Norway in Reverse Gear

Ricardo Gurgel
há 3 minutos
9 min de leitura

A photo of the problem before the explanations!!!

Loss of tax revenue in the FIRST YEAR

An analysis found in economic sources and cited in international discussions suggests that:

The increase in the wealth tax in 2022 was projected to generate an additional approximately US dollars 146 million in revenue in the first year.

However, due to the departure of wealthy taxpayers and the reduction of the tax base, actual revenue fell by about US dollars 594 million compared to what had initially been expected.

This implies a difference of approximately US dollars 740 million between the expected gain and the actual result in the short term.

There is a chronic economic error that repeats itself throughout the history of public policy: evaluating measures by their declared intentions rather than by the real effects they produce. This error is particularly common in well intentioned tax policies, in which the debate focuses on moral values, justice, equity and solidarity, while ignoring the concrete functioning of incentives, expectations and human behavior.

Economics, however, does not operate in the realm of intentions. It operates in the realm of incentives, constraints and rational choices under risk. A policy is not good because it intends to reduce inequality. It can only be considered successful if it actually reduces inequality without destroying the mechanisms that generate wealth, employment and future tax revenue. When this distinction is ignored, the result is usually predictable: policies that are morally satisfying in rhetoric and economically destructive in practice.

The recent case of Norway fits exactly into this pattern. The measures adopted, the tightening of the wealth tax and the introduction of an exit tax on unrealized gains, were justified by clear and publicly defensible intentions: fighting inequality, preventing tax avoidance and ensuring that the wealthiest pay their fair share. The problem is not the intentions. The problem lies in the mismatch between those intentions and the inevitable behavioral effects that such measures produce in a world of high mobility of capital and people.

By taxing productive wealth and, above all, by penalizing exit based on gains that have not yet been realized, the state profoundly alters the intertemporal calculation of entrepreneurs, investors and company founders. The relevant decision ceases to be how much tax to pay and becomes where to create wealth or whether it is worth creating it at all. This is the point at which the policy ceases to be distributive and becomes expulsive, not because of ideology, but because of economic mechanics.

Economic history shows that good results rarely arise from good intentions unsupported by sound theory. Evaluating policies solely by their declared purpose is equivalent to judging a medicine by its label rather than by its side effects. And when side effects appear early, are persistent and affect future decisions, as is already the case in Norway, the diagnosis becomes even clearer: the error is not incidental, it is structural.

This type of policy tends to produce a classic paradox. In the short term, it offers moral satisfaction and apparent fiscal gains. In the medium and long term, it reduces the productive base, displaces talent, accelerates the migration of wealth and impoverishes the very system it was meant to strengthen. When this happens, correction usually comes too late, not because warnings were lacking, but because the policy was judged by what it was meant to do rather than by what it actually does.

Norway, precisely because it is a wealthy country with strong institutions and a highly educated population, may end up becoming a global teaching case of this recurring error. Not as an example of bad intentions, but as a demonstration that in economics, intention is not outcome, and ignoring that difference carries a high, cumulative and unavoidable cost.

The population realizes it

In a short time, the population itself begins to realize, through everyday experience, that the losses far exceed the promised gains. This is a decisive moment, because it marks the transition from abstract debate to lived reality. When this happens, policy stops being judged by slogans and starts being evaluated by tangible consequences.

In the case of Norway, this process is particularly fast because the effects are not confined to the very wealthy, as the initial narrative suggested. They spread throughout the economic fabric: fewer investments, fewer startups, lower business dynamism, decisions being postponed or moved abroad. The average citizen may not follow fiscal balance sheets, but notices when opportunities shrink, when projects do not materialize and when growth loses momentum.

The central promise of these measures was simple and appealing: more revenue, more justice, no relevant cost to society at large. Practical experience, however, begins to tell a different story. The additional revenue proves limited, while the negative effects, even if diffuse, accumulate persistently. The population begins to notice that the new money does not appear with the advertised strength, while the economic cost, although silent, becomes increasingly present.

This moment is crucial because it breaks the moral shield around the policy. While negative effects remain theoretical, any criticism can be dismissed as a defense of privilege. When the effects are felt in the pace of the economy, in the labor market, in innovation and in future prospects, criticism ceases to be ideological and becomes empirical. The tone of the debate changes. The question is no longer whether the intention was fair, but whether the result is worth the price paid.

Historically, this is how policies of this kind begin to lose support, not through a sudden change in values, but through practical learning. The population discovers that the equation sold as collective gain at no cost does not add up. What seemed like a targeted correction reveals itself as a structural disincentive, and what was presented as a solution comes to be seen as part of the problem.

In summary, when reality asserts itself, public perception tends to converge on a simple and powerful conclusion: the promised gains were modest and immediate, while the losses are broad, cumulative and long lasting. And once this realization becomes rooted in everyday experience, the policy ceases to be defended with conviction and is tolerated only out of inertia, until revision becomes inevitable.

Severe losses where extraordinary gains were expected

1. Direct loss of tax revenue immediate effect

When an individual of extremely high net worth leaves the country, the following are lost:

Annual wealth tax
Future income tax
Dividend tax
Indirect taxes related to consumption, services and local investment

Internal fiscal studies and independent estimates indicate that the departure of just a few dozen ultra wealthy individuals can eliminate hundreds of millions of euros in future tax revenue.

The paradox is clear:

Higher tax rates lead to a smaller tax baseThe tax ends up being applied to fewer people

2. The broken pipeline effect an invisible but larger loss

This is the greatest loss and the least measured one.

