Unintended Consequences

There's an expectation among many Norwegians that the state should not only provide them with services, but also make sure that no-one gets filthy rich. This idea springs out of the fact that the Norwegian state has amassed a substantial fortune from taxing oil producers, and the myth that Norway never housed filthy rich people. People see the state as their benevolent parent, who's job it is to feed them and also make sure that no-one gets more ice-cream than their fair share.

This has ushered in a host of politicians eager to do what is demanded of them, and the Norwegian state is now taxing the rich to such an extent that many see themselves forced to leave the country. As of late, there's been something of an exodus of rich people leaving Norway for less hostile grounds.

Having left Norway some sixteen years ago for various reasons, including economic ones, I can relate to what's going on. I can also see how this will in fact produce the very opposite effect as what was intended.

I have an eleven year old son here in Portugal whom I've never registered with the Norwegian state. He's only registered with the Portuguese state where tax conditions are less hostile to rich people. My thinking when my son was born was that he can always be registered in Norway at some future date if it should turn out to be beneficial. There was no need to rush anything, and as it turned out, this is now in his favour.

Anyone in Norway with above average wealth is being targeted with extra taxes, and this is no doubt one of the reasons my cousin has decided to sell his shares in our family company. However, every potential buyer of his shares is also being squeezed. There are few buyers, so my cousin has to accept a low price on his shares.

My son, who's not subject to Norwegian taxation, stands therefore at an advantage relative to the rest of my family. He can scoop up cheap shares without having to worry about excess taxation. But the benefit to my son doesn't stop at this. He'll also earn more on the shares than the rest of my family because Norway taxes dividend payments higher than Portugal.

Every owner of my family's company, with the exception of my son in Portugal, is pressured into paying more taxes. Every Norwegian owner of competing businesses are also pressured. This means that Norwegian shareholders are in need of extra revenues to pay their taxes, and the most straight forward way to get hold of such revenues is to rise the prices of their products and services.

Shareholders all over Norway are now demanding higher prices on everything their businesses produce, and with no competitor able to avoid this pressure, prices will rise. The tax-burden that was put on the shoulders of the rich will thus be sent onto the consumer in the form of higher prices. It is the consumer that has to shoulder the taxes that were designed to make the rich less rich.

No-one but the state gets any richer by taxing the rich. While the rich will feel some initial pain, as is the case with my cousin, the tax burden is quickly diverted to the consumer. I.e. it's the average guy in the street that ultimately picks up the bill. However, one group of shareholders will in fact benefit from higher taxes on the rich. That's the ones paying their taxes to states with favourable tax rules, and my son in Portugal is an example of this.

When prices go up in Norway so that shareholders can pay their extra taxes, every shareholder gets higher dividend pay outs. That includes shareholders who don't pay taxes to Norway. Consumers in Norway are in this way going to contribute to a wealth divide in which they have to pay more for goods and services, while shareholders outside Norway get to retain more money for themselves.

Norwegians will have to work harder and longer in order to pay for expenses heaped upon them by the state. But large chunks of this extra money will go out of the country, and foreign owners of Norwegian companies will in this way become richer at the expense of hard working Norwegians.

The irony in this is that the tax regime that was implemented for the express purpose of transferring wealth from the rich to the poor is going to do the exact opposite.

Waiting for my son's dividend pay out