Taxing plan for Swedish media

SBHD: By considering taxation of TV and radio advertising, Sweden is in danger of sacrificing long-term economic growth for a short-term fundraising `fix’

In its search for new ways to reduce the 1995 budget deficit, the Swedish parliament is considering proposals to impose an 11 per cent tax on television and radio advertising spots.

Such a move, threatened by the ruling SDP party, could damage Sweden’s chances of achieving long-term productivity growth and restoring a strong and competitive economy. It also sends out a warning signal to other countries where advertising is seen as a soft tax target.

Because it is such a young in-dustry, Sweden’s private TV sector is enjoying a period of dramatic expansion. Together with radio it is generating about SKr2bn (£170.9m) per annum in advertising revenue, and this figure is expected to double during the next three years. By imposing an advertising tax, the state believes it could raise SKr 220m (£18.8m) a year without further alienating a population already burdened by personal taxation.

Sweden has suffered heavily from the combined effects of slow growth and its famed commitment to social welfare. Many believe the country’s problems need to be addressed via measures designed to grow the economy rather than stifle it further.

Advertising is one of the tools to help achieve this growth. It is recognised as a prime catalyst for competition, driving production and helping to build market share locally and internationally. Moreover, revenue from advertising provides a vital means of financing news, public service and other programming.

Attempts to tax advertising are not peculiar to Sweden. Even in the US, where for many decades the communications industry has played a vital part in building some of the greatest brands and companies in the world, there is talk of removing advertising’s status as a tax-deductible business expense, as well as imposing direct taxation.

Many US business people quite rightly regard the proposal as irresponsible and short-sighted. In fact, they consider the preservation of a healthy communications in- dustry to be so important in boosting productivity and securing long-term economic growth that the prospect of its being undermined has provoked opposition from a coalition representing no less than 11 interested parties across the business spectrum.

The lesson to be learnt from the Swedish and US proposals is particularly relevant as advertising in Europe comes under increasing scrutiny from national and EU legislators. Taxing advertising is like singling out a company’s salesforce for the imposition of special taxes. The extra burden weakens the company making it less efficient and less competitive.

National prosperity will never be achieved by short-term fundraising measures, however politically attractive these may be. It must be won through sustained productivity and long-term economic growth achieved not by penalising business, but by encouraging it.

John Shannon is president of Grey International.