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Nordic TJN and the Nordic Tax Model

Nordic TJN and Nordic Tax Model

Tax avoidance, tax evasion and harmful tax competition are global threats that require innovative, fair and democratic solutions. We are a non-aligned coalition of activists and researchers who see the Nordic tax model as an innovative tool for coping with risks and challenges of the increasingly globalising world economy.

Tax systems based on progressive taxation, transparency, good governance and high quality of public services have created equity, stability and security in Nordic countries. The universalistic welfare states have also helped to create some of the world's most competitive economies. This has resulted from high levels of education, functioning infrastructure and peaceful social conditions, all financed with help of the Nordic tax model.

Today, the Nordic tax model is unfortunately threatened from several directions. Harmful tax competition has affected some decisions to roll back scope of the progressive taxation in Nordic countries. Increasingly globalised tax avoidance and tax evasion industry, on the other hand, are eroding tax bases, creating new kinds of risks and causing social conflicts.

We want to promote the Nordic tax model with focus on these new, global challenges. We believe that the Nordic tax model can contribute to creation of innovative solutions of global governance. Progressive taxation, good governance and transparency create conditions for tax systems that are equitable and democratic. Today the only way to achieve such principles is through global coordination. Nordic Tax Justice Network aims at enhancing Nordic co-operation and activating Nordic governments to push forward these initiatives in all international contexts.

Our work consists of campaigning, networking and research. In addition, we want to spread information about the Nordic tax model and the threats imposed by use of harmful tax practices.

NTJN considers following as essential parts of Nordic tax justice:

  • » tax revenues are used financing democratically defined high quality public goods, including social security, social protection and public services
  • » taxation is a vital part of institutionalised solidarity (i.e. one acts socially just when paying one's taxes, and, solidarity is not just a matter of personal charity but of institutional design)
  • » taxation systems are very transparent, automated and easily comprehensible
  • » tax avoidance is generally non-acceptable and considered irresponsible
  • » taxation is not an obstacle to sound economic policies, but it effectively redistributes the gains of economic success to everyone
  • » regressive tax rates are non-acceptable whereas income tax rates should be progressive

To strengthen this, NTJN suggests:
  • » tax avoidance should be tackled by promoting better automated international cross-border systems of exchanging information between authorities, and by giving up harmful bank secrecies (i.e. not bank confidentiality) and other secretive legislations
  • » common Nordic action against all tax haven practices that play states off against each others
  • » public policies should be designed so that negative effects of tax competition would be minimised
  • » illegal tax evasion should be tackled with more strict punishments on economic crimes
  • » people with same incomes despite different income sources should be treated equally in respect of taxation
  • » the essence of Nordic welfare state and universalist social model should not be discarded but reinforced


When speaking of justice of national taxation model or a single tax, must one take into consideration four different aspects.

» financing public needs
» wealth distribution
» public preference and tax incentives
» international issues

In Nordic countries, public needs (or public goods) have been defined broadly including comprehensive universalist (i.e. citizenship-based with everybody pays, everybody gets -principle) social security and public services based on broad social rights. This model is financed through taxation - a relatively high level of taxation - which also means that taxes play an essential role in public policies. Public social security and services are besides being considered socially just also very cost-efficient. The distribution of tax burden has been considered more important than ia. the high level of taxation in the legitimacy of the system. Nordic model's legitimacy is also based on broad tax base, which means that taxes are collected from many activities. Broad tax base ensures that tax policies can be designed well in advance.

Public needs are always primary and setting the context for other tax justice issues.

The ideals of Nordic public finance includes an ideal of income redistribution through progressive tax rates, which keeps income differencies low and makes common society-wide economic and political development possible. And of course, it promotes social cohesion that makes Nordic societies wealthy, stable and competitive.

Through taxation, a state can give incentives to promote some democratically recognized and accpeted activities, and curb harmful activities. For example, coprprate taxes are primarily collected after-profits so that taxation doesn't add to production costs. Tax incentive design is meant to strengthen vital economic activities. Design include from systemic characteristics to tax exemptions on investments and detrimental taxes on alcohol and cigarettes. Sound tax incentives have been an essential Nordic way of democratic governance.

Often incentives are considered in a negative way, ie. how taxation channels social actitivities towards harmful activities. Aggressive incentives have been seen essential for tax competition whilst the nature of incentives has often been discussed in a very narrow sense. Incentives affect decisions and their timing in different ways and only if they are well-designed and informed. Incentives are soft normative governance based on economic rationality, and they must always have some goals, either private or public.

For example trying to keep wealthy taxpayers in a country actually isn't a classic tax incentive but a part of much larger field of tax justice, i.e. international comparison of taxation schemes, where one must take public needs and goals always in consideration. Since 1990's the Nordic countries have constantly adjusted their taxation schemes mostly as an answer to international trends. International taxation issues vary quite significantly. States may try to lure investments, capital and workforce by taxation. On the other hand taxation schemes may be tailored so that they meet standards of international bodies such as European Union or OECD. Usually the international sphere is, however, connected with some kind of conceptions of competition and luring investments. It is about entrance and exit procedures, and about their incentives in broad sense including various economic and social factors. Nordic countries have not de facto applied tax competition as competitive strategy because thier competitive asset have been considered being in social model. Still international pressures in the era of open economy are used as most important arguments in every tax reform.

Besides this framework there are general tax justice principles such as comprehensiveness, transparency and taxpayer equality to mention some of these widely-known principles.

Tax justice models in the 21st century require taking all these features into account. For NTJN, the most important features to be noticed are international pressures towards uniform tax policies that don't necessarily correspond democratic conceptions of tax justice. This is why the features should be always reclfected in a global scale.

When looking tax justice at global level, the most important features are

» absence of global public goods, but emergence of global development goals such as UN Millennium Development Goals
-> financing will not succeed unless tackling global tax avoidance problem and emergence of global taxes

» regressive redistribution of income
-> due capital flight enabled by tax havens financial flows are going from developing countries to developed
-> individuals have assets worth USD 11 trillion in tax havens outside redistribution

» tax incentives promote unproductive secondary economy
-> tax havens promote portfolio investments and speculation instead of productive economy and long-term investments
-> tax havens promote money-laundering which is essential for human and drug trafficking, illegal arms-trade and terrorism funding - activities that are considered harmful

» complete lack of transparency
-> there is no framework for binding agreements on information exchange or automation - no one really knows how much taxes are evaded or avoided and from which sources global assets come from

For Nordic Tax Justice Network the current state of global economy thus represents severe tax injustice.


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