Income comparisons in Sweden

In Sweden income studies concerning the farm population are very advanced, and the income objectives also make extensive examination concerning different population groups necessary. Income comparisons within the farm population are mainly based on the Taxation Statistics of Agriculture (Deklarationsundersökningen för jordbrukare, DU) (ANON. 1985a) and the Profitability Study of Agriculture (Jordbruksekonomiska undersökningen, JEU), in which concepts have been developed for examining real incomes as well, partly based on a study by ANDERSSON & BENGTSSON (1984).

In Sweden the tax bookkeeping of agriculture and forestry is based on performance, and the taxation of forest incomes is realized on the basis of the sales income. The tax stipulations in force in Sweden differ from those in Finland in several other respects, too. Among the most central income concepts in the Taxation Statistics of Agriculture (DU) are net income and total income of agriculture and forestry, which includes, besides net income, primary and property incomes, too (ANON. 1989c, p. 83).

In recent years an attempt has been made to develop the Profitability Study of Agriculture (JEU) in order to account for the changes in the value of money by calculating, in addition to the traditional nominal result, a so called realized real result as well as real result that includes the unrealized value changes (ANON. 1984c, p. 29, 1989c, p. 31-40). The realized real result describes the income from the enterprise that a farmer can use for consumption and saving without changing the physical capacity and solidity of the enterprise. In the first phase of the calculation, incomes and costs, including depreciations, are taken into account at their current value. In calculating the realized real value, the changes in the value of only those products and goods sold or used during the accounting year are taken into consideration. In order to account for the decrease in the real value of debts due to inflation, a so called correction of the debt share, which describes the changes in the value of debts realized during the year, is made to the result of the first phase of the calculation.

The starting point for the correction of the debt share is the fact that, for the part of the use of resources financed by borrowed funds, real income can be calculated by means of costs determined according to their purchase price. Decrease in the real value of debts is included in farmers' income by taking into account the depreciations based on the purchase prices, instead of real depreciations. This kind of correction of the debt share is made in those enterprises in which debts exceed liquid assets. In enterprises in which liquid assets are greater than debts the decrease in the net liquid

assets caused by inflation is taken into account as a loss in the result of the enterprise.

In the case of real income, which describes the economic result on a more long-term basis, the value changes are calculated as the difference between the nominal value changes of the different property shares of the farm and the loss of the purchas-ing power of own capital. This calculation is also based on the retums and costs at their current value. The loss of the purchasing power is calculated by means of the change in the consumer price index from the value of own capital in the beginning of the year. Corresponding corrections conceming assets and debts are made by means of the respective indices. The changes in the real value calculated through this procedure vary from one year to another, depending on the effects of inflation on the different parts of the property. For the part of the real estates in agriculture, the value changes are calculated through sale price coefficients. The sale price coefficient (köpeskil-lingskoefficient) is calculated by the Central Statistical Office (Statistiska centralbyrån), and it refers to the relationship between the market values and tax values, which in this case is based on the sales of agricultural real estates, and for the part of which the variations in the price are balanced for the period of time corresponding to the owner- ship of the farm. Consequently, the changes in the value of assets depend a great deal on how accurate the indices and sale price coefficient are in the case of different farms and farm groups. Value changes, incomes and costs related to residential property are completely excluded from the calculations of the Profitability Study of Agriculture (JEU).

Nominal result as well as both real results indicate the compensation the farm family gets for its labor and own capital invested in agriculture. Nominal incomes have been clearly higher than the corresponding real results, due to, for example, the different basis for calculating depreciations and the differences in compensating for the labor of relatives and other assisting workers. Nominal result includes only real wage expenditure, but in the real result a calculatory compensation to the aforemen- tioned workers has been deducted as wage expenditure. When value changes are taken into account, the real results have come closer to the nominal result. For example, in 1987 on farms with 30-50 hectares arable land the average nominal income per farm was 77,900 kr, the realized real income 37,300 kr, and including the unrealized value changes 44,900 kr (ANON. 1989c, p. 38).

