on Norway’s super-rich.

Over 30 Norwegian billionaires and multimillionaires left the country last year.  This is more than the total number of high-net-worth people who left the country in the proceeding 13 years. More wealthy people are expected to leave this year and the wealth tax increase is seen as a major influence on this.

This represents challenges for the Norwegian government and other governments looking to use a wealth tax as a way of redistributing income. As rich people leave Norway, they are no longer a source of tax revenue and there is a loss of talent capable of generating future economic growth and tax revenues in the future.

Another problem with the wealth tax is that the ultra-rich multimillionaires and billionaires that governments would really like to target but they are often the most mobile globally and can avoid the wealth tax and it tends to fall more heavily on the moderately well-off.

Possible points to discuss with a class

1. What do you understand by wealth?
2. Why might it be better to tax wealth rather than income to reduce income inequality?
3. What are the problems of Norway using a wealth tax to reduce income inequality?
4. Discuss other ways of reducing income inequality other than taxation.