There is a country that is a model for tax reform in Canada, a country that has galvanized growth by slashing corporate taxes and eliminating wealth and inheritance taxes, understanding the idea that notions of fairness can’t crowd out the imperative of economic expansion.
That country is Sweden. Canadians might think of Sweden as a progressive bastion, but more than three decades ago, the country broke with a highly interventionist approach that discouraged growth. The stage was set by the late 1980s: a real estate and financial bubble inflated by bad tax policy, surging unemployment, economic contraction, rising public debt, and a credit downgrade.
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It was a crisis that triggered a remarkable course correction, started by the left-leaning Social Democratic government in 1990, which embarked on a fundamental rethinking of taxation. With the 1991 election of the Moderate Party, Sweden’s first conservative-leaning government since 1930, that reform push accelerated: deregulation, privatization, fiscal discipline and, most important, more reductions in tax rates. Critically, that work continued even after the Social Democrats returned to power in 1994. And it was a Social Democratic government that scrapped Sweden’s inheritance tax, in 2004.
Voters queue at a polling station in Malmö, Sweden, to cast their ballots in the country's general election earlier this month. Sweden's centre-left Social Democrats won a narrow victory.JOHAN NILSSON/AFP/Getty Images
In this fall’s election, the Social Democrats campaigned on some relatively minor changes to how social programs are delivered. But there was no talk of scrapping the reforms of the last three decades.
Sweden is no low-tax haven – taxes as a percentage of gross domestic product are higher than in Canada – but the mix of revenue sources has changed dramatically, in recognition that in order to redistribute wealth, it must first be created.
Diverging fortunes
For decades, Sweden and Canada’s economic performance tracked relatively closely. As this first chart shows, Sweden had a slight edge on gross domestic product per capita, but the gap was not terribly large, and it was relatively stable. (The data are adjusted for inflation and pegged to constant U.S. dollars.)
That started to change in the mid-1990s, as Sweden’s fiscal, tax and regulatory reforms began to gain traction. Between 1991 and 2025, the gap between Canadian and Swedish GDP per capita more than doubled. Or, to put it another way, Canadian per capita GDP in 1991 was just under 90 per cent that of Sweden’s. By 2025, that proportion had fallen to 82.6 per cent, the biggest gap since 1960, excluding the economic maelstrom of 2020.
That measure is not perfect; currency fluctuations can distort the trend. But the currency distortion can be eliminated by measuring GDP on a purchasing power parity basis, which takes into account differing price levels between countries.
The same rough pattern holds when Canadian and Swedish per capita real GDP is measured on a PPP basis. Indeed, as this second chart shows, the acceleration of the Swedish economy away from Canada’s is even more pronounced.
In 1990, both countries were on roughly equal footing, with a GDP per capita of $40,475 in Canada and $40,199 in Sweden.
That $275 gap widened somewhat through the 1990s, in Canada’s favour. But in 2004, the balance tipped to Sweden. Since then, Canada has fallen further behind.
By 2025, Swedes’ GDP per capita (slightly lagging in 1990) was more than $5,700 higher than Canadians’. And that diverging trajectory of prosperity happened while Canada was enjoying a long run of oil-fuelled boom times in the early part of this century.
People enjoy a sunny summer day Stockholm. Sweden’s income inequality has remained lower than in Canada, even as its reforms increased growth in the economy and maintains social spending.Pavel Golovkin/The Associated Press
The reasons for an economic renaissance
What was responsible for this renaissance? The Swedish government’s economic reform program is notable for its sweep: regulations were slashed, publicly owned businesses were sold off, health and education services were reshaped, and tight fiscal rules were imposed. And there was broad tax reform, including reductions in personal income tax rates.
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And some taxes rose, most notably the value-added tax. The rate increased, but even more importantly, its reach through the economy was broadened, bringing in revenue that offset tax cuts. (Benefits for lower-income households were enhanced to offset the regressive effects of a higher consumption tax.)
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One reform stands out: a dramatic decrease in corporate tax rates. As this third chart shows, Sweden’s taxation of business income was punishingly high in the 1980s, peaking at 60.1 per cent in 1989, far higher than in Canada, where Brian Mulroney’s Progressive Conservative government had slashed rates as part of its suite of tax reform measures.
By 1994, Sweden’s rate had fallen by more than half.
Canada, too, reduced corporate tax rates early this century, briefly edging ahead of Sweden in 2012. But Sweden continued to move aggressively to reduce corporate taxation rates. By 2025, Sweden had opened up a substantial gap again.
A changing mix of taxes
Sweden is still a relatively high-tax country, although less so than before its major reforms were implemented. But those reforms did change the composition of the country’s revenue, tilting the mix toward consumption taxes, as this fourth chart shows.
Canada overall has a lower tax burden than Sweden, but this country depends much more heavily on the taxation of personal income and on corporate taxes. For 2023, both categories were well above the average of the member states of the Organization for Economic Co-operation and Development.
By contrast, Sweden depends far less on personal and corporate taxation, particularly the latter. Corporate taxes in Sweden account for just 8.5 per cent of revenue, well below Canada’s 13.8 per cent and the OECD average of 11.9 per cent.
What is much higher are consumption taxes, particularly the national value-added tax, which accounts for 21.6 per cent of Sweden’s revenue. In Canada, value-added tax revenue is just 13.8 per cent of the total, well below the OECD average of 20.5 per cent.
In short, Canada taxes success heavily and consumption lightly. In Sweden, the reverse is true.
Sweden and Canada’s economic performance has long tracked relatively closely. But between 1991 and 2025, the gap between Canadian and Swedish GDP per capita more than doubled, with Canada falling behind.PATRICK DOYLE/The Canadian Press
Equality and growth aren’t strangers
The debate over tax reform in Canada is often presented as a choice between cold-hearted efficiency and fair-minded compassion for the less fortunate. Sweden’s experience shows that for the false choice that it is.
The Gini coefficient is a common measure of income inequality: the closer that number is to 0, the more equal the income distribution in a society. As the coefficient approaches 1, income distribution becomes more and more unequal.
As this final chart shows, Sweden continues to turn in a better performance on that measure, despite its ambitious reforms.
To be sure, Sweden’s Gini coefficient has risen over time. Income inequality has grown, particularly between upper income workers and the lowest income group. (There’s less of a gap between high- and middle-income earners.)
And income inequality has fallen in Canada since 2013 (the first year for which there are data for both Sweden and this country.)
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Nevertheless, Sweden’s income inequality has remained lower than in Canada, even as its reforms increased growth in the economy. That fact reflects a choice. Sweden maintained its social spending (even while changing the delivery of those services to give the private sector a much expanded role).
And that choice underscores the lesson that Sweden can teach Canadians, one that should be the starting point of any discussion of tax reform in Canada: creating wealth creates choices for a society.