Confusion surrounds Social Democrats’ proposal for a new bank tax

The Social Democrats’ proposed bank tax is gaining momentum in Sweden’s election debate, but even the state-owned bank expected to play a central role does not know whether it would be covered.

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Swedish mortgage customers will get a refund.

The party says the measure would be a temporary tax on large banks’ excess profits, not on ordinary households. Its stated goal is to pressure banks to reduce borrowers’ interest costs. Social Democratic leader Magdalena Andersson rejected claims that customers would ultimately pay the tax, saying during an election debate in August: “Swedish mortgage customers will get a refund.”

The Moderates have reframed the proposal as a “mortgage tax,” arguing that a levy on banks’ interest profits would largely be passed on to mortgage borrowers. The Social Democrats have countered that position while also saying banks’ excess profits result from weak competition.

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We want to pressure the banks.

Important details remain unresolved. The proposal does not say which lenders would qualify as large banks or where the threshold would be set. SBAB press chief Catharina Henriksson said the bank could not determine which credit institutions would be affected because the tax’s design remains unknown. Other specialist mortgage lenders contacted by Svenska Dagbladet also could not say whether they would be covered.

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It is difficult to know which credit institutions will be covered, that is, affected by the tax, because we do not know how the tax will be designed.

SBAB would receive a special role as a price setter in the mortgage market and as a guarantee that the tax would not reach customers. The Social Democrats also want to lower the bank’s required return on equity. Göran Grén of the Confederation of Swedish Enterprise said that could be interpreted as a subsidy subject to EU state-aid rules, potentially prompting competitors to appeal to the European Commission. Economics professor Roine Vestman said that if banks have pricing power in an oligopolistic market, passing the cost to customers could become even more likely.

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If one assumes that these actors have pricing power, meaning they operate in an oligopolistic market with weak competition, then it is even more likely that the cost will actually be passed on to the customer.