In Sweden an attempt has been made to base income comparisons between popula-tion groups on a definipopula-tion according to which the incomes in a certain period are the same as the consumption that can take place during the same period without any changes in the level of real assets. Consequently, an attempt has been made to take the

`Hicksian' starting points as well as the income concept known as Haig-Simons' one into account at the level of practice. The Committee for the Standard of Living (Lev- nadsstandardgruppen), which studied this matter at the beginning of the 1980s, pre-pared the foundations for these comparisons of real incomes, which have later on been made in the Committee for Follow-up of Incomes (Inkomstgruppen). Comparisons conceming real incomes have required developing the existing data. In addition to the economic resources, an attempt has been made to pay attention to other factors affect-ing the standard of livaffect-ing, too (ANON. 1983a, p. 7-8, 1985b).

The starting point for the income comparisons in Sweden is either nominal income or real income, depending on how the effects of inflation have been taken into consid-

eration. In calculating real income the incomes and costs have been evaluated at the price level of the time of the calculation, and the changes in the value of assets and debts due to inflation have been taken into account. The differences between nominal and real comparison incomes lie in calculating entrepreneurial income, capital income and income from residential property. Even if the calculation of nominal income is not in accordance with the aforementioned definition of income, it has been regarded as necessary because incomes in general (e.g. in taxation) are mostly understood as nominal income (ANON. 1983a, p. 16-17).

Income comparisons concerning farmers prepared by the Committee for the Stan-dard of Living are based on available income, according to the Income Distribution Statistics (Inkomstfördelningsundersökningen, HINK), which has been called the com-parison income. In the case of wage earners, available income indicates quite well the amount of money available for consumption and saving, which can in the short run be increased through borrowing, but which in the long run decreases by the correspond-ing amount when the interests and liquidations are taken into account. For entrepre-neurs the concept of available income does not have the same concrete significance, mainly as a result of depreciations and the relationship between the private household and the enterprise. In the case of the comparison incomes of farmers' households, additional corrections are necessary due to tax stipulations. Consequently, two sepa-rate comparison incomes are calculated for farmers, one as small-scale entrepreneurs and the other for comparisons concerning wage earners. The best indication of the consumption level of the farm population is the comparison income used in compari-sons between farmers and wage earners.

In calculating the real comparison income, the effects of inflation have been taken into account by adding the market value changes in the value of assets and debts to the nominal comparison income, and, in the case of farmers, by taking account of the difference between the depreciations determined by the repurchase price and the purchase price used in taxation. Because the value added of assets realized through sales is taxable income in Sweden, further corrections required by the tax stipulations are made to the comparison income that has been adjusted to inflation. Real income includes the possible changes in the value of assets, even if these are not sold or realized in any other way during the period under consideration, and in this case the value added is accounted for as savings. Consequently, the real result includes the share of the period under consideration in the long-term real result that, for example, in an agricultural enterprise, can be expected to accumulate during one generation of entrepreneurs. The value added to assets can be seen as increasing the risk security and financing capacity of the enterprise (ANON. 1983a, p.17).

1n the case of the farm population, most of the changes in the real value are related to the agricultural real estates and the debts of agriculture and forestry. Due to the lack of the necessary statistical data, it has been possible to examine the changes in the value of business capital only for farmers. On the other hand, the amount of assets wage earners have tied to business is very small, and most of the changes concern the value and debts of housing. In the last ten accounting years the average changes in the real values concerning assets and debts have been calculated on the basis of the changes in the sale price coefficients and consumer price indices prepared by the Central Statistical Office of Sweden (Statistiska centralbyrån). It has been noted that

the changes in the real value are very much dependent on the period of time used in the follow-up of the development of the real estate prices. It has been possible to estimate the assets and debts separately for each comparison group. However, in the case of small-scale entrepreneurs, it has not been possible to estimate the effects of tax stipulations on the result. Consequently, for their part it has been necessary to compare only nominal incomes in which the effects of tax stipulations have not been taken into account adequately (ANON. 1983a, p. 19-23, 1989c, p. 48-67).