What ceases to exist:

Startups that are never founded in the country
Companies that are born offshore from the outset
Founders who move abroad before valuation increases
Holding structures and intellectual property registered elsewhere
Each startup that does not emerge implies:
Zero future tax revenue
Zero skilled jobs
Zero local innovation
Zero multiplier effect

3. Fewer exits public offerings and local reinvestment

Successful entrepreneurs tend to:

Reinvest in new ventures
Act as angel investors
Finance local ecosystems

With the exit tax:

Exits are delayed avoided or carried out abroad
Public offerings migrate to other jurisdictions
Capital does not return to the local cycle

The result is:

Less dynamism
Fewer second generation companies
Lower density of entrepreneurial capital

4. Fiscal reputation cost signaling effect

Markets operate on expectations.

Over time, Norway comes to be perceived as:

A country with high ex post regulatory risk
An environment where success triggers retroactive penalties
A jurisdiction with low predictability for founders

This fiscal risk premium:

Drives away international capital
Raises financing costsReduces valuations of local companies
This cost does not appear in the budget, but it appears in slower growth.

5. Counterfactual comparison what could have been collected

Economists work with counterfactual scenarios. In simplified terms:

If a significant share of these individuals had remained:

Paying taxes on income and realized gains
Reinvesting locally
Keeping companies and intellectual property in the country
The accumulated tax revenue over twenty to thirty years would likely have been higher than that obtained through:
An annual wealth tax
A one time exit tax
Taxing the flow of success generates more revenue than taxing the stock of potential.

6. The aggregate result over time

Over one or two decades, the damage manifests itself as:

Lower economic growth

A less vibrant entrepreneurial ecosystem
Permanent talent outflows
Structurally lower tax revenue
Greater reliance on taxes on the middle class and consumption

Structure of taxation on the wealthy in Norway

Norway taxes not only income and capital gains, but also the stock of accumulated wealth, which is relatively rare among developed countries.

Main characteristics:

A wealth tax applied to both liquid and illiquid assets such as shares real estate and business holdingsA total rate of around one percent per year combining national and municipal taxesTaxation applies regardless of whether the assets generate income in the periodIn 2022 and 2023 the government increased the effective burden on large fortunes by raising taxes on shares and reducing valuation discounts

Practical consequences

For business owners and investors:

The tax must be paid even in years of lossesIt often requires selling assets or withdrawing capital from companies to pay the taxIt heavily penalizes those who hold productive but illiquid wealth

The reaction flight of the wealthy to Switzerland

In this environment, hundreds of Norwegian millionaires and billionaires have moved their tax residence to Switzerland in recent years.

Why Switzerland:

No national wealth tax comparable to Norway
Cantons with negotiated taxation regimes for wealthy foreigners
Legal stability regulatory predictability and asset protection
Low taxation on private capital gains
An explicitly pro investment and pro entrepreneurship environment

In practice, many of these taxpayers continue to operate global companies but pay taxes in more competitive jurisdictions.

Fiscal and economic impact on Norway

This movement has generated a paradoxical effect:

Loss of tax revenue as the departure of a small number of extremely wealthy individuals eliminates revenue far greater than the gain from higher rates
Erosion of the future tax base especially on investments and dividends
A negative signal for entrepreneurship particularly for founders in technology industry and energy
Indirect reduction in employment innovation and local reinvestment
Internal studies and independent analyses indicate that in several cases
Norway ended up collecting less, not more, after the tax tightening.

Effects of the exit tax

1. Startups operate on optionality not liquidity

Those who create startups typically:

Accept low salaries for years
Accumulate illiquid wealth such as shares quotas and stock options
Only realize gains in the future if and when an exit public offering or partial sale occurs
An exit tax on unrealized gains breaks this logic because it:
Turns a potential gain into a concrete tax liability
Introduces fiscal risk before liquidity exists
Creates the perception that the state becomes a partner without sharing risk
Entrepreneurs internalize this tax risk at the very beginning of the decision to start a business.

2. The psychological effect precedes the fiscal effect

Even if the tax is only collected upon exit, it creates a key perception:

If I succeed here leaving later will be expensive

This produces two rational behaviors:

Not starting
Highly mobile entrepreneurs may:
Incorporate the company elsewhere from the outset
Use foreign holding structuresRegister intellectual property abroad
Leaving too early

Others choose to:

Move abroad before the company scalesTransfer tax residence before significant valuation increases
Plan growth outside Norway

In both cases the country loses:

Companies
Skilled jobs
Decision centers
Future tax base

3. Exit tax changes the intertemporal calculation

From an economic perspective the exit tax:

Reduces the expected value of success
Increases the marginal cost of growth
Disproportionately penalizes those who create value from scratch

This differs from taxing income:

Income is a flowExit tax applies to an uncertain future stock
For startups this is equivalent to saying:
If it works you pay before you receive

4. Implicit comparison with competing countries

Entrepreneurs do not choose countries based on ideology, but on predictability and risk symmetry.

When comparing:

Country A high taxes plus exit tax
Country B lower taxes plus neutrality on exit

The incentive is clear:

Take risks where upside is not retroactively penalized
This is why countries such as Switzerland Estonia the United Kingdom under certain regimes and even Portugal in recent periods have become hubs for founders, not because they are tax havens, but because they do not punish future success.

5. The paradox protecting revenue today losing it tomorrow

The exit tax is introduced with the goal of:

Protecting the tax basePreventing large fortunes from escaping

In practice it can: