Want your banks to fork out on the military budget? Ask Sweden how to

A military neutral Sweden is ramping up its military budget and is forcing banks to foot the country’s growing defense bill. After all it has created a good imaginary threat - Russia.

Swedish lawmakers ruled this week that the country desperately needs to boost military spending by 5 billion Swedish crowns (around US$509 million) in 2022. The expenses, however, will put little pressure on the state budget, as the country’s banks will be asked to pay to make the Swedish military’s dreams come true.

“The banks can be taxed more than they are today,” Finance Minister Magdalena Andersson said on Saturday as cited by media. “They also constitute a risk to the economy, so I think it’s reasonable that they contribute more.”

The minister did not elaborate how much the financial industry will have to contribute and how the tax would be structured. But she did say that no bank operating in Sweden, regardless of where they have their headquarters, can avoid the tax, according to Reuters. So, even if a bank relocates its main office, like the Nordic region’s biggest banking group, Nordea, recently did, it won’t be spared.

Andersson justified it in simple terms – the banks get state help during financial crises and the tax is a way to compensate for this government aide. And they also enjoy large profits and have benefited from corporate tax cuts in recent years, so it’s high time to pay up.

The minister has long advocated for introducing the tax on the banking sector, which has vocally criticized the proposal. The Swedish Bankers’ Association said the measure lacks a legitimate basis, and if implemented, would hit jobs and growth hardest, especially at a time when the economy is slowing.

But the timing may actually be perfect, as militarily-neutral Sweden (as the country positions itself) has recently vowed to increase defense spending. It is set to be 1.5 percent of GDP in 2025, up from the current one percent.

While Sweden does not directly say that the Russia is to blame for the increase, Stockholm has used Moscow before as a boogeyman, for example, to justify massive military drills.

The two countries have no land border, connected only across the Baltic Sea, but Moscow’s military drills in the region are always a subject for concern in Stockholm. All this despite the fact that Russia has not threatened Sweden or violated any treaties with the maneuvers.

Notably, Sweden has no objections when it comes to NATO’s build-up in the region, although the country is not a member of the alliance. 

“The Baltic region is now one of the primary points of friction between Russia and NATO,” the country’s national security strategy reads. It adds that while it is unlikely that Sweden will come under attack, the threat can “never be ruled out.” Russia is mentioned right in the next sentence, which says that its alleged “aggression” towards Ukraine “demonstrates that the risk of this has increased, including in our neighborhood.”

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