Philanthropy and Democracy / Philanthropy and the State / Philanthropy in Sweden

Public money for public causes and private money for private causes? A short history of tax incentives for charitable giving in Sweden

Editors’ Note: Continuing HistPhil’s forum on philanthropy in SwedenJohan Vamstad suggests that Swedes’ longstanding resistance to tax incentives for charitable giving is rooted in a particularly Swedish distinction between the public and the private.

Sweden is one of very few countries in the world that does not offer its citizens any tax incentives for charitable giving, something even the otherwise similar Nordic neighbors, Denmark, Norway and Finland, do. This seemingly obscure fact is actually a telling example of how Sweden views the relation between government and private philanthropy. At the core of the issue lies Swedes’ general understanding that the public good is served by the public sector. This is not to say that Swedes fail to appreciate good causes outside the realm of the public sector. Instead, they simply consider these to be private causes that consequently should be supported by private money. The Swedish government too plays a part in encouraging private charitable giving, though reflecting Swedes’ understanding that this is a form of private rather than public behavior, it does not extend monetary incentives. Instead the government routinely expresses support for civil society initiatives in the formal Government Policy Statements while state institutions such as the Royal Court and the Public Service Broadcasters support a wide range of charities. Whether or not to use tax incentives for charitable giving has been debated a long time in Sweden and the history of that debate provides a good illustration of what could be described as a traditional Swedish understanding of the boundaries between the public and the private.

Tax incentives were considered as early as 1956, as part of a wider overhaul of tax regulation. An appointed group of experts at the Ministry of Finance studied the issue and ultimately suggested against introducing tax deductions for charitable giving. Their reasoning was twofold: 1. It would go against the Swedish principle of direct taxation and create undue complexity in an otherwise clear and simple tax code and 2. The costs to the public would be difficult to estimate beforehand and the distribution of these public tax funds could be unjust or unfair. The last point is especially interesting because the tax experts argued that popular organizations would get a disproportionally large share of the tax funds while less popular organizations would get less. In their minds, this was no way to distribute public money because tax funds should serve the public good and the public good was defined in an informed, deliberative and democratic process, not by a popularity contest. Expressed differently, they feared that tax money would be spent according to the uninformed whims or quaint sentimentality of the public, and not the rational, pragmatic and fair process that the political system supposedly provided. The Government had of course no issue with private citizens helping people in need, supporting medical research, contributing to international aid or helping any other good cause. However, it concluded in 1956 that it just was not an acceptable rationale for public spending.

The 1956 decision at the Ministry of Finance might suggest that tax deductions long had been a foreign concept in Sweden. However, tax deductions for private donations had actually been tried earlier in the country and particularly in response to wartime emergencies during and after the Second World War. Though Sweden remained neutral during the war, it was mobilized by the European conflict.

During World War II, it was first possible in Sweden to deduct donations to the local air defense and later also to other branches of the military. The air defense especially relied on volunteers and private donations and it was in large part organized through local voluntary associations. Both private persons and businesses – not least insurance companies – gave money to these local air defense organizations, donations that were then deducted from their taxes. This arrangement was chiefly motivated by a serious shortage of air defenses in Sweden and the private initiatives were in this case viewed as serving a public and not only a private interest, although it clearly did both as donors paid for their own local defense. That private donors could be relieved of taxes for something so closely tied to government business like defense is perhaps not surprising. More surprising is the fact that Swedes could also deduct gifts to international aid in the years 1944 and 1945, a noted exception that was motivated by the extraordinarily great needs in war-torn Europe. The government also started promoting private giving through national fundraising campaigns in public radio directly after the war, specifically for the re-building of Western Europe.

Only ten years after the war, though, the official Swedish policy on private giving was that it was not a concern of the state. Since then, the issue has been debated on and off and some alterations in the tax rules have been made along the way. A 1970 government bill made it possible for businesses to deduct donations to research provided that they could show that the research would directly benefit the donating companies. A pharmaceutical company could for example deduct funding for university research if it stood to gain from the result of the research. Still today, the same logic applies to other forms of corporate sponsorships: Such costs are deductible if they provide the business with something of material value in return, and pure good-will is not considered to be of material value. Donations are only deductible if they can be considered business expenditure; or in other words, business interests justify tax exemptions while personal interests do not.

In the late 1970s, 1990s, and in 2012, several political attempts to introduce tax incentives for charitable giving were made, with some successes in this latter period. Then, the center-right government was actually successful in implementing limited deductions on donations. These tax incentives allowed Swedes to deduct individual donations over $25 but only for a total sum of $250 per year. The deduction was, however, scrapped by the returning Social Democratic and Green Party government in 2015. Minister of Finance of Magdalena Andersson described the deduction as “expensive and unnecessary” when presenting the 2016 state budget.

With or without tax incentives, it is true that Swedes still seem willing to make charitable donations to organizations. Social Democratic welfare states such as Sweden have, in fact, a higher frequency of giving than liberal or conservative welfare states and the average annual donations are higher than in countries such as Germany and France (Einolf 2017; Vamstad et al. 2018 (forthcoming); Wiepking and Handy 2015).

And yet this short history suggests that Swedes maintain a strong resistance to supporting tax incentives for giving. The consistency in their arguments over time also suggests a rather deep-rooted understanding of the relation between the public and the private in Sweden. The Social Democratic welfare state was formed around the idea of Folkhemmet, or “The People’s Home,” a concept by which government and the public sector was made to embody the will and the interest of the public. Private giving, in contrast, represents private interests, however worthy the cause. For many Swedes both past and present, the public interest is represented by government while the general public represents a collection of private interests. It remains to be seen whether or not this distinction between public and private will remain strong in the psyches of Swedes even as post-modern developments such as individualization and globalization test the ideological foundations of the welfare state. For now, however, charitable giving is still considered by Swedes—even by those who give—to be mostly a private matter unworthy of tax incentives.

-Johan Vamstad

Johan Vamstad is an Associate Professor of Political Science at Ersta Sköndal Bräcke University College in Stockholm, Sweden. He is part of a research group at that institution that performs recurring national surveys of volunteering and charitable giving in Sweden. His research interests include philanthropy and comparative welfare state studies.

References

Bevillningsutskottet BevU 1938:20. Stockholm: Sveriges Riksdag.

Einolf, C.J. 2017. “Cross-National Differences in Charitable Giving in the West and the World” in Voluntas, 28:2, 472-491.

Finansdepartementet 1970. Promemoria med förslag till bestämmelser om avdrag vid beskattningen av forskningsverksamhet – stencil Fi 1970:1. Stockholm: Finansdepartementet.

Trägårdh, L. and Vamstad, J. 2009. Att ge eller att beskattas – avdragsrätt för gåvor till ideell verksamhet i Sverige och andra länder. Stockholm: Sektor 3.

Vamstad, J., Sivesind, K.H. and T.P. Boje 2018. “Giving in Scandinavia” in Skov Henriksen, L., Strømsnes, K. and L. Svedberg Civic Engagement in Scandinavia (Forthcoming). 

 Vamstad, J. and von Essen, J. 2013. ”Charitable Giving in a Universal Welfare State – Charity and Social Rights in Sweden” in Nonprofit and Voluntary Sector Quarterly, 42(2), 285-301.

Wiepking, P. and Handy, F. 2015. The Palgrave Handbook of Global Philanthropy. London: Palgrave MacMillan.

 

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