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Bankruptcies in the construction industry is blamed on government’s tax relief



  

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Thursday, 14 July 2011
The Swedish economy is performing well and bankruptcies in companies are falling, but not in the construction sector, which will see increased bankruptcies, according to business and credit information company UC.

The reason for this situation is being blamed on tax relief the government gave out. This is because private persons are ordering more jobs now than they did before. When the tax relief for home maintenance was introduced some tow years ago with the aim of increasing the construction industry’s activities during the financial crisis period, it worked.

The customer only had to pay half the cost of labour, as the rates were lower and the earned income tax yielded many savings for households.

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Most companies got plenty of renovation jobs and had to employ new people. But what they failed to notice was that the industry was having growing pains, which is it was difficult to get paid for the job they performed. They wend out of money for wages and materials. This problem had long been prevalent in the construction industry, according to trade association.

This means that in almost every case, invoices were paid late according to players in the sector.
People could not be forced to pay but they could only be asked when they could afford to pay.
But because of the tax relief, many   construction companies had expanded, perhaps too quickly, and the number of newly established construction company had grown exponentially.

Another thing is it had become more common to employ with cheap, foreign labour which had also driven down prices. Therefore with the increased competition the industry started feeling the consequences of tax relief. The bankruptcies started being filed in.

At this moment, it is boom time in Sweden and business bankruptcies generally has decreased but the opposite is happening in the construction sector. Data from UC shows that just over 500 construction companies have gone bankrupt this spring, an increase of eleven percent over the same period last year.
 
But John Deremar, an economist at the Swedish Construction Federation, believes that the market has now stabilized and that the development has its advantages.

“It's the rogue companies which have first been knocked out of this sector and the rest are showing sound development in this case.”
By Scancomark.se Team